# Amicus Curiae Brief — NationsBank of North Carolina, N. A. v. Variable Annuity Life Insurance

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Amicus Curiae Brief
- **Published:** January 1, 1994
- **Citation:** 511 U.S. 1141

## Text

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2 NATIONSBANK OF NORTH CAROLINA, N.A., et al.,
a “ Petitioners, %
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VARIABLE ANNUITY LIFE INSURANCE
COMPANY, et al., —

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Respondent.
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EUGENE A. LUDWIG, COMPTROLLER OF THE
CURRENCY, et al., ;
* Petitioners, |
VARIABLE ANNUITY LIFE INSURANCE

COMPANY, et al.,
Respondent.

¢

On Writ Of Certiorari
To The United States Court Of Appeals
For The Fifth Circuit
¢

BRIEF OF NATIONAL ASSOCIATION OF
INSURANCE COMMISSIONERS AS AMICUS CURIAE
IN SUPPORT OF RESPONDENT
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Susan E. Martin
Counsel of Record for
Amicus Curiae, In Support
Respondent
Dowiase Witcox

National Association of
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TABLE OF CONTENTS

Page
as da Wid eke seeo% 60650 ons t48 C0884 08 i
Ed eird discerned baisnsesieseancess ii
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Summary of the Argument ....................068. 2
MDE SER PETTY Ty Te EY TEC ET OPT EE TTT Tree 3

I. THE FIFTH CIRCUIT CORRECTLY HELD
THAT SECTION 92 OF THE NATIONAL
BANK ACT PROHIBITS NATIONAL BANKS
FROM SELLING INSURANCE IN CITIES
WITH MORE THAN 5,000 RESIDENTS...... 3

Il. ANNUITIES ARE INSURANCE PRODUCTS
WHICH MAY NOT BE SOLD BY NATIONAL
BANKS IN CITIES WITH MORE THAN 5,000
PE, San ORO Os Reece tedseredcesecescess 5

A. ANNUITIES ARE INSURANCE PROD-
UCTS REGULATED BY STATE INSUR-
ANCE DEPARTMENTS PURSUANT TO
STATE INSURANCE LAWS............. 5

B. ANNUITIES POSSESS REQUISITE CHAR-
ACTERISTICS OF INSURANCE PROD-
8 OFT TT CCL CTT TTT CC TERT TTT Tee 13

Il. THE DISTRICT COURT IMPROPERLY
DEFERRED TO THE COMPTROLLER’S DECI-
PEPE OCT TTT TTT TT TTT eT TTT TT TCT LET Tee 14

IV. BANK SALES OF ANNUITIES ARE NOT
INCIDENTAL BANK POWERS NECESSARY
TO CARRY ON THE BUSINESS OF BANKING
Peery Cee eve TT eT Ter TT UOT TTT CT Te TTT Tee 16

V. THE FIFTH CIRCUIT PROPERLY
REFRAINED FROM A GLASS-STEAGALL
ETS SEPP eee TCT eee eT TT eT eT ET 17

EG a RE ER ne aC ae or 18

il

TABLE OF AUTHORITIES

Page
Cases
American Land Title Association v. Clarke, 968 F.2d
150 (2d Cir.), cert. denied, 113 S.Ct. 2959 (1993)..... 4
BPS Guard Services, Inc. v. NLRB, 942 F.2d 519 (8th
oO | 16
Chevron U.S.A., Inc. v. Natural Resources Defense
Council, Inc., 467 U.S. 837, 104 S.Ct. 2778, 81 L.
ie” Ry er 2, 15
Group Life & Health Ins. Co. v. Royal Drug, 440 U.S.
205, 99 S.Ct. 1067, 59 L. Ed. 2d 261 (1979)...... 2, 13
Lechmere, Inc. v. NLRB, 112 S.Ct. 841, 117 L. Ed. 2d
7D CRODED 2... 0c cccnwccscecsenaenu sen uum ene 16
New York State Ass'n, of Life Underwriters v. New
York State Banking Dept., No. 38, 83 N.Y. 2d 353,
1994 N.Y. LEXIS 324 (Ct. App. N.Y., March 30,
BODE)... cc ccceccccsucsocccgnusneneeu een 14
Nicklos Drilling Co. v. Cowart, 927 F.2d 828 (5th Cir.
|) er 16
Presley v. Etowah County Commission, 112 S.Ct. 820,
ee ee BR 16
Saxon v. Georgia Association of Independent Insur-
ance Agents, 399 F.2d 1010 (5th Cir., 1968).......... 4

U.S. National Bank of Oregon v. Independent Insur-
ance Agents of America, 113 S.Ct. 2173, 124 L. Ed.
26 GBB CIDDG). 2. oc cccncvsccccscccesccunecnnee seem 3

VALIC v. Clarke, 998 F.2d 1295 (5th Cir., 1993),
rehearing denied, 13 F.3d 833 (5th Cir., 1994)
occccececsesscssseseenoesennenannnen 3, 4, 5, 11, 13, 16

VALIC v. Clarke, 786 F. Supp. 639 (S.D. TX,
Houston Dbv., BORE) ... ccccstccecevdécsanenneueen 3, 15

ill

TABLE OF AUTHORITIES - Continued

Page
STATUTES
Glass-Steagall Act, 12 U.S.C. §§ 347a, 347b, 412
ees ccc acccessccccececcccs 3, 17
McCarran-Ferguson Act, 15 U.S.C. §§ 1011, 1012
EEUU CES cece nencccccccccccesece » » & 8

National Bank Act, 12 U.S.C. § 24 (Seventh) (1994) passim
National Bank Act, 12 U.S.C. § 92 (1994)........ passim
TEX. INS. CODE § 1.01A(b) (NILS 1993)............. 1

TEX. INS. CODE §§ 22.23, 3.33, 3.42, 3.44c, 3.49-2,
I I is cece ccc cscs ccccccccccces 6

Citations Omitted for State Annuity Statutes and
Regulations; See Footnotes 1-7.................. 7-12

OrTHER AUTHORITIES
BLACK’S LAW DICTIONARY 59 (6th ed. 1990) ..... 14

BLACK’S LAW DICTIONARY 403 (6th ed. 1990) ..... 4

NAIC Model Laws, Regulations and Guidelines,
| 10

NAIC Model Laws, Regulations and Guidelines,
ae eee ee ee Oe Oem. (ISPS) ....... 2.22.0... .0000e, 10

NAIC Model Laws, Regulations and Guidelines,
Se 11

NAIC Model Laws, Regulations and Guidelines,
ae oe Oe aoe OF OOM. (IOPE) ... 2.2... cece cece ees 7

iv

TABLE OF AUTHORITIES - Continued

Page
NAIC Model Laws, Regulations and Guidelines,

Vol. II, p. 255 et seq. (1994) ......-- 0s eee e reece 11
NAIC Model Laws, Regulations and Guidelines,

Vol. II, p. 260 et seq. (1994) .....--- 602-0 eee e ees 8
NAIC Model Laws, Regulations and Guidelines,

Vol. IIL, p. 613 et seq. (1994). ....--- 6. cece eee eee: 11
NAIC Model Laws, Regulations and Guidelines,

Vol. IV, p. 805 et seq. (1994)......-- 0. eee e ee eee eee, 9
NAIC Model Laws, Regulations and Guidelines,

Vol. IV, p. 821 et seq. (1994)......-- 6. eee rere ees 11
NAIC Model Laws, Regulations and Guidelines,

Vol. IV, p. 825 et seq. (1994)... ..--- 6. eee eee eee: 11
NationsBank brief, S.Ct. (July 1994).......... 14, 16, 17
OCC brief, S.Ct. (July 1994)............5-- 5, 13, 14, 16
Op. OCC, unpublished (March 21, 1990) ...... 3, 15, 17

INTEREST OF AMICUS CURIAE

The National Association of Insurance Commission-
ers (NAIC) is a non-profit, unincorporated association of
the principal insurance regulatory officials of the 50
states, the District of Columbia, territories and insular
possessions of the United States. The NAIC is interested
in filing this brief in furtherance of its objectives to serve
the public by assisting the several state insurance regula-
tory officials in improving state regulation of the business
of insurance and promoting fair and equitable treatment
of insurance policyholders and claimants.

The Executive Committee of the NAIC, which con-
sists of seventeen insurance commissioners from all
regions of the country, voted to file a brief of Amicus
Curiae in this action, on behalf of the full NAIC member-
ship. The interest of the NAIC in filing this brief is based
on the commissioners’ collective interest in retaining reg-
ulatory authority over the sales of annuities.

The insurance commissioners have been charged by
the McCarran-Ferguson Act, 15 U.S.C. §§ 1011, 1012
(1994), and by their own state statutes. See, e.g., TEX. INS.
CODE § 1.01A(b) (NILS 1993) to regulate the business of
insurance. Accordingly, insurance commissioners have
consistently regulated:

e the life insurance companies that are licensed to sell
annuity products;

e the development and characteristics of annuity prod-
ucts; and

e the agents who sell annuity products.

The insurance commissioners respectfully encourage
this Court to affirm the decision of the Fifth Circuit,
VALIC v. Clarke, 998 F.2d 1295 (5th Cir., 1993), rehearing
denied, 13 F.3d 833 (5th Cir., 1994), so that the sale of
annuities will remain within the regulatory scope of
authority of the individual state insurance departments.
The NAIC believes that this would be in the best interest
of the public insurance consumers whom the regulators
are charged to protect.

SUMMARY OF THE ARGUMENT

The decision of the Fifth Circuit in VALIC, 998 F.2d
1295, should be affirmed because the Fifth Circuit cor-
rectly held that Section 92 of the National Bank Act, 12
U.S.C. § 92 (1994), prohibits national banks from selling
annuities in cities with more than 5,000 residents. The
Section 92 insurance prohibition clearly applies to annu-
ity sales because annuities are insurance products. Evi-
dence that annuities are insurance products is found in
the extensive compilation of insurance laws regulating
annuities as insurance products, as well as the fact that
annuities possess all requisite characteristics of insurance
products. See, Group Life & Health Ins. Co. v. Royal Drug,
440 U.S. 205, 211, 99 S.Ct. 1067, 1073, 59 L. Ed. 2d 261
(1979).

Both the district court and the Fifth Circuit consid-
ered Chevron U.S.A., Inc. v. Natural Resources Defense
Council, Inc., 467 U.S. 837, 104 S.Ct. 2778, 81 L. Ed. 2d 694
(1984) to determine whether it would be proper to defer
to the decision of the Office of the Comptroller of the

Currency (OCC), Op. OCC, unpublished (March 21,
1990), which allowed national banks to sell annuities in
cities of any size. However, the district court’s Chevron
analysis was faulty. VALIC v. Clarke, 786 F. Supp. 639 (S.D.
TX, Houston Div., 1991). Congress specified in Section 92
that bank sales of insurance should be limited to small
towns. Therefore, the OCC’s decision, and the district
court’s deference to that decision, frustrated Congres-
sional intent by authorizing national bank sales of annu-
ities in cities with more than 5,000 residents.

Although Petitioners argue that annuity sales were
incidental and necessary to the business of banking, Con-
gress has not specified this. See, 12 U.S.C. § 24 (Seventh)
(1994). Additionally, there is no evidence to support such
a claim.

Finally, Petitioner NationsBank argued that the Fifth
Circuit erred by failing to consider the Glass-Steagall Act,
12 U.S.C. §§ 347a, 347b, 412 (1994). That Act, however,
was never at issue in this case, because the OCC never
relied on it. Op. OCC (March 21, 1990).

+

ARGUMENT

I. THE FIFTH CIRCUIT CORRECTLY HELD THAT
SECTION 92 OF THE NATIONAL BANK ACT PRO-
HIBITS NATIONAL BANKS FROM SELLING
INSURANCE IN CITIES WITH MORE THAN 5,000
RESIDENTS

Section 92 of the National Bank Act, 12 U.S.C. § 92
(1994), was enacted in 1916 and its validity was recently
affirmed by this Court in U.S. National Bank of Oregon v.

Independent Insurance Agents of America, 113 S.Ct. 2173,
124 L. Ed. 2d 402 (1993). Section 92 grants national banks
authority to “act as the agent for any fire, life or other
insurance company .. . by soliciting and selling insurance
and collecting premiums on policies issued by” insurance
companies when the banks are “located and doing busi-
ness in any place the population of which does not
exceed five thousand inhabitants.” 12 U.S.C. § 92.

The Fifth Circuit relied on the plain language of
Section 92 to determine that it “explicitly authorizes
national banks in towns with a population smaller than
5,000 to act as insurance agents.” VALIC, 998 F.2d at 1298.
As the Fifth Circuit pointed out, its earlier decision in
Saxon v. Georgia Association of Independent Insurance
Agents, 399 F.2d 1010 (5th Cir., 1968) reached the same
conclusion by applying the canon of statutory construc-
tion expressio unius est exclusio alterius meaning that “the
expression of one thing is the exclusion of another.”
BLACK’S LAW DICTIONARY 403 (6th ed. 1990). Apply-
ing the same canon of statutory construction in this case,
the Fifth Circuit concluded that because Section 92 explic-
itly authorizes national banks to act as insurance agents
in towns of less than 5,000, insurance sales in towns of
more than 5,000 are prohibited. VALIC, 998 F.2d at 1298.

The Fifth Circuit noted that the Second Circuit fol-
lowed this reasoning in American Land Title Association v.
Clarke, 968 F.2d 150 (2d Cir.), cert. denied, 113 S.Ct. 2959
(1993). The Second Circuit reversed a Comptroller’s
directive that allowed national banks to act as title insur-
ance agents in towns of more than 5,000 residents. The
Second Circuit wrote: “had Congress intended to grant
national banks located in towns with a large population

the authority to sell insurance, it would never have lim-
ited the grant of authority in Section 92 to national banks
in locations with under 5,000 residents.” Id. at 155.

The Fifth Circuit’s decision is clearly based on sound
logic, accepted rules of statutory construction, and sup-
porting precedent. In fact, the Fifth Circuit cited several
other cases that relied on the same canon of statutory
construction. VALIC, 998 F.2d at 1298 (citations omitted).
Additionally, legislative history supports the Fifth Cir-
cuit’s holding that national banks may act as insurance
agents only in those towns with less than 5,000 residents.
VALIC, 998 F.2d at 1299.

Il. ANNUITIES ARE INSURANCE PRODUCTS
WHICH MAY NOT BE SOLD BY NATIONAL
BANKS IN CITIES WITH MORE THAN 5,000 RES-
IDENTS

A. ANNUITIES ARE INSURANCE PRODUCTS
REGULATED BY STATE INSURANCE
DEPARTMENTS PURSUANT TO STATE
INSURANCE LAWS

The OCC argued that it b=s “been charged by Con-
gress with the oversight and regulation of national
banks.” OCC brief, S.Ct., p. 13 (July 1994). Subsequent
language implies that this Court, therefore, should be
swayed to defer to the OCC’s letter ruling of March 21,
1990. Id. at 14. This argument ignores, however, well-
established rules of deference (See, § III. herein) as well as
the McCarran-Ferguson Act, 15 U.S.C. §§ 1011, 1012
(1994).

In 1945, Congress enacted the McCarran-Ferguson
Act which dictates that the business of insurance and

every person engaged therein shall be subject to the laws
of the several states which relate to the regulation or
taxation of such business. 15 U.S.C. § 1012. The declared
purpose of this Act indicated that Congress concluded
state regulation of the business of insurance was in the
public interest. 15 U.S.C. § 1011. The McCarran-Ferguson
Act authorized, and in fact required, the states to develop
a complete scheme of statutes and regulations which
would govern the underwriting, sales, claims, licensing,
and other aspects of insurance transactions. See, e.g., TEX.
INS. CODE §§ 22.23, 3.33, 3.42, 3.44c, 3.49-2, 21.27, 3.28
(NILS 1988). Many of the state laws controlling annuities
and the insurance companies that provide them, as well
as the insurance agents who sell them, are based on
NAIC model laws and regulations.

The NAIC has developed, over a period of many
years, a comprehensive scheme of model statutes and
model regulations to govern all lines and aspects of insur-
ance underwriting, sales, solvency, licensing, and opera-
tions. These laws and regulations were carefully
developed through a quasi-legislative process in a public
forum, by insurance regulators and their staffs. These
insurance experts, including attorneys, actuaries, rating
experts, economists, and insurance specialists
thoughtfully crafted the annuities statutes and regula-
tions to provide maximum protection and security for
purchasers of annuity contracts. The NAIC annuities
models include six model regulations, a buyer’s guide for
annuities, annuities mortality tables, reserve valuation
guidelines, and two statutes.

More specifically, the NAIC Model Variable Annuity
Regulation, NAIC Model Laws, Regulations and Guidelines,

Vol. Il, p. 250 et seq. (1994), provides requirements for:
the qualifications of insurance companies to issue vari-
able annuities; separate accounts for companies to issue
variable annuities; separate accounts for reserves for ben-
efits; filing of contracts; variable annuity contracts; non-
forfeiture benefits; required reports; foreign company
protections for policyholders; and qualifications of agents
for the sale of variable annuities. This model has been
adopted in substantial part by twenty-three states.! Four-
teen other states have adopted similar or related legisla-
tion or regulations.?

1 ALASKA ADMIN. CODE tit. 3 §§ 28.010 to 28.190 (1973)
(All variable contracts); ARK. INS. RULE & REG. 6 (1970); CAL.
ADMIN. CODE tit. 10 R. 2525 to 2533.1 (1972); COLO. ADMIN.
INS. REG. 4-1-1 (1994); DEL. INS. REG. 1 (1980) (All variable
contracts); GA. ADMIN. COMP. ch. 120-2-22 (1969); IDAHO
INS. REG. 16 [IDAPA 18.01.16] (1993) (All variable contracts);
IOWA ADMIN. CODE §§ 191-31.1 to 191-31.7 (1988); KAN.
ADMIN. REGS. §§ 40-15-1 to 40-15-8 (1986); 806 KY. ADMIN.
REG. § 15:010 (1984); LA. INS. REG. 28 (1969); MISS. INS. REG.
LA & H 78-2 (1978); MO. ADMIN. CODE tit. 20 § 400-1.020
(1985); N.C. ADMIN. CODE tit. 11 ch. 11(B) § .0302 to .0305
(1988); N.D. ADMIN. CODE §§ 45-04-02-01 to 45-04-02-08
(1986); OKLA. INS. REGS. §§ 365:10-9-10 to 365:10-9-18 (1969);
P.R.R. RULE XLV (1975); S.C. INS. R. 69-12 (Part A) (1988); S.D.
ADMIN. R. 20:06:07:01 to 20:06:07:08 (1986); TENN. ADMIN.
COMP. ch. 0780-1-17 (1978) (All variable contracts); VA. INS.
REG. 3 (Case No. INS18623) (1969); WIS. ADMIN. CODE § INS.
2.13 (1981) (All variable contracts); WYO. INS. REGS. ch. XVI.1
(1968).

2 D.C. R. & REGS. tit. 26 § 1004 (1961); FLA. ADMIN. CODE
§§ 4-10.001 to 4-10.017 (1974); ILL. ADMIN. REG. §§ 1451.10 to
1451.100 (1972) (Parts of model; applies to all variable con-
tracts); IND. ADMIN. tit. 760 R. 7 §§ 1-7-1 to 1-7-8 (1971); ME.
INS. REG. ch. 310 (1984); MD. ADMIN. CODE tit. 9 subtit. 30 ch.
42 §§ .01 to .09 (1988); MICH. ADMIN. CODE R. 500.621 to

Similarly, the Model Variable Contract Law, NAIC Model
Laws, Regulations and Guidelines, Vol. II, p. 260 et seq. (1994),
details the licensing requirements applied to domestic life
insurance companies which sell variable annuities. Section 4
of this model provides that the commissioner of insurance
shall have sole authority to regulate the issuance and sale of
variable contracts, and to issue such reasonable rules and
regulations as may be appropriate to carry out the purposes
and provisions of the Act. Thirty-four states have adopted
this model in substantial part*® and another seventeen states

500.629 (1978); MONT. CODE ANN. §§ 30-10-103 to 30-10-104
(1991); N.J. ADMIN. CODE §§ 11:4-1.1 to 11:4-1.5 (1959) (All
variable contracts); N.M. INS. REGS. §§ 13-1-1 to 13-1-9 (1958);
N.Y. ADMIN. CODE tit. 11 §§ 50.1 to 50.12 (Regulation 47)
(1971); PA. ADMIN. CODE tit. 31 §§ 85.01 to 85.40 (1981) (Parts
of model); TEX. ADMIN. CODE §§ 3.701 to 3.706 (1985); UTAH
INS. R590-133 (1989).

3 ALA. CODE §§ 27-38-1 to 27-38-6 (1986); ALASKA STAT.
§ 21.42.370 (1980); ARK. STAT. ANN. §§ 23-81-401 to 23-81-405
(1975); CAL. INS. CODE § 10506 (1984); COLO. REV. STAT.
§§ 10-7-402 to 10-7-405 (1977); CONN. GEN. STAT. § 38a-432
(1983); DEL. CODE ANN. tit. 18 § 2932; HAW. REV. STAT.
§ 431:10D-118 (1988); IDAHO CODE §§ 41-1936 to 41-1939
(1971); 215 ILL. COMP. STAT. 5/245.21 to 5/245.25 (1977); IOWA
CODE §§ 508A.1 to 508A.5 (1973); KY. REV. STAT. § 304.15-390
(1986); LA. REV. STAT. ANN. § 22:1500 (1976); ME. REV. STAT.
ANN. tit. 24-A § 2537 (1973); MISS. CODE ANN. §§ 83-7-27 to
83-7-49 (1978); MO. REV. STAT. § 376.309 (1983); MONT. CODE
ANN. §§ 33-20-601 to 33-20-606 (1989); NEV. REV. STAT.
§ 688A.390 (1971); N.M. STAT. ANN. § 59A-20-30 (1985); N.C.
GEN. STAT. § 58-7-95 (1979); N.D. CENT. CODE §§ 26.1-33-13 to
26.1-33-17 (1985); OKLA. STAT. tit. 36 § 6061 (1973); OR. REV.
STAT. §§ 733.220 to 733.230 (1973); 40 PA. CONS. STAT. § 506.2
(1974); R.I. GEN. LAWS §§ 27-32-1 to 27-32-9 (1977); $.C. CODE
ANN. §§ 38-67-10 to 38-67-50 (1988); S.D. CODIFIED LAWS
ANN. §§ 58-28-13 to 58-28-31 (1971); TENN. CODE ANN.

or territories have adopted related legislation or regulations.*
The model and the similar laws adopted by the individual
states are intended to apply to domestic life insurance com-
panies involved in the sale of variable annuities.

The Standard Non-Forfeiture Law for Individual
Deferred Annuities, NAIC Model Laws, Regulations and
Guidelines, Vol. IV, p. 805 et seq. (1994), governs such
specifics as non-forfeiture requirements, minimum
values, computation of present value of policies, calcula-
tion of cash surrender values, calculation of paid-up
annuity benefits, maturity date, disclosure of limited
death benefits, inclusion of lapse time considerations,
proration of values, and additional benefits. This model law
has been adopted in substantial part by forty-seven states,‘

§§ 56-3-501 to 56-3-509 (1970); TEX. INS. CODE ANN. art. 3.75
(1985); UTAH CODE ANN. §§ 31A-5-217.5 (1992); VT. STAT.
ANN. tit. 8 §§ 3855 to 3859 (1981); WASH. REV. CODE ANN.
§§ 48.18A.010 to 48.18A.900 (1983); W.VA. CODE §§ 33-13A-1 to
33-13A-5 (1977); WYO. STAT. § 26-16-502 (1983).

4 ARIZ. REV. STAT. ANN. § 20-651 (1982); D.C. CODE
ANN. § 35-639 (1981); FLA. STAT. §§ 627.801 to 627.807 (1982);
GA. CODE ANN. § 33-11-34 (1982); KAN. STAT. ANN. §§ 40-436
to 40-438 (1972); MD. ANN. CODE art. 48A § 362 (1973); MASS.
GEN. LAWS ch. 175 § 132F (1982); MICH. COMP. LAWS
§ 500.925 (1974); MINN. STAT. §§ 61A.13 to 61A.21 (1978); NEB.
REV. STAT. §§ 44-2201 to 44-2221 (1969); N.H. REV. STAT. ANN.
§§ 408:23 to 408:34 (1977); N.J. REV. STAT. §§ 17B:28-1 to
17B:28-15 (1981); N.Y. INS. LAWS § 4240 (1984); OHIO REV.
CODE ANN. § 3911.011 (1969); P.R. LAWS ANN. tit. 26 §§ 1329
to 1335 (1974); VA. CODE §§ 38.2-3113 to 38.2-3113.1 (1992);
WIS. STAT. § 611.25 (1971), § 632.45 (1979).

5 ALA. CODE § 27-15-28.1 (1984); ALASKA STAT.
§ 21.45.305 (1978); ARIZ. REV. STAT. ANN. § 20-1232 (1977);
ARK. STAT. ANN. §§ 23-81-301 to 23-81-312 (1981); CAL. INS.

10

and the Virgin Islands adopted related legislation.®

Additionally, the NAIC has adopted an Interest-
Indexed Annuity Contracts Model Regulation, NAIC Vol.
II, p. 235 et seq. (1994), a Model Annuity and Deposit
Fund Disclosure Regulation, NAIC Vol. II, p. 245 et seq.

CODE §§ 10168 to 10168.10 (1979); COLO. REV. STAT.
§§ 10-7-501 to 10-7-510 (1977); CONN. GEN. STAT. § 38a-440
(1978); DEL. CODE ANN. tit. 18 § 2929A (1980); D.C. CODE
ANN. § 35-508 (1978); GA. CODE ANN. § 33-28-3 (1982); HAW.
REV. STAT. § 431:10D-107 (1988); IDAHO CODE § 41-1927A
(1989); 215 ILL. COMP. STAT. 5/229.4 (1977); IND. CODE
§§ 27-1-12.5-1 to 27-1-12.5-10 (1977); IOWA CODE § 508.38
(1981); KAN. STAT. ANN. § 40-428a (1978); KY. REV. STAT.
§ 304.15-315 (1978); LA. REV. STAT. ANN. § 22:173.1 (1991); ME.
REV. STAT. ANN. tit. 24-A §§ 2541 to 2551 (1979); MD. ANN.
CODE art. 48A § 408B (1980); MASS. GEN. LAWS ch. 175 § 144A
(1979); MICH. COMP. LAWS § 500.4072 (1987); MINN. STAT.
§ 61A.245 (1979); MONT. CODE ANN. §§ 33-20-501 to 33-20-513
(1979); NEB. REV. STAT. §§ 44-407.10 to 44-407.23 (1979); NEV.
REV. STAT. §§ 688A.361 to 688A.369 (1979); N.H. REV. STAT.
ANN. §§ 409-A:1 to 409A:10 (1979); N.J. REV. STAT. § 17B:25-20
(1981); N.M. STAT. ANN. § 59A-20-33 (1985); N.Y. INS. LAW
§ 4223 (1985); N.C. GEN. STAT. § 58-58-60 (1979); N.D. CENT.
CODE §§ 26.1-34-01 to 26.1-34-10 (1985); OHIO REV. CODE
ANN. § 3915.073 (1983); OR. REV. STAT. §§ 743.275 to 743.295
(1977); 40 PA. CONS. STAT. § 510b (1980); R.I. GEN. LAWS
§§ 27-4.4-1 to 27-4.4-12 (1993); S.C. CODE ANN. §§ 38-69-210 to
38-69-320 (1988); S.D. CODIFIED LAWS ANN. §§ 58-15-72 to
58-15-81 (1977); TENN. CODE ANN. §§ 56-36-101 to 56-36-112
(1978); TEX. INS. CODE ANN. art. 3.44b (1977); UTAH CODE
ANN. § 31A-22-409 (1986); VT. STAT. ANN. tit. 8 § 3750 (1981);
VA. CODE § 38.2-3220 to 38.2-3229 (1986); WASH. REV. CODE
ANN. §§ 48.23.410 to 48.23.520 (1987); W.VA. CODE § 31-13-30a
(1977); WIS. STAT. § 632.435 (1979); WYO. STAT. §§ 26-16-401 to
26-16-411 (1983).

6 See also N.Y. ADMIN. CODE tit. 11 §§ 44.0 to 44.12 (Reg.
127) (1986); V.I. CODE ANN. tit. 22 §§ 970 to 975 (1968).

11

(1994), a Two-Tier Annuity Model Regulation, NAIC Vol.
Il, p. 247 et seq. (1994), a Modified Guaranteed Annuity
Regulation, NAIC Vol. II, p. 255 et seq. (1994), Replace-
ment of Life Insurance and Annuities Model Regulation,
NAIC Vol. IIL, p. 613 et seq. (1994), Model Guideline
Concerning the Commissioners Annuity Reserve Valua-
tion Method, NAIC Vol. IV, p. 825 et seq. (1994), and
Model Rule (Regulation) for Recognizing a New Annuity
Mortality Table for use in Determining Reserve Liability
for Annuities. NAIC Vol. IV, p. 821 et seq. (1994).

Collectively, these model laws and regulations and
the actual state laws and regulations based on the NAIC
prototypes, illustrate the comprehensive nature and
detail of insurance laws and regulations governing all
aspects of annuities transactions. Indeed, the Fifth Circuit
noted that all fifty states currently regulate annuities
under their insurance laws. VALIC, 998 F.2d at 1301, cit-
ing, state laws.? The complexity and inclusiveness of

7 ARK. STAT. ANN. §§ 23-64-102(1), (3) (1987); CAL. INS.
CODE § 101 (1977); COLO. REV. STAT. § 10-1-102(7) (1990);
CONN. GEN. STAT. § 38-68t(a) (1990); DEL. CODE ANN. tit. 18
§ 512 (1989); FLA. STAT. ANN. § 624.602(1) (1990); GA. CODE
ANN. § 33-7-4 (1990); HAW. REV. STAT. § 431:1-204 (1985);
IDAHO CODE §§ 41-103, 41-312 (1977); ILL. INS. CODE ch. 73,
art. I, § 4 (1982); IND. CODE §§ 27-1-2-3(s) (1986); IOWA CODE
§ 508.31 (1990); KAN. STAT. ANN. § 40-401 (1990); LA. REV.
STAT. ANN. § 22:6(1) (West 1969); ME. REV. STAT. ANN. tit. 24-
A, § 411 (1990); MD. INS. CODE ANN. Act 48A, §§ 46(1), 65
(1991); MASS. GEN. L. ch. 175, § 47(16) (1987); MICH. COMP.
LAWS Ann. § 500.602 (West 1990); MINN. STAT. ANN. § 61A.01
(1986); MISS. CODE ANN. § 83-7-1 (1972); MO. REV. STAT.
§§ 375.158(2), 376.010 (1968); MONT. CODE ANN. § 33-2-108(2)
(1990); NEB. REV. STAT. § 44-201 (1990); NEV. REV. STAT.
§ 680A.110 (1988); N.H. REV. STAT. ANN. § 408:24 (1983); N.J.

12

these laws and regulations is an indication of the serious-
ness with which state insurance departments regulate
annuities as part of the responsibilities delegated to them
by Congress. These laws were developed specifically for
sales of annuities by life insurance companies, not by
banks. If national bank subsidiaries are permitted to sell
annuities, as allowed by the Comptroller’s decision,
banks may well be circumventing the laws intended to
protect those who purchase annuity contracts from insur-
ance companies.

The plain meaning of the annuities laws and regula-
tions found in the insurance codes of the various states
indicates that annuities are insurance products governed
by insurance laws and regulations which are enforced by
individual insurance departments, pursuant to Congres-
sional delegation of authority. 15 U.S.C. §§ 1011, 1012.

~

REV. STAT. ANN. § 17:17-1(c) (1990); N.M. STAT. ANN.
§ 59A-7-2 (1988); N.Y. Ins. Law § 1113(a)(2) (McKinney 1990);
N.C. GEN. STAT. §§ 58-7-15(2), 58-39-15(15) (1990); N.D. CENT.
CODE §§ 26.1-26-11(1), (18) (1990); OHIO REV. CODE ANN.
§§ 3902.02, 3911.01 (1990); OKLA. STAT. tit. 36 § 702 (1990); OR.
REV. STAT. § 731.170(2) (1990); 40 PA. CONS. STAT. § 382(a)(1)
(1990); R.I. GEN. LAWS § 27-32-1(a) (1989); $.C. CODE ANN.
§§ 38-1-20(7), (19) (1989); S.D. CODIFIED LAWS ANN. § 58-6-20
(1990); TENN. CODE ANN. § 56-2-201(4) (1986); TEX. INS.
CODE ANN. art. 3.01, § 1 (1981); UTAH CODE ANN.
§ 31A-1-301(44)(d) (1991); VT. STAT. ANN. tit. 8, § 3717 (1984);
VA. CODE ANN. § 38.2-602 (1986); WASH. REV. CODE
§ 48.11.020 (1984); W.VA. CODE § 33-1-10(a) (1988); WIS. STAT.
§ 71.42(3), 610.21(4) (1980); WYO. STAT. § 26-1-102(a)(xvi),
(xvii), 26-16-101 (1983).

13

B. ANNUITIES POSSESS REQUISITE CHARAC-
TERISTICS OF INSURANCE PRODUCTS

Furthermore, the NAIC supports the Fifth Circuit's
description of annuities which summarizes the many sim-
ilarities between annuities and life insurance. The Fifth
Circuit properly noted that both life insurance and annu-
ities rely on actuarial calculations of mortality risk and
risk-spreading, thereby satisfying a well-established
requirement that insurance include some transfer and
distribution of risk. VALIC, 998 F.2d at 1301, citing, Group
Life & Health Ins. Co. v. Royal Drug, 440 U.S. 205, 211, 99
S.Ct. 1067, 1073, 59 L.Ed. 2d 261 (1979).

The Fifth Circuit wrote:

Both life insurance and annuities transfer the
economic risk of death from the policyholder to
the insurance company. Life insurance protects
the insured against the economic risk of the
insured’s dying prematurely, while an annuity
contract protects the insured against the possi-
bility of outliving her resources. By issuing
numerous life insurance and annuity contracts,
an insurance company spreads the risk of poli-
cyholders living longer or shorter than pre-
dicted. VALIC, 998 F.2d at 1301.

The OCC suggested that Black’s Law Dictionary sup-
ports its claims that annuities have investment charac-
teristics, not insurance characteristics. OCC brief, S.Ct., p.
26 (July 1994). The OCC failed, however, to observe that
the same dictionary defines an “annuity policy” as “an
insurance policy providing for monthly or periodic pay-
ments to insured to begin at fixed date and continue

l4

through insured’s life.” BLACK’S LAW DICTIONARY 59
(6th ed. 1990) (emphasis added).

Additionally, Petitioners argued that a recent New
York case found annuities to be investment products.
OCC brief, S.Ct., pp. 34-35 (July 1994); NationsBank brief,
S.Ct., pp. 5-6 (July 1994), citing, New York State Ass‘n. of
Life Underwriters v. New York State Banking Dept., No. 38,
83 N.Y. 2d 353, 1994 N.Y. LEXIS 324 (Ct. App. N.Y., March
30, 1994). In that case the Court upheld a decision by the
state banking department that authorized state-chartered
commercial banks to purchase and sell annuities, either
directly or through a subsidiary. The New York case,
however, is inapplicable in the case at bar, because the
New York case is based on New York banking law which
applies to New York banks, not the National Bank Act
which governs activities of national banks. Id. at 1994
N.Y. LEXIS 324 *17.

Furthermore, NationsBank argued that the New York
case will give New York bank competitors an advantage
over national banks. NationsBanks brief, S.Ct., p. 6 (July
1994). A competitive marketplace is clearly a benefit to
consumers, however, and certainly not a legal cause for
reversing the Fifth Circuit’s opinion.

Ill. THE DISTRICT COURT IMPROPERLY
DEFERRED TO THE COMPTROLLER’S DECI-
SION

The Comptroller’s challenged letter permitted
NationsBank Securities, a subsidiary of NationsBank
National Bank of North Carolina, to sell annuities. Op.

15

OCC, unpublished (March 21, 1990). Briefly, the Comp-
troller classified annuities as “primarily financial invest-
ments,” Op. OCC (March 21, 1990) at 3, which national
banks are authorized to sell under Section 24 (Seventh)
and Section 92 of the National Bank Act. Id. at 3, 6, 7, 8.
The District Court affirmed the Comptroller’s letter, hold-
ing that “the Comptroller did not incorrectly interpret the
controlling statutory provisions. His reasonable inter-
pretation was no more than a ‘permissible construction,’
all that is required in order to secure this Court’s defer-
ence.” VALIC v. Clarke, 786 F. Supp. 639 at 642 (S.D. TX,
Houston Div., 1991).

To determine whether deference should be given to
the Comptroller’s decision, both the District Court and
the Fifth Circuit considered Chevron U.S.A., Inc. v. Natural
Resources Defense Council, Inc., 467 U.S. 837, 104 S.Ct.
2778, 81 L.Ed. 2d 694 (1984). The Chevron decision estab-
lished the two issues that a Court must consider when
reviewing a statutory interpretation made by an adminis-
trative agency:

(1) “Whether Congress has directly spoken to the pre-
cise question at issue;” and if not,

(2) “Whether the agency’s answer is based on a permiss-
ible construction of the statute.” Id. at 842-43, 104 S.Ct. at
2781.

The plain language of Section 92 clearly limits insurance
sales by national banks to towns with less than 5,000
inhabitants. See, § I. herein. Since this plain language
evidences Congressional intent, the District Court erred
in deferring to the OCC’s contrary ruling. It is well-
established that courts are obligated not to defer to an

16

administrative agency's interpretation of a statute if the
interpretation frustrates the intent of Congress. VALIC v.
Clarke, 998 F.2d at 1299, citing, Presley v. Etowah County
Commission, 112 S.Ct. 820, 117 L. Ed. 2d 51 (1992); Nicklos
Drilling Co. v. Cowart, 927 F.2d 828, 831-32 (5th Cir. 1991);
Lechmere, Inc. v. NLRB, 112 S.Ct. 841, 847-848, 117 L. Ed.
2d 79 (1992); BPS Guard Services Inc. v. NLRB, 942 F.2d
519, 523 (8th Cir. 1991).

The Fifth Circuit Wrote:

The district court erred in reaching the second
step of the Chevron analysis because our inter-
pretation of § 92 in Saxon was based on the plain
language of the statute which exhibits Congress’
clear intent to permit only banks in towns with
less than 5,000 inhabitants to sell insurance
products. VALIC, 998 F.2d at 1299.

IV. BANK SALES OF ANNUITIES ARE NOT INCI-
DENTAL BANK POWERS NECESSARY TO
CARRY ON THE BUSINESS OF BANKING

Both the Federal Petitioners, OCC brief, S.Ct., pp.
39-44 (July 1994), and the Banking Petitioners, Nations-
Bank brief, S.Ct., pp. 19 et seq. (July 1994), have argued
that Section 24 (Seventh) of the National Bank Act autho-
rizes bank sales of annuities. Section 24 (Seventh) grants
national banks “all such incidental powers as shall be
necessary to carry on the business of banking.” National
Bank Act, 12 U.S.C. § 24 (Seventh) (1994). The statute
specifically lists the “necessary powers” that Congress
envisioned: “discounting and negotiating promissory
notes, drafts, bills of exchange, and other evidences of
debt; . . . receiving deposits; . . . buying and selling

17

exchange, coin, and bullion; . . . loaning money on per-
sonal security; . . . obtaining, issuing, and circulating
notes....” Id.

Selling annuities was not an incidental power speci-
fied by Congress in Section 24 (Seventh). Even if one was
swayed by arguments that the sale of annuities is func-
tionally equivalent to other authorized activities, the sale
of annuities certainly could not be found to be necessary
to the business of banking. Traditional banking services
will not be impaired because a bank is not permitted to
sell annuities. The Fifth Circuit wrote that, “even conced-
ing arguendo that the power to sell annuities would be
incidental to banking, by no stretch of the imagination
can that power be deemed ‘necessary.’ ” VALIC, 998 F.2d
1295 at 1302.

V. THE FIFTH CIRCUIT PROPERLY REFRAINED
FROM A GLASS-STEAGALL ANALYSIS

NationsBank argued that the Fifth Circuit erred “in
not reaching the Glass-Steagall Act issue given its dispo-
sition of the other issues in the case.” NationsBank brief,
S.Ct., p. 32 (July 1994). The Glass-Steagall Act, 12 U.S.C.
§§ 347a, 347b, 412 (1994), however, was never at issue in
this case. The OCC letter that was the basis for this
litigation never relied on the Glass-Steagall Act as author-
ity. Op. OCC (March 21, 1990). In fact, the OCC letter
stated: “ .. . since we find that brokerage of fixed annu-
ities is a permissible activity for national banks regardless
of whether fixed annuities are Glass-Steagall securities, it
is unnecessary at this time to determine the status of the
contracts under the Glass-Steagall Act.” Id. at 3.

+

18

CONCLUSION

Congressional intent, as evidenced by the plain lan-
guage of Section 92 of the National Bank Act, 12 U.S.C.
§ 92, clearly dictates that national banks shall not sell
insurance in cities with more than 5,000 residents. Peti-
tioners argued that annuities are not within the scope of
the Section 92 limitation. However, annuities are insur-
ance products, sold by life insurance companies, regu-
lated by state insurance commissioners, and possessing
requisite insurance characteristics. Therefore, the Fifth
Circuit properly held that national banks are not autho-
rized to sell annuities in towns with more than 5,000
residents. Petitioners’ argument that the Fifth Circuit
erred because the sale of annuities is incidental and nec-
essary to banking is unpersuasive. For these and all other
reasons detailed in this brief, the National Association of
Insurance Commissioners respectfully urges the Court to
affirm the decision of the Fifth Circuit.

Respectfully submitted,

Susan E. Martin

Counsel of Record for
Amicus Curiae, In Support
of Respondent

E.tten Dottase WiLcox
National Association of
Insurance Commissioners
120 W. 12th Street

Suite 1100

Kansas City, Missouri 64105
(816) 842-3600

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385013_0506%3A22. Public record. Not legal advice.