Letter concludes that a national bank insurance agency located in a "place of 5,000" should be permitted the same marketing range and be able to use the same marketing tools and facilities available for licensed insurance agencies in the state where the bank agency operates. (11/04/96)

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OCC Interpretive Letters › Letter concludes that a national bank insurance agency located in a "place of 5,000" should be permitted the same marketing range and be able to use the same marketing tools and facilities available for licensed insurance agencies in the state where the bank agency operates. (11/04/96)

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Text

Office of the Comptroller of the Currency

Interpretive Letter #753 - Contents

Published in Interpretations and Actions November 1996

Letter Approving First Union National Banks Notification of Intent to

Establish Operating Subsidiaries to Engage in Insurance Activities

This letter, dated November 4, 1996, is long and has been divided into sections. This outline may help

direct you to specific portions. The letter may also be read sequentially by starting with the first part and

following the "more of letter" prompts at the end of each section.

PROPOSAL

ANALYSIS

I. 12 U.S.C. 92

A. Statutory Language

B. Legislative History

B. Service to Customers

C. Bank Advertising

III. Overview of How Insurance Agents Sold Insurance in 1916

A. Organizational Structure - The General Agency System

B. Industrial Life Insurance Sales

C. Methods of Selling Insurance

IV. OCC Interpretive Ruling and Relevant Cases

A. Interpretive Ruling

B. Cases

V. Application of Section 92 in the Modern Context

Go to: More of Interpretive Letter #753

Interpretive Letter #753 - Contents

This letter is in response to your operating subsidiary notification dated April 25, 1996.

The notification was filed on behalf of eight national bank subsidiaries (collectively, the

“Banks” and, individually, the “Bank”) of First Union Corporation, Charlotte, North

Carolina. Each Bank proposes to establish an operating subsidiary (collectively, the

“Subsidiaries” and, individually, the “Subsidiary”) to engage in certain general insurance

agency activities pursuant to 12 U.S.C. § 92 and to act as agent for the sale of fixed and

variable annuities pursuant to 12 U.S.C. § 24(Seventh). For the reasons discussed

below, and based upon the analysis and conclusions set forth herein, the Office of the

Comptroller of the Currency (OCC) hereby approves the Banks’ notification

lly, the “Subsidiary”) to engage in certain general insurance

agency activities pursuant to 12 U.S.C. § 92 and to act as agent for the sale of fixed and

variable annuities pursuant to 12 U.S.C. § 24(Seventh). For the reasons discussed

below, and based upon the analysis and conclusions set forth herein, the Office of the

Comptroller of the Currency (OCC) hereby approves the Banks’ notification.

PROPOSAL

The notification was filed on behalf of the First Union National Banks of North Carolina,

South Carolina, Georgia, Florida, Tennessee, Virginia, Maryland, and First Union

National Bank, Pennsylvania, a multi-state bank with branches in Pennsylvania, New

Jersey and New York. (NOTE: The OCC separately

approved the operating subsidiary notification of the First Union National Bank, formerly

of Elkton, Maryland, now of Avondale, Pennsylvania, by letter dated June 27, 1996.

That subsidiary may engage in insurance and annuity agency sales activities to the

extent permissible under 12 U.S.C. § 92 and 12 U.S.C. § 24(Seventh), respectively, as

discussed herein.) The Banks intend to establish operating subsidiaries in each

of the states where they are located. The Banks intend and expect that the

Subsidiaries, and/or the Subsidiaries’ employees engaged in selling insurance, will be

appropriately licensed under applicable state law. The Subsidiaries will engage in

general insurance agency activities pursuant to section 92 for all kinds of insurance,

including life, health, property and casualty insurance. The Banks have not at this time

requested authority for the Subsidiaries to act as agent for the sale of title insurance.

The Subsidiaries also may sell as agent fixed and variable annuities pursuant to 12

U.S.C. § 24(Seventh).

Each Subsidiary engaged in general insurance agency activities pursuant to section 92

will be located in a place of less than 5,000 inhabitants where the parent Bank has a

branch

at this time

requested authority for the Subsidiaries to act as agent for the sale of title insurance.

The Subsidiaries also may sell as agent fixed and variable annuities pursuant to 12

U.S.C. § 24(Seventh).

Each Subsidiary engaged in general insurance agency activities pursuant to section 92

will be located in a place of less than 5,000 inhabitants where the parent Bank has a

branch. Licenses obtained by a Subsidiary will list the “place of 5,000" as the agency’s

business location, and appropriate licensing documentation will be maintained at that

location. All agents will be managed through the agency, and the “place of 5000" will be

their business location for licensing purposes. (NOTE:

Some of these licensed agents also may be employees of the parent Bank or

its affiliates. Agents also will be appropriately licensed to sell annuities.)

Commissions from the various insurance companies whose products the agencies sell

will be transmitted to the Subsidiary’s location in the “place of 5,000," and paid to the

Subsidiary’s licensed sales staff. The agency also generally will be responsible for the

appropriate processing of insurance applications, delivery of insurance policies, and

collection of premiums, where consistent with the insurance companies’ procedures for

nonbank affiliated agents. Business records of the insurance agency, including copies

of customer application and policy information, and licensing, customer complaint, and

other compliance records, will be available at the “place of 5,000" location. <font size=-

cations, delivery of insurance policies, and

collection of premiums, where consistent with the insurance companies’ procedures for

nonbank affiliated agents. Business records of the insurance agency, including copies

of customer application and policy information, and licensing, customer complaint, and

other compliance records, will be available at the “place of 5,000" location. <font size=-

1>(NOTE: Records may be maintained and available at the agency in

electronic form while the hardcopies of original documents are kept in an off-site storage

facility.)

Contacts and meetings with customers may occur both inside and outside the “place of

5,000," and each agency may use mailings, telemarketing, distribution of brochures,

leaflets and other literature, and referrals of customers from other Bank branches, to

reach customers outside the “place of 5,000.” Affiliated or unaffiliated third parties may

be used to assist these sales activities, for example, by providing advertising support,

direct mail marketing services, telemarketing services, or other types of “back office”

support, subject to appropriate contractual relationships and oversight by the bank

agency. In all cases, these solicitation and sales activities will be consistent with what

would be generally allowed under state law for a licensed insurance agency or licensed

agent, not affiliated with a bank, with its offices in the “place of 5,000.”

The Banks represent that the Subsidiaries will conduct their insurance and annuity sales

activities in compliance with applicable state laws, the Interagency Statement on Retail

Sales of Nondeposit Investment Products (Feb. 15, 1994), where applicable, and other

applicable national banking laws, rulings, and regulations. The Banks will provide the

OCC with the names and addresses of the Subsidiaries as soon as they are chartered

ries will conduct their insurance and annuity sales

activities in compliance with applicable state laws, the Interagency Statement on Retail

Sales of Nondeposit Investment Products (Feb. 15, 1994), where applicable, and other

applicable national banking laws, rulings, and regulations. The Banks will provide the

OCC with the names and addresses of the Subsidiaries as soon as they are chartered.

ANALYSIS

Because of the scope of activities described in the Banks’ notification, it is appropriate

to provide a full analysis of whether the Banks’ insurance solicitation and sales activities

are permissible under 12 U.S.C. § 92. (NOTE: In

addition to national banks’ authority to engage in insurance activities pursuant to section

92, the OCC previously has permitted national banks to engage in the sale of credit-

related types of insurance as an activity incidental to banking under the authority of 12

U.S.C. § 24(Seventh) without any geographic limitations. See e.g., Interpretive Letter

No. 671 (July 10, 1995), reprinted in [1994-95 Transfer Binder] Fed. Banking L. Rep.

(CCH) ¶ 83,619; Interpretive Letter No. 283 (Mar. 16, 1984), reprinted in [1983-84

Transfer Binder] Fed. Banking L. Rep. (CCH) ¶ 85,447; see also 12 C.F.R. Part 2 (credit

life insurance). A federal court of appeals has upheld national banks’ ability to sell

credit-related life insurance as agent. See IBAA v. Heimann, 613 F.2d 1164 (D.C. Cir.

1979), cert. denied, 449 U.S. 823 (1980).) Accordingly, Part I of this section

discusses section 92 and its legislative history. Parts II and III provide context for

construing the scope of solicitation and sales activity permissible under section 92. Part

II examines how banks operated in 1916, when section 92 was enacted. Part III

examines how insurance agents operated in 1916. Part IV then discusses the OCC’s

interpretive ruling (12 C.F.R. § 7.1001) on this issue and relevant case law

and its legislative history. Parts II and III provide context for

construing the scope of solicitation and sales activity permissible under section 92. Part

II examines how banks operated in 1916, when section 92 was enacted. Part III

examines how insurance agents operated in 1916. Part IV then discusses the OCC’s

interpretive ruling (12 C.F.R. § 7.1001) on this issue and relevant case law. Part V

analyzes the application of section 92 in the modern context based on the historical

banking and insurance operations and provides guidance for applying section 92 today.

This letter does not address and is not intended to express any opinion on any state

law preemption issues. (NOTE: The application of state

law would need to comply with recognized preemption standards. See generally

Barnett Bank of Marion County, N.A. v. Nelson, 134 L. Ed. 2d 237 (1996), and the

cases cited therein. See also CSX Transp., Inc. v. Easterwood, 507 U.S. 658 (1993);

Cipollone v. Liggett Group, Inc., 505 U.S. 504 (1992); MacDonald v. Mansanto Co., 27

F.3d 1021 (5th Cir. 1994).)

Separately, under the authority of 12 U.S.C. § 24(Seventh), the OCC previously has

approved national banks engaging in the sale of fixed and variable annuities. <font

size=-1>(NOTE: See e.g., Interpretive Letter No. 499 (Feb. 12, 1990),

reprinted in [1989-90 Transfer Binder] Fed. Banking L. Rep. (CCH) ¶ 83,090;

Interpretive Letter No. 331 (Apr. 4, 1985), reprinted in [1985-87 Transfer Binder] Fed.

Banking L. Rep. (CCH) ¶ 85,501.) Section 24(Seventh) provides that national

banks have the power “[t]o exercise . . . all such incidental powers as shall be

necessary to carry on the business of banking.” The Supreme Court has upheld the

OCC’s position that national banks and their operating subsidiaries may sell annuities,

as agent, as an activity incidental to banking under 12 U.S.C. § 24(Seventh). <font

size=-1>(NOTE: NationsBank of North Carolina, N.A. v

ve the power “[t]o exercise . . . all such incidental powers as shall be

necessary to carry on the business of banking.” The Supreme Court has upheld the

OCC’s position that national banks and their operating subsidiaries may sell annuities,

as agent, as an activity incidental to banking under 12 U.S.C. § 24(Seventh). <font

size=-1>(NOTE: NationsBank of North Carolina, N.A. v. Variable

Annuity Life Ins. Co., 130 L. Ed. 2d 740 (1995) (“VALIC”).) In VALIC, the Court

reviewed the OCC’s decision to permit a national bank operating subsidiary to act as

agent in the sale of annuities. The Court expressly held that “the ‘business of banking’

is not limited to the enumerated powers in § 24(Seventh) and that the Comptroller

therefore has discretion to authorize activities beyond those specifically enumerated.”

(NOTE: Id. at 749, n.2.) The Court found the

OCC reasonably concluded that selling annuities qualifies as part of, or incidental to, the

business of banking. (NOTE: See id. at 749.)

The Court also found that for these purposes the OCC properly classified annuities by

their functional characteristics as financial investment instruments and not as

“insurance.” (NOTE: See id. at 750-51; see also SEC

v. Variable Annuity Life Ins. Co., 359 U.S. 65 (1959) (variable annuities are not

contracts of insurance).) Thus, the Court concluded that the OCC’s

determination that section 92 was not implicated because annuities were not insurance

within the meaning of section 92 was a reasonable one. (NOTE:

See id. at 752.)

In contrast to section 92, section 24(Seventh) contains no geographic limitation on the

location of the bank or branch selling annuities

ce).) Thus, the Court concluded that the OCC’s

determination that section 92 was not implicated because annuities were not insurance

within the meaning of section 92 was a reasonable one. (NOTE:

See id. at 752.)

In contrast to section 92, section 24(Seventh) contains no geographic limitation on the

location of the bank or branch selling annuities. Thus the “place of 5,000" component of

national banks’ insurance authority under section 92 does not apply to annuities sales

conducted by national banks under the authority of section 24(Seventh). Consistent

with previous OCC approvals and the Supreme Court’s conclusions in VALIC, the

Banks’ request to engage in annuities activities does not require further discussion.

(NOTE: The Subsidiaries are subject to, and must be

operated within the constraints of all national banking laws, rulings, and regulations. In

particular, the Banks and the Subsidiaries should be mindful of the Interagency

Statement on Retail Sales of Nondeposit Investment Products (Feb. 15, 1994), which

provides guidance to banks and their operating subsidiaries on the sale of retail

nondeposit investment products. The OCC expects the Banks and the Subsidiaries to

comply with the Interagency Statement as well as applicable national banking laws,

rulings, and regulations.)

12 U.S.C. § 92

A. Statutory Language

Section 92 provides,

In addition to the powers now vested by law in national banking

associations . . . any such association located and doing business in any

place the population of which does not exceed five thousand inhabitants . .

Interagency Statement as well as applicable national banking laws,

rulings, and regulations.)

12 U.S.C. § 92

A. Statutory Language

Section 92 provides,

In addition to the powers now vested by law in national banking

associations . . . any such association located and doing business in any

place the population of which does not exceed five thousand inhabitants . .

. may, under such rules and regulations as may be prescribed by the

Comptroller of the Currency, act as the agent for any fire, life, or other

insurance company authorized by the authorities of the State in which said

bank is located to do business in said State, by soliciting and selling

insurance and collecting premiums on policies issued by such company;

and may receive for services so rendered such fees or commissions as

may be agreed upon between the said association and the insurance

company for which it may act as agent. . . .

Section 92 authorizes a bank that is “located and doing business in” a place with a

population of less than 5,000 to solicit and sell insurance as agent for state-authorized

insurance companies. Section 92 does not define what “located and doing business”

means. By its terms, section 92 does not require the bank’s insurance solicitation and

sales activities to occur within the “place of 5,000.” Specifically, there is no restriction

as to either the identity of the customer or the methodology of sale. Any such restraints

were expressly delegated by Congress to the OCC. (NOTE:

See NBD Bank, N.A. v. Bennett, 67 F.3d 629, 632 (7th Cir. 1995).)

Congress, however, clearly knew how to impose a geographic limitation on activities if

that was the desired result

y, there is no restriction

as to either the identity of the customer or the methodology of sale. Any such restraints

were expressly delegated by Congress to the OCC. (NOTE:

See NBD Bank, N.A. v. Bennett, 67 F.3d 629, 632 (7th Cir. 1995).)

Congress, however, clearly knew how to impose a geographic limitation on activities if

that was the desired result. Section 92, in addition to the insurance powers, originally

permitted banks to “act as the broker or agent for others in making or procuring loans on

real estate located within one hundred miles of the place in which said bank may be

located.” (NOTE: Act of Sept. 7, 1916, 39 Stat. 753.

Congress subsequently deleted this loan brokerage provision. See 96 Stat. 1511 (Oct.

15, 1982).) Banks could provide an important service by placing real estate and

farm loans in their respective communities. (NOTE:

See Broadening the Powers of National Banks, 93 Bankers Mag. 9 (Jul. 1916)

(small town bankers have the knowledge of men and property that enables them to

transact real estate loans with the highest degree of safety).) One court recently

pointed to the geographic restriction in the loan brokerage provision to support the

contention that Congress understood how to place geographic restrictions with regard to

customers’ locations. (NOTE: See NBD Bank, N.A. v.

Bennett, 67 F.3d 629, 630 (7th Cir. 1995).) Yet Congress, unlike when it

authorized the loan brokerage activities, did not place any geographic restrictions on the

location of customers or on the location of a bank’s solicitation and sales activities when

w to place geographic restrictions with regard to

customers’ locations. (NOTE: See NBD Bank, N.A. v.

Bennett, 67 F.3d 629, 630 (7th Cir. 1995).) Yet Congress, unlike when it

authorized the loan brokerage activities, did not place any geographic restrictions on the

location of customers or on the location of a bank’s solicitation and sales activities when

it authorized national bank insurance agencies under section 92.

As discussed below, the absence of such a restriction is particularly telling given the

geographic flexibility with which insurance agents operated in 1916, when section 92

was enacted. Congress could have, and knew how to, require bank insurance agencies

to operate in a more confined fashion than other insurance agencies, but it did not do

so. Accordingly, the fundamental plain meaning rule of statutory construction compels

the conclusion that there are no special limitations on the customers to whom a national

bank may sell insurance or the resources and methods employed in that activity. <font

size=-1>(NOTE: See National Ass’n. of Life Underwriters v. Clarke,

736 F. Supp. 1162, 1168 (D.D.C. 1990) (“NALU”), rev’d on other grounds sub nom.

Independent Ins. Agents v. Clarke, 955 F.2d 731 (D.C. Cir.), reh’g en banc denied, 965

F.2d 1077 (D.C. Cir. 1992), rev’d and remanded sub nom. United States Nat’l Bank v.

Independent Ins. Agents, 124 L. Ed.2d 402 (U.S. 1993), aff’d on remand, Independent

Ins. Agents v. Ludwig, 997 F.2d 958 (D.C. Cir. 1993). See generally Garcia v. U.S., 469

U.S. 70, 75 (1984) (“When we find the terms of a statute unambiguous, judicial inquiry is

complete, except in ‘rare and exceptional circumstances.’”); Tenn. Valley Authority v.

Hill, 437 U.S. 153, 184 n.29 (1977) (“When confronted with a statute which is plain and

unambiguous on its face, we ordinarily do not look to legislative history as a guide to its

meaning.”); Bank One Chicago, N.A. v. Midwest Bank & Trust Co., 133 L. Ed

the terms of a statute unambiguous, judicial inquiry is

complete, except in ‘rare and exceptional circumstances.’”); Tenn. Valley Authority v.

Hill, 437 U.S. 153, 184 n.29 (1977) (“When confronted with a statute which is plain and

unambiguous on its face, we ordinarily do not look to legislative history as a guide to its

meaning.”); Bank One Chicago, N.A. v. Midwest Bank & Trust Co., 133 L. Ed. 2d 635,

647 (1996) (Scalia, J., concurring) (“The law is what the law says, and we should

content ourselves with reading it rather than psychoanalyzing those who enacted

it.”).)

B. Legislative History

The only substantive legislative history on the grant of insurance powers in section 92 is

a June 8, 1916 letter from Comptroller of the Currency John Skelton Williams to Senator

Robert L. Owen of the Senate Banking and Currency Committee. <font size=-

1>(NOTE: See NALU, 736 F. Supp. at 1169 (Comptroller Williams’

letter is the only substantive legislative history on section 92's insurance provision).

) The letter is included in the Congressional Record at 53 Cong. Rec. 11001. In

the letter, Comptroller Williams expressed concern about the difficulty of running a

profitable bank in a small town and stated,

For some time I have been giving careful consideration to the question as

to how the powers of . . . small national banks might be enlarged so as to

provide them with additional sources of revenue and place them in a

position where they could better compete with local State banks and trust

companies which are sometimes authorized under the law to do a class of

business not strictly that of commercial banking.

Thus, Comptroller Williams’ purpose in recommending section 92 was to enhance the

profitability of certain national banks. Comptroller Williams’ letter went on to explain why

he did not want banks outside of small towns to have insurance powers:

It seems desirable from the standpoint of public policy and banking

the law to do a class of

business not strictly that of commercial banking.

Thus, Comptroller Williams’ purpose in recommending section 92 was to enhance the

profitability of certain national banks. Comptroller Williams’ letter went on to explain why

he did not want banks outside of small towns to have insurance powers:

It seems desirable from the standpoint of public policy and banking

efficiency that this authority should be limited to banks in small

communities. This additional income will strengthen them and increase

their ability to make a fair return to their shareholders, while the new

business is not likely to assume such proportions as to distract the officers

of the bank from the principal business of banking. Furthermore, in many

small places the amount of insurance policies written . . . is not sufficient

to take up the entire time of an insurance broker, and the bank is not

therefore likely to trespass upon outside business naturally belonging to

others.

I think it would be unwise and therefore undesirable to confer this privilege

generally upon banks in large cities where the legitimate business of

banking offers ample scope for the energies of trained and expert

bankers.

It could be argued that the Comptroller’s letter envisioned limited sales of insurance by

national banks in a manner that did not compete with other insurance agents. <font

size=-1>(NOTE: The lower court which was reversed in the case of

NBD Bank, N.A. v. Bennett, 67 F.3d 629 (7th Cir. 1995), relied on this legislative history

to conclude that the power of national banks under section 92 was confined to the

“place of 5,000.” See NBD Bank, N.A. v. Bennett, 874 F. Supp. 927 (S.D. Ind. 1994)

(Order on a Motion for Summary Judgement).) This reading has been rejected,

however, by the highest courts to have considered the issue. <font size=-

1>(NOTE: See NBD Bank, N.A. v. Bennett, 67 F.3d 629 (7th Cir.

1995) (“Bennett”); Independent Ins. Agents v

section 92 was confined to the

“place of 5,000.” See NBD Bank, N.A. v. Bennett, 874 F. Supp. 927 (S.D. Ind. 1994)

(Order on a Motion for Summary Judgement).) This reading has been rejected,

however, by the highest courts to have considered the issue. <font size=-

1>(NOTE: See NBD Bank, N.A. v. Bennett, 67 F.3d 629 (7th Cir.

1995) (“Bennett”); Independent Ins. Agents v. Ludwig, 997 F.2d 958 (D.C. Cir. 1993)

(“USNB Oregon”).)

Courts generally have given Comptroller Williams’ letter little weight in considering the

geographic scope of section 92 because, as an “isolated remark” it is only entitled to

“limited deference;” (NOTE: USNB Oregon, 997 F.2d

at 961.) because technical innovations and economic changes have changed the

effect of section 92, regardless of the original intentions of its drafters; <font size=-

1>(NOTE: USNB Oregon, 997 F.2d at 961; Bennett, 67 F.3d at 633;

NALU, 736 F. Supp. at 1170.) and because Comptroller Williams’ remarks about

confining the insurance powers to small town banks were predictions about the likely

effects of section 92 rather than explanations of its terms. <font size=-

1>(NOTE: NALU, 736 F. Supp. at 1170.) Where courts have

relied on Comptroller Williams’ letter, they generally have relied on the letter as

evidence that banks did not have general insurance powers apart from section 92. <font

size=-1>(NOTE: See Saxon v. Georgia Ass’n of Independent Ins.

Agents, 399 F.2d 1010, 1013 (5th Cir. 1968); American Land Title Ass’n v. Clarke, 968

F.2d 150, 155 (2nd. Cir. 1992).)

This legislative history is entirely consistent with the Congressional purpose evident

from the literal language of section 92. Banks soliciting and selling insurance under the

authority of section 92 were subject to no unique disabilities that distinguished them

Agents, 399 F.2d 1010, 1013 (5th Cir. 1968); American Land Title Ass’n v. Clarke, 968

F.2d 150, 155 (2nd. Cir. 1992).)

This legislative history is entirely consistent with the Congressional purpose evident

from the literal language of section 92. Banks soliciting and selling insurance under the

authority of section 92 were subject to no unique disabilities that distinguished them

from other insurance agencies. To the contrary, Congress was urged to enact section

92 so that certain banks could be more profitable. Handicapping bank insurance

agencies relative to other insurance agencies would have been fundamentally

inconsistent with that goal.

III.

Overview of How Insurance Agents Sold Insurance in 1916

As with the operations of banks generally, the way in which insurance agents operated

in 1916 provides a compelling insight on the scope of what Congress was permitting

when it authorized national banks to sell insurance pursuant to section 92. The clear

picture that emerges from this analysis is that nonbank insurance agents sought

business through all effective means available to them. Congress did nothing to -- and

evidenced no intent to -- prevent national banks from operating in the same way.

By 1916, (NOTE: This discussion relies mostly on

materials from the late 1800's to approximately 1925 to establish a picture of the

insurance environment of 1916. To provide a better understanding of the 1916

environment, a brief historical summary is included. Although some materials refer to

the year 1916, mostly a composite picture is presented.) life insurance

marketing in the United States had undergone many changes since the early 1800's.

Before the 1840's, life insurance men engaged in a passive mode of selling and merely

waited for business to walk in the door or arrive through the mail. <font size=-

1>(NOTE: J. Owen Stalson, Marketing Life Insurance 156

ear 1916, mostly a composite picture is presented.) life insurance

marketing in the United States had undergone many changes since the early 1800's.

Before the 1840's, life insurance men engaged in a passive mode of selling and merely

waited for business to walk in the door or arrive through the mail. <font size=-

1>(NOTE: J. Owen Stalson, Marketing Life Insurance 156

(1969).) Nothing was done to attract business. Thereafter, modest life insurance

marketing began with the use of announcement advertising and all business was

transacted by mail or in person at the head office of a company. <font size=-

1>(NOTE: Id. at 574.)

The original agents of life companies were lawyers, bankers, <font size=-

1>(NOTE: “Banks or bank employees have been agents for life

companies for generations, selling the usual forms of policies and getting the usual

commissions.” Id. at 643. ) or others who continued to earn their major income

from other professional or business services performed for their clients. <font size=-

1>(NOTE: Id. In 1842, the traditional American “life” company was

a large trust company with a life department and a huge capital stock. Id. at 110.

Thereafter came the development of mutual insurance companies and the idea of

insurance at cost. Id. at 103-04. With the development of the mutuals began the

modern day aggressive selling methods of insurance agents. Id.) Agents were

expected to operate from their usual place of business -- the law office, bank or store.

(NOTE: Id. at 193.) The companies would

grant most agents a small allowance for local advertising. <font size=-

1>(NOTE: Id. at 193.) During the 1840's the birth of

personal solicitation occurred and so began the practice of agents calling at the home or

business of a prospective insurance buyer. (NOTE:

e=-1>(NOTE: Id. at 193.) The companies would

grant most agents a small allowance for local advertising. <font size=-

1>(NOTE: Id. at 193.) During the 1840's the birth of

personal solicitation occurred and so began the practice of agents calling at the home or

business of a prospective insurance buyer. (NOTE:

Id. at 156.) Since then, face-to-face selling of life insurance has remained the

most important marketing method and the life insurance agent serves as the pivotal

factor in the life insurance marketing organization. (NOTE:

Id. at 353.)

A. Organizational Structure - The General Agency System

By 1865, the “general agency system” had developed for organizing and managing

insurance salesmen. The system lent itself to the development of national selling

organizations. (NOTE: Id. at 575.) Although

changes in responsibilities and in terminology have occurred through the years, the

general framework of the agency system has remained the same. <font size=-

1>(NOTE: The agency system was and is the predominant method

of organization for life insurance sales, however, in the early 1900's another

organizational system, the “branch office system,” came into being. Id. at 599. The

branch office system abandoned the general agency method and installed salaried

managers from the company in the local offices. Thus the company would manage the

field directly, making contracts with sub-agents and having salaried cashiers or

managers in charge of various offices. See Pacific Mutual Life Ins. Co. of

Calif.,“Efficiency” Pacific Mutual School for Salesmen, Course of Instruction 101 (1924).

) Typically, an insurance company has an agency department at the company’s

home office. (NOTE: In the early 1900's this often

was one or two people

agents and having salaried cashiers or

managers in charge of various offices. See Pacific Mutual Life Ins. Co. of

Calif.,“Efficiency” Pacific Mutual School for Salesmen, Course of Instruction 101 (1924).

) Typically, an insurance company has an agency department at the company’s

home office. (NOTE: In the early 1900's this often

was one or two people. The majority of the sales efforts took place in the field. Stalson,

supra at 596-97. In more recent years, personnel in the home office agency department

has grown substantially. Id.) The backbone of the system, however, are the

“general agents” who respectively are in charge of some portion of the whole territory

served by the insurance company. (NOTE: Id. at

469. For the company, the desirability of a wide distribution of risks encouraged

operations over the greatest extent of territory, including a large number of states. See

Pacific Mutual Life Ins. Co. of Calif.,“Efficiency” Pacific Mutual School for Salesmen,

supra at 101.) The general agents hire the “soliciting agents” who actually solicit

and sell insurance to customers.

Generally, many agents were assigned to a single large territory, such as a city, county,

state, or group of states. (NOTE: An insurance

territory might encompass one state or several states, depending on state licensing

requirements. As early as the 1840's life companies expanded their operations into

many states, not only larger cities, but also into small isolated villages. There were vast

differences in compensation plans and expense allowances for agents in small towns

versus the larger metropolitan areas. Often part-time agents worked in the rural areas,

while full-time agents were necessary in the larger cities. Id. at 185-86. ) The

general agents would set up agencies throughout the territory and act as local sales

managers

mall isolated villages. There were vast

differences in compensation plans and expense allowances for agents in small towns

versus the larger metropolitan areas. Often part-time agents worked in the rural areas,

while full-time agents were necessary in the larger cities. Id. at 185-86. ) The

general agents would set up agencies throughout the territory and act as local sales

managers. (NOTE: Stalson, supra at 596. From

early on out-of-state insurance companies commonly were required to appoint someone

in the state who was authorized to accept legal service of summons and complaint. The

common practice became to give this authority to the company’s principal selling

representative, i.e. the general agent, in each state where business was transacted. Id.

at 379. Thus, state lines often became the boundaries for an agent’s selling activities.

Id. at 380.) By 1916, most insurance companies had contracts with their general

agents providing them various compensation arrangements. <font size=-

1>(NOTE: Often the general agent had risen from the rank of

solicitor and would give up profitable personal production to undertake the career of

agency management. Id. at 609. Some companies would offer a transition stage

between soliciting agent and general agent with jobs as an assistant to the general

agent, having the title of supervisor, assistant manager, production manager, or

associate general manager. Id. General agents usually received some combination of

salary and commission; their profit was based on renewal business rather than the sale

of new business. Id. at 599-600.) The general agents recruited, trained, and

developed the soliciting agents. Often the company would supply company forms,

sales booklets, and certain instructions. A whole movement toward improved selection

and training of agents occurred during this time. (NOTE:

Id

was based on renewal business rather than the sale

of new business. Id. at 599-600.) The general agents recruited, trained, and

developed the soliciting agents. Often the company would supply company forms,

sales booklets, and certain instructions. A whole movement toward improved selection

and training of agents occurred during this time. (NOTE:

Id. at 607.) While the home office agency department was interested

in these developments, it was the local agency offices that took an active role in making

these changes.

The soliciting agent sold insurance to prospective buyers. <font size=-

1>(NOTE: State licensing requirements applied to individual

soliciting agents. See id. at 626.) The company supplied most new agents with

a printed course of instruction and they received personal instruction from the general

agent or someone appointed to act for him. (NOTE:

Insurance companies issued instruction booklets and manuals for managers and agents

that contained specific operating rules but the general agent had primary responsibility

for handling the agents. See generally The Prudential Ins. Co. of America, Instructions

Regarding the Care of Ordinary Policies, Premiums, and Office Details (Oct. 1914); The

Prudential Ins. Co. of America, Manual of Instructions to Superintendents and Ass’t

Superintendents, Instructions to Agents (July 1908); Manual for Superintendents and

Ass’t Superintendents of the Metropolitan Life Ins. Co. of N.Y. (1889). ) After

1910, selling life insurance became more than just selling policies and the thrust was to

sell insurance for business, tax, estate, and income purposes.1 <font size=-

1>(NOTE: Stalson, supra at 583.) Insurance agents could

provide local, special, or traveling services. (NOTE:

Metropolitan Life Ins. Co. of N.Y. (1889). ) After

1910, selling life insurance became more than just selling policies and the thrust was to

sell insurance for business, tax, estate, and income purposes.1 <font size=-

1>(NOTE: Stalson, supra at 583.) Insurance agents could

provide local, special, or traveling services. (NOTE:

Id. at 359.) Local agents frequently served as the company’s sole

representative in a small community. The local agent also might employ subagents.

Special agents apparently engaged in full-time soliciting under the local agent.

Traveling agents visited many communities and sometimes assisted the local or special

agents. (NOTE: Id. at 359.)

B. Industrial Life Insurance Sales

Another aspect of insurance selling in 1916 was the existence of industrial life

insurance. Insurance companies distinguished between “ordinary” life insurance and

“industrial” life insurance. (NOTE: “Ordinary” life

insurance was the traditional form of life insurance. Generally it was available to men of

certain occupations, in larger amounts, with annual or semi-annual premiums. See

“Efficiency” Pacific Mutual School for Salesmen, Course of Instruction, supra at 121.

Industrial life insurance began in England in 1854 and subsequently became popular

nt size=-1>(NOTE: “Ordinary” life

insurance was the traditional form of life insurance. Generally it was available to men of

certain occupations, in larger amounts, with annual or semi-annual premiums. See

“Efficiency” Pacific Mutual School for Salesmen, Course of Instruction, supra at 121.

Industrial life insurance began in England in 1854 and subsequently became popular

among some American insurance companies. See Stalson, supra at 462-63.)

Industrial life insurance was a marketing development designed to meet the needs and

circumstances of working class individuals and to open up insurance opportunities to

people who may not have been eligible before. (NOTE:

Id. at 462. The features of industrial life insurance typically included: (1)

available in small units; (2) open to all members of a family; (3) sold by house-to-house,

person-to-person soliciting efforts; (4) agents called each week to collect premiums; and

(5) issued without a medical examination. Id. These were departures from the ordinary

life policy.) Industrial life agents, however, also sold the traditional ordinary life

insurance. Because industrial life often required the collection of premium every week,

(NOTE: The usual weekly duties of the industrial life

agent included three days of collecting premiums and other days spent on securing new

business, acting as an underwriter in helping the home office write new risks, and

personally seeing all applicants. Id. at 472-73.) the territory for an agent’s

industrial life business may have been only a few city blocks. <font size=-

1>(NOTE: In contrast, for ordinary life insurance companies would

assign many agents to a single, large territory, such as a city, county, state, or group of

states. Id. at 469.) There was no overlap of collection areas between agents.

(NOTE: Id. at 469

agent’s

industrial life business may have been only a few city blocks. <font size=-

1>(NOTE: In contrast, for ordinary life insurance companies would

assign many agents to a single, large territory, such as a city, county, state, or group of

states. Id. at 469.) There was no overlap of collection areas between agents.

(NOTE: Id. at 469. The agent’s total amount of

weekly premium collection was known as his “debit.” This term also was used to

describe the agent’s territory. Id. at 470.) From an organizational standpoint, an

assistant manager supervised, educated, and trained the industrial agent. Each

assistant manager had from six to thirteen agents. (NOTE:

Ordinary companies might have had one general agent or assistant general

agent for thirty to forty agents. Id. at 612.) Several assistant managers were

responsible to a superintendent of a district. A district was comprised of a number of

debits. (NOTE: Id. at 473.)

C. Methods of Selling Insurance

The methods and day-to-day activities of the soliciting agents selling insurance around

1916 were of a wide variety. (NOTE: In introducing

a new man to the business in 1904, one general agent from a midwest company

wrote:In starting a new agent my plan is to carefully go over the subject of insurance

with him, . . . I then furnish him names of the leading policyholders in his community,

caution him against the pitfalls he is likely to encounter . . . He is then sent out to solicit.

After a week or ten days I visit him by appointment, and spend some time with him as

the number of prospects may warrant. While riding from prospect to prospect I will

answer, and explain such questions and difficulties as may have arisen in his mind and

then after listening to my talk to his several prospects he soon learns the rudiments of

the business

. . He is then sent out to solicit.

After a week or ten days I visit him by appointment, and spend some time with him as

the number of prospects may warrant. While riding from prospect to prospect I will

answer, and explain such questions and difficulties as may have arisen in his mind and

then after listening to my talk to his several prospects he soon learns the rudiments of

the business. I impress on him that I am always ready to come to his aid when needed

. . . Many of my agents from time to time send me a list containing the names of five or

ten of their best prospects together with a brief explanation of the situation. I then write

a personal letter and send them literature. . . .Furnish your agent with all the help you

can-- you cannot do too much of it. Watch the papers and you will find many good

prospects in their columns. Both marriage license and transfer of real estate lists are

good. Even the obituary record can be watched with profit. All these and many more

avenues for fine prospects are open to the wide awake general agent, who in turn

furnishes the names to his agents, and in the long run is amply repaid for his trouble. . .

.Id. at 518.) To a certain degree a soliciting agent engaged in different selling

methods depending on whether the agent worked in the city or in the country. <font

size=-1>(NOTE: See 600 Ways to Sell Life Ins. 28 (W. W. Mack

ed. 1925) (“small town or country salesman must work differently from the city man”). In

1920 one commentator indicated that in New York City there were as many as 3,000

men devoting their entire time to selling life insurance and at least as many part-time

agents. See Forbes Lindsey, The Day’s Work and Other Matters of More or Less

Interest to the Life Insurance Man 83 (1920). One’s methods also varied depending on

whether the agent sold only ordinary life insurance or both ordinary and industrial life

cated that in New York City there were as many as 3,000

men devoting their entire time to selling life insurance and at least as many part-time

agents. See Forbes Lindsey, The Day’s Work and Other Matters of More or Less

Interest to the Life Insurance Man 83 (1920). One’s methods also varied depending on

whether the agent sold only ordinary life insurance or both ordinary and industrial life.

The actual steps involved in selling insurance in 1916 appear similar to those of today,

including activities such as prospecting for business, applying for coverage, delivery of

the policy, continued servicing and policy review, collecting commissions, and assisting

in claims handling. See e.g., Gary Schulte, Successful Life Insurance Selling (1995);

Terry O’Neill, The Life Insurance Kit (1993); Life and Health Insurance Principles and

Practices (Dearborn R & R Newkirk) (2d ed. 1991).) Agents’ efforts generally

were restricted to their own territory. (NOTE: See

William Miller, The Art of Canvassing 53 (1913).) The layout of a city lent itself to

door-to-door selling. (NOTE: The “straight canvass”

was one way of soliciting insurance. Agents would work their way through an office

building or make a list of substantial business and professional men from a directory

and then contact those who seemed likely prospects. See e.g., Forbes Lindsey,

Practical Pointers 34-35 (1916); 600 Ways to Sell Life Ins., supra at 59 (making of night

calls and straight canvassing). ) In the city, it appears the agent relied on

walking, the streetcar, and perhaps to some degree the automobile to get around.

(NOTE: By 1916 the automobile was gaining in

popularity and there are various references implying the general use of the auto

34-35 (1916); 600 Ways to Sell Life Ins., supra at 59 (making of night

calls and straight canvassing). ) In the city, it appears the agent relied on

walking, the streetcar, and perhaps to some degree the automobile to get around.

(NOTE: By 1916 the automobile was gaining in

popularity and there are various references implying the general use of the auto. See

e.g., 600 Ways to Sell Life Ins., supra at 31, 37, and 40.) Agents were

encouraged to find prospects everywhere-- at the office, the club, the garage, the shop,

the express office, and on the street. (NOTE: See 7

Nat’l Ins. J. 3 (Apr. 1927); see also Dingman, supra at 99 (lodge or church); 600 Ways

to Sell Life Ins., supra at 115, 190 (in city park).) In the country presumably the

transportation for reaching prospects included the automobile and the train. <font

size=-1>(NOTE: See e.g., Miller, supra at 67-68 (one idea was to

canvass progressively, going from one town or village to the next and the next; not to go

randomly to remote parts of your territory); Stalson, supra at 626 (agent held up as an

example shown to have made 700 sales in his country territory in 1917); 600 Ways to

Sell Life Insurance, supra at 31 (while on a trip agent stopped at farmhouse and walked

away with an application, a check for the premium, and three references for

prospects).) One active agent describing his work in 1886 stated:

During the year I traveled 8,000 miles in all kinds of railroad cars. My

mind was all the time on the whirl as to whether I could write another risk.

I succeeded in averaging over one new risk per day for each working day

rmhouse and walked

away with an application, a check for the premium, and three references for

prospects).) One active agent describing his work in 1886 stated:

During the year I traveled 8,000 miles in all kinds of railroad cars. My

mind was all the time on the whirl as to whether I could write another risk.

I succeeded in averaging over one new risk per day for each working day

of the year, 313 days, each risk averaging about $3,333 and each

premium about $110, and in collecting and transmitting the money without

clerical aid. This was done in new territory, introducing one of the very

best companies. (NOTE: Stalson,

supra at 536-37.)

Numerous materials describing canvassing strategies, finding prospects, and organizing

work encouraged agents to get out and employ all available methods to find prospects.

(NOTE: See e.g., Dingman, supra at 93 (from 2:00

to 4:30 should call on the big businessmen); Miller, supra at 53 (the agent should

thoroughly familiarize himself with every part of his territory and so arrange his schedule

so that every part will be industriously and systematically canvassed).) Most

calls were made at the home or business of the prospect, not at the agent’s office.

(NOTE: See Dingman, supra at 93-101; 600 Ways

to Sell Life Ins., supra at 28.) As one commentator noted: “[t]he day of the typical

agent is haphazard, if not actually chaotic. He has no regular time for reaching the

office or going upon the street.” (NOTE: Lindsey,

The Day’s Work, supra at 72.)

Face-to-face contact remained the most effective means of selling within one’s territory

in 1916. While an agent might check in at the office, mostly agents were out of the

office scouring the city or town for prospects. Agents also would travel to other towns

looking for business

r going upon the street.” (NOTE: Lindsey,

The Day’s Work, supra at 72.)

Face-to-face contact remained the most effective means of selling within one’s territory

in 1916. While an agent might check in at the office, mostly agents were out of the

office scouring the city or town for prospects. Agents also would travel to other towns

looking for business. (NOTE: See e.g., 600 Ways

to Sell Life Ins., supra at 31, 37, and 67.) In addition to personal solicitation, the

insurance agent used various other methods to reach prospective customers and to

conduct business. In particular, agents used the mails, the telegraph, and advertising.

(NOTE: See e.g., 600 Ways to Sell Life Ins., supra

at 42-45. Although there was some mention of the telephone in the materials reviewed,

it does not appear it was used very much in 1916. See Dingman, supra at 95 (use of

phone at office of one prospect to call next prospect); 600 Ways to Sell Life Ins., supra

at 231-32 (one method by 1925 was to use the telephone for one hour each day as a

sales aid to secure appointments).) Use of the mails included sending form

letters, (NOTE: See e.g., Lindsey, Practical

Pointers, supra at 37 (form letter effective in securing prospects provided good

judgment is exercised in its use); 600 Ways to Sell Life Ins., supra at 151-54 (mail

solicitation supplemented with the personal touch; home office sends out letters and

agent does follow-up).) introduction letters, (NOTE:

See e.g., Lindsey, Practical Pointers, supra at 38 (letter as means of

introduction and creating preliminary interest may be effective).) or personal

letters. (NOTE: See e.g., 600 Ways to Sell Life Ins.,

supra at 151 (direct mail solicitation and canvassing); 7 Nat’l Ins. J

es follow-up).) introduction letters, (NOTE:

See e.g., Lindsey, Practical Pointers, supra at 38 (letter as means of

introduction and creating preliminary interest may be effective).) or personal

letters. (NOTE: See e.g., 600 Ways to Sell Life Ins.,

supra at 151 (direct mail solicitation and canvassing); 7 Nat’l Ins. J. 8 (June 1927)

(agent writes personal letters to new prospect and mails one day before the agent

makes his call).) Letters often might be sent to home addresses with a follow-up

call at the prospect’s place of business. (NOTE: See

Lindsey, Practical Pointers, supra at 37.) Agents also provided prospects with

sales booklets, leaflets, circulars,(NOTE: See e.g.,

600 Ways to Sell Life Ins., supra at 37 (circularized twenty professional men of city

before making trip to visit).) and other literature through the mails as well as in

person. (NOTE: See e.g., 600 Ways to Sell Life Ins.,

supra at 145-56 (use of “literature-distributing” plan for six weeks, distributing items

titled The Cookbook, The Child, Child Health, Save For Your Old Age); William

Alexander, The Prosperous Agent 20 (1921) (essential for the agent to get in touch with

his customers). Most companies supplied all the necessary literature to the agents and

did not allow circulation of these materials unless supplied or authorized by the home

office. See The Prudential Life Ins. Co. of America, Manual of Instructions to

Superintendents and Ass’t. Supt. and Instructions to Agents, supra at 12; Pacific Mutual

Life Ins. Co. of Calif., “Efficiency” Pacific Mutual School for Salesmen, supra at 109

(abundance and variety of literature provided); Lindsey, Practical Pointers, supra at

51.) One suggested method for use of the telegraph was to send a night

collection letter instead of the usual series of collection letters

ents and Ass’t. Supt. and Instructions to Agents, supra at 12; Pacific Mutual

Life Ins. Co. of Calif., “Efficiency” Pacific Mutual School for Salesmen, supra at 109

(abundance and variety of literature provided); Lindsey, Practical Pointers, supra at

51.) One suggested method for use of the telegraph was to send a night

collection letter instead of the usual series of collection letters. <font size=-

1>(NOTE: See 6 The Local Agent 17 (Feb. 1934).)

Insurance agents advertised the availability of insurance from early on. <font size=-

1>(NOTE: As early as the 1840's, most agents were granted a

small allowance for local advertising and were sent a copy of an advertisement that the

company had used elsewhere. See Stalson, supra at 193; see also id. at 268-272

(advertising through the 1850's). In 1923, Phoenix Mutual Life Insurance Company

started its program of national advertising. See id. at 603.) Advertisements for

life insurance appeared in trade papers, newspapers, magazines, office window

displays, and streetcar windows. (NOTE: See e.g.,

The Insurance Advertising Bureau, Greater Efficiency in Insurance Advertising (1913)

(discussing various types of advertising); 600 Ways to Sell Life Ins., supra at 42-44

(advertising appeared in the Saturday Evening Post, Collier’s, and American).)

General agents functioned as local sales managers. (NOTE:

Stalson, supra at 596.) They managed the personnel and activities of

the local agency. Insurance applications were reviewed by the agency office before

being sent to the home office and policies were sent to the agency office for delivery to

the insured. (NOTE: See The Prudential Life Ins.

Co. of America, Manual of Instructions to Superintendents and Ass’t. Supt

supra at 596.) They managed the personnel and activities of

the local agency. Insurance applications were reviewed by the agency office before

being sent to the home office and policies were sent to the agency office for delivery to

the insured. (NOTE: See The Prudential Life Ins.

Co. of America, Manual of Instructions to Superintendents and Ass’t. Supt. and

Instructions to Agents, supra at 14-15, 20-21.) Managers were responsible for

the delivery of policies, collection of premiums, and payment of commissions to agents.

(NOTE: See The Prudential Life Ins. Co. of

America, Instructions Regarding the Care of Ordinary Policies, Premiums, and Office

Details, supra at 17.) While once a very independent operation, as time went on

the home office agency exerted more control over marketing activities and reduced the

independence of the general agent. (NOTE:

Stalson, supra at 617.)

IV.

OCC Interpretive Ruling and Relevant Cases

A. Interpretive Ruling

Twelve C.F.R. § 7.1001 provides,

Pursuant to 12 U.S.C. 92, a national bank may act as an agent for any

fire, life, or other insurance company in any place the population of which

does not exceed 5,000 inhabitants. This provision is applicable to any

office of a national bank when the office is located in a community having

a population of less that 5,000, even though the principal office of such

bank is located in a community whose population exceeds 5,000. <font

size=-1>(NOTE: 12 C.F.R. § 7.1001 (formerly 12

C.F.R. § 7.7100). As part of its regulation review project, the OCC

recently renumbered and made nonsubstantive stylistic edits to the

interpretive ruling. See 61 Fed. Reg. 4849 (1996)

a population of less that 5,000, even though the principal office of such

bank is located in a community whose population exceeds 5,000. <font

size=-1>(NOTE: 12 C.F.R. § 7.1001 (formerly 12

C.F.R. § 7.7100). As part of its regulation review project, the OCC

recently renumbered and made nonsubstantive stylistic edits to the

interpretive ruling. See 61 Fed. Reg. 4849 (1996). )

The OCC interpreted the reach of section 92 more broadly in 1963 by permitting a

branch office of a bank to act as agent for insurance companies if the branch was

located in a community with a population of less than 5,000, even if the main office of

the bank was located elsewhere. See 12 C.F.R. § 7.1001. As one court noted: “now,

heavily capitalized corporations with faraway headquarters could share [section 92's]

benefits, including those deriving from technological innovations undreamed of in the

early years of this century.” (NOTE: Independent Ins.

Agents v. Ludwig, 997 F.2d 958, 961 (D.C. Cir. 1993) (“USNB Oregon”).) A

challenge to the 1963 OCC ruling was rejected on the grounds of laches. <font size=-

1>(NOTE: National Ass’n. of Life Underwriters v. Clarke, 736 F.

Supp. 1162, 1165 (D.D.C. 1990), rev’d on other grounds sub nom. Independent Ins.

Agents v. Clarke, 955 F.2d 731 (D.C. Cir.), reh’g en banc denied, 965 F.2d 1077 (D.C.

Cir. 1992), rev’d and remanded sub nom. United States Nat’l Bank v. Independent Ins.

Agents, 124 L. Ed. 2d 402 (U.S. 1993), aff’d on remand, Independent Ins. Agents v.

Ludwig, 997 F.2d 958 (D.C. Cir. 1993).)

B. Cases

The Supreme Court recently offered further support for construing section 92 as

authority for national banks to sell insurance without being subject to unique disabilities

or restrictions. (NOTE: See Barnett Bank of Marion

County, N.A. v. Nelson, 134 L. Ed

aff’d on remand, Independent Ins. Agents v.

Ludwig, 997 F.2d 958 (D.C. Cir. 1993).)

B. Cases

The Supreme Court recently offered further support for construing section 92 as

authority for national banks to sell insurance without being subject to unique disabilities

or restrictions. (NOTE: See Barnett Bank of Marion

County, N.A. v. Nelson, 134 L. Ed. 2d 237 (1996) (“Barnett”).) The Court held

that section 92 pre-empts a state statute that otherwise would prevent a national bank

from selling insurance in a small town. (NOTE: See id.

at 242.) Barnett Bank had bought a state-licensed insurance agency to conduct

its insurance sales through a small town bank branch. The Florida State Insurance

Commissioner challenged Barnett’s insurance activities under Florida’s anti-affiliation

statute and Barnett brought an action for declaratory judgment claiming that section 92

pre-empted the restrictive state statute. The Court examined the language of section 92

and found that section 92 suggests “a broad, not limited permission” for national banks

to act as the agent for insurance sales. (NOTE: Id. at

244.)

Two Courts of Appeal have followed a fundamentally similar approach in establishing

that section 92 does not place any geographic restrictions on the customers to whom a

bank or branch may sell insurance pursuant to section 92. <font size=-

1>(NOTE: See NBD Bank, N.A. v. Bennett, 67 F.3d 629 (7th Cir.

1995) (“Bennett”); Independent Ins. Agents v. Ludwig, 997 F.2d 958 (D.C. Cir. 1993)

(“USNB Oregon”). ) Under these decisions, while the bank or branch must be

“located” in the “place of 5,000,” potential or existing insurance customers may be

located anywhere

ll insurance pursuant to section 92. <font size=-

1>(NOTE: See NBD Bank, N.A. v. Bennett, 67 F.3d 629 (7th Cir.

1995) (“Bennett”); Independent Ins. Agents v. Ludwig, 997 F.2d 958 (D.C. Cir. 1993)

(“USNB Oregon”). ) Under these decisions, while the bank or branch must be

“located” in the “place of 5,000,” potential or existing insurance customers may be

located anywhere. (NOTE: See id.)

In Bennett, the court held that section 92 “permits small town banks to act as insurance

agents without regard to the location of customers.” (NOTE:

Id. at 632) NBD Bank, a large bank with operations in several states,

also operated a branch in Corydon, Indiana, a place of less than 5,000 inhabitants.

Relying on the OCC’s interpretive ruling that section 92 authority extends to bank

branches, NBD believed the Corydon branch could sell insurance to residents

throughout the state of Indiana. NBD filed an action for declaratory relief in response to

the Indiana Commissioner of Insurance’s issuance of a geographically limited license

restricting the bank’s insurance sales to the inhabitants of Corydon.

The Seventh Circuit considered the question of “to whom” the bank branch could sell

insurance. The court reasoned that section 92 identifies insurance as a line of business

that banks may engage in and, hence, the court compared the location of insurance

customers to customers of other lines of business engaged in by banks. <font size=-

1>(NOTE: See id. at 631

f Corydon.

The Seventh Circuit considered the question of “to whom” the bank branch could sell

insurance. The court reasoned that section 92 identifies insurance as a line of business

that banks may engage in and, hence, the court compared the location of insurance

customers to customers of other lines of business engaged in by banks. <font size=-

1>(NOTE: See id. at 631. The court inquired “[w]hat of their other

lines of business? May banks take deposits from persons located outside of their home

bases? Make loans to residents of other cities and states? If the answer is “yes,” then

the absence of any customer limitations in § 92 implies equal freedom; but if banks may

do deposit-and-loan business only close to home, then the absence of a reference to

customers in § 92 implies that banks are similarly confined when acting as insurance

agents.” Id.) The court found that banks long have transacted business across

state lines and local borders for other activities, such as taking deposits and making

loans. (NOTE: See id. The court noted that today

“banks in New York join with banks in Texas to make syndicated loans secured by real

estate in Alaska; banks in Illinois issue letters of credit to Portuguese corporations in

order to facilitate shipments between Brazil and Japan; banks in Arizona issue credit

cards to residents of Maine; the citizens of North Dakota can put their assets in trusts

managed by banks in Florida and write checks on banks in

Hawaii . . . .” Id. In determining where a bank is “located,” the court reviewed the

language of 12 U.S.C. § 85 permitting a national bank to charge any rate of interest that

is proper under state law where the bank is located. For purposes of section 85, the

Supreme Court has held that a bank is “located” where its physical facilities are found.

s in Florida and write checks on banks in

Hawaii . . . .” Id. In determining where a bank is “located,” the court reviewed the

language of 12 U.S.C. § 85 permitting a national bank to charge any rate of interest that

is proper under state law where the bank is located. For purposes of section 85, the

Supreme Court has held that a bank is “located” where its physical facilities are found.

See Marquette National Bank of Minneapolis v. First of Omaha Service Corp., 439 U.S.

299 (1978). Thus, explained the Bennett court, under Marquette, a Nebraska bank

charging 18% interest made its loans “in” Nebraska to residents of Minnesota, which

capped interest rates at 12%, even though neither the borrower nor the merchant ever

visited Nebraska. See Bennett, 67 F.3d at 632.) On this basis, the court

concluded “[i]f national banks have been able to engage in interstate transactions ever

since 1864, when they were created, then transactions with customers living outside the

bank’s home town are the background against which we must understand § 92.” <font

size=-1>(NOTE: See id. at 632. Further, the court recognized

section 92's delegation of regulatory power to the Comptroller which entitles the

Comptroller to fill gaps and resolve ambiguities concerning the meaning of the statute.

See id. Moreover, the court recognized that Congress in 1916 may not have anticipated

all the questions that might come up concerning the statute. For this reason, “Congress

frequently delegates power, as it did in § 92.” Id

ction 92's delegation of regulatory power to the Comptroller which entitles the

Comptroller to fill gaps and resolve ambiguities concerning the meaning of the statute.

See id. Moreover, the court recognized that Congress in 1916 may not have anticipated

all the questions that might come up concerning the statute. For this reason, “Congress

frequently delegates power, as it did in § 92.” Id. The court did not reach the question

of precisely “where” the “place of 5,000" bank’s or branch’s insurance agent activities

must occur.)

Similarly, the court in USNB Oregon upheld the Comptroller’s view that “section 92

imposes no geographic limit on the insurance market so that, as long as [the bank or

branch] is located in a small town, a bank is free to solicit and serve insurance

customers everywhere.” (NOTE: USNB Oregon, 997

F.2d at 958. The court did not address how the bank or branch should solicit and serve

insurance customers and thereby did not address whether the bank or branch must

conduct certain insurance agent activities in the “place of 5,000.”) The United

States National Bank of Oregon (“USNB Oregon”), a subsidiary of the multi-million

dollar holding company U.S. Bancorp, proposed to sell insurance under the authority of

section 92 from its branch in Banks, Oregon, population 489. The Comptroller

approved USNB Oregon’s plan and provided that the small town branch could sell

insurance to existing and potential customers located anywhere. Trade associations

filed suit arguing that the Comptroller had exceeded his statutory authority.

The D.C. Circuit in USNB Oregon looked at the congressional intent behind section 92

by examining the language of the statute and the legislative history, and found “no

specific congressional intent to restrict the geographic reach of the insurance sales

authorized by section 92.” (NOTE: Id. at 961

g that the Comptroller had exceeded his statutory authority.

The D.C. Circuit in USNB Oregon looked at the congressional intent behind section 92

by examining the language of the statute and the legislative history, and found “no

specific congressional intent to restrict the geographic reach of the insurance sales

authorized by section 92.” (NOTE: Id. at 961. The

court reviewed the Comptroller’s interpretation under the principles of Chevron U.S.A.

Inc. v. NRDC, 467 U.S. 837 (1984), looking at the issue of unambiguous congressional

intent and reasonable agency interpretation.) While the court recognized that the

changed business environment in the modern world has led to events probably

unforeseen by the 1916 drafters, the court stated “it is not our job to divine how

legislators would have responded to hypotheticals.” (NOTE:

USBN Oregon, 997 F.2d at 961. The court continued “particularly where the

question is as unknowable as the reaction of 1916 legislators to a world of microchips,

communication satellites, fax machines, direct mail and telephone solicitation, and all

the other technologies and techniques that now enable a nationwide business to be

conducted from any hamlet.” Id.) The court also found no basis for overturning

the Comptroller’s permissible construction of the statute. Accordingly, the court

concluded that Congress expressly permitted banks in a “place of 5,000" to sell

insurance and the Comptroller has found that Congress did not impose a geographic

limit on the insurance business they are allowed to conduct. <font size=-

1>(NOTE: See id.)

As stated in Bennett, the background against which we must understand section 92 is

banks engaging in transactions with customers living outside of the bank’s home town

a “place of 5,000" to sell

insurance and the Comptroller has found that Congress did not impose a geographic

limit on the insurance business they are allowed to conduct. <font size=-

1>(NOTE: See id.)

As stated in Bennett, the background against which we must understand section 92 is

banks engaging in transactions with customers living outside of the bank’s home town.

(NOTE: See Bennett, 67 F.3d at 632.) So long

as the bank or branch is located in the “place of 5,000,” insurance customers may be

outside of the “place” and, similarly, insurance-related activities with potential or existing

customers may occur outside of the “place.” Under the same analysis as in Bennett, in

order for banks to make loans or encourage deposits from customers in faraway

locations, bank representatives may need to travel to or conduct activities from those

locations. (NOTE: 753-4n2) Likewise, to solicit

and serve insurance customers everywhere, as acknowledged in USNB Oregon, <font

size=-1>(NOTE: USNB Oregon, 997 F.2d at 958.) a bank

agency in the “place of 5,000" may need to engage in insurance activities occurring

away from the “place.” (NOTE: 753-4n1)

Bennett and USNB Oregon support the proposition that in a modern world of fax

machines, third-party marketing strategists, and advanced telecommunications, all

activities related to insurance sales do not have to be conducted from one location, or

for that matter, conducted from a location physically close in proximity to the home base

of the operations

trong>NOTE: 753-4n1)

Bennett and USNB Oregon support the proposition that in a modern world of fax

machines, third-party marketing strategists, and advanced telecommunications, all

activities related to insurance sales do not have to be conducted from one location, or

for that matter, conducted from a location physically close in proximity to the home base

of the operations. (NOTE: See Bennett, 67 F.3d at

633 (“[u]nanticipated developments frustrate many a drafter”); USNB Oregon, 997 F.2d

at 961 (“technological innovations undreamed of in the early years of this

century”).) The USNB Oregon decision indirectly sanctioned geographically

dispersed insurance activities by upholding the Comptroller’s conclusion that section 92

“did not impose a geographic limit on the insurance business [small town banks] are

allowed to conduct.” (NOTE: See Barnett, 134 L. Ed.

2d at 244.) Section 92's broad permissive language on banks’ insurance agent

activities, as cited in Barnett, also supports a flexible reading of where insurance sales

activities may occur so long as the location of the bank or branch is in the “place of

5,000.” (NOTE: See Barnett, 134 L. Ed. 2d at 244.

)

In sum, the literal language of the statute, its apparent purpose, and all the highest level

decided cases support the same proposition: Section 92 authorizes national bank

insurance agencies located in a “place of 5,000" to solicit and sell insurance however

any other insurance agent (that is not a bank or affiliated with a bank) can solicit and

sell insurance. It also does not address (or restrict) supporting activities that do not

constitute elements of the solicitation and sale process.

es support the same proposition: Section 92 authorizes national bank

insurance agencies located in a “place of 5,000" to solicit and sell insurance however

any other insurance agent (that is not a bank or affiliated with a bank) can solicit and

sell insurance. It also does not address (or restrict) supporting activities that do not

constitute elements of the solicitation and sale process.

Application of Section 92 in the Modern Context

This brings us to the application of section 92 today. Two critical elements emerge from

the preceding discussion. First, section 92 by its literal terms, consistent with

Congressional intent and as construed by relevant case law, does not subject national

banks soliciting and selling insurance under that section to unique restrictions or

disabilities relative to insurance agents generally in a particular state. Second, given

the flexibility with which banks and insurance agents operated in 1916, it is entirely

consistent with the section’s authority and purpose to allow national bank insurance

agencies to employ the same variety of marketing resources and tools as are used

today by other insurance agencies.

Accordingly, the first question we ask is a relatively simple one: Could a non-bank, non-

bank-affiliated insurance agency based in a particular “place of 5,000" use the methods,

tools and facilities the bank proposes to use to solicit and sell insurance? If state law

would not so limit the marketing range, methods and facilities available for non-bank,

non-bank-affiliated agencies, then that scope and those methods and facilities also

should be permissible for a bank or bank-affiliated agency

ed insurance agency based in a particular “place of 5,000" use the methods,

tools and facilities the bank proposes to use to solicit and sell insurance? If state law

would not so limit the marketing range, methods and facilities available for non-bank,

non-bank-affiliated agencies, then that scope and those methods and facilities also

should be permissible for a bank or bank-affiliated agency.

The second question draws on the history of section 92: Are the bank agency’s

operations inconsistent with the type of activities Congress accepted and authorized?

On this issue, a brief recap of the historical perspective when Congress authorized

national banks to act as insurance agents in 1916, discussed in detail in section III,

supra, is helpful. At that time, nonbank insurance agents were soliciting and servicing

insurance customers in territories that could encompass large geographic areas, such

as whole states or several states. The insurance salesmen’s general pattern was to

personally solicit customers in any way possible, such as seeking out prospective

customers at home, at the office, at the club, or elsewhere. The efficient and

prosperous salesmen used any means available to seek out prospects. Similarly, the

general business of banking was not limited to the confines of the bank’s physical

location. Bankers also engaged in personal solicitation of prospective customers.

In conducting their business, insurance salesmen and bankers alike used the latest

devices and technology to sell their products, such as the mails, the telegraph, and the

telephone. These activities extended beyond city and town boundaries. The clear

emphasis for banks was to adopt progressive methods and strategies to sell the bank’s

services, similar to methods and strategies used in the commercial and industrial

business spheres.

In particular, both the insurance and banking industry in 1916 used advertising to solicit

business

, the telegraph, and the

telephone. These activities extended beyond city and town boundaries. The clear

emphasis for banks was to adopt progressive methods and strategies to sell the bank’s

services, similar to methods and strategies used in the commercial and industrial

business spheres.

In particular, both the insurance and banking industry in 1916 used advertising to solicit

business. (NOTE: By 1916 bankers had gone from

mere announcement advertising to full-scale advertising campaigns. See notes 56-74

supra and accompanying text.) Banks engaged in extensive advertising in a

variety of forms, including local mediums such as newspapers, window displays, and

streetcars, as well as nationally circulating trade journals and magazines. <font size=-

1>(NOTE: Banks were encouraged to be creative, individual, and

develop a personality through advertising. See Earl Fischer, The Keyword in Bank

Advertising, 2 Successful Banking 27 (May 1917).)

The organizational structure of the “general insurance agency” usually resulted in

agents being managed from a local agency, although agents were not necessarily

based or present in the local office on a day-to-day basis. By 1916, the general agent

acted as the local sales manager and was in charge of the activities of his agents.

Salesmen typically were paid by the general agent from the local agency location.

Similarly, bank employees typically were managed from the local bank location. <font

size=-1>(NOTE: See Howard M. Jefferson, Improvements of Bank

Methods, 97 Bankers Mag. 261 (Sept. 1918) (banks used the functional type of

organization to some extent and managers were placed in charge of new divisions as

they were created).)

The local agency was the insurance salesmen’s place of business for licensing

purposes

from the local bank location. <font

size=-1>(NOTE: See Howard M. Jefferson, Improvements of Bank

Methods, 97 Bankers Mag. 261 (Sept. 1918) (banks used the functional type of

organization to some extent and managers were placed in charge of new divisions as

they were created).)

The local agency was the insurance salesmen’s place of business for licensing

purposes. Insurance agents and managers sent correspondence and applications from

the local agency office to the home office while the home office sent the policies for

delivery to the local agency offices. (NOTE: See The

Prudential Life Ins. Co. of America, Manual of Instructions to Superintendents and Ass’t.

Supt. and Instructions to Agents, supra at 14-15, 20-21; The Prudential Life Ins. Co. of

America, Instructions Regarding the Care of Ordinary Policies, Premiums, and Office

Details, supra at 17.) Soliciting agents were required to be licensed by the state

for registration, tax, or regulatory purposes. (NOTE:

Stalson, supra at 626 (Massachusetts in 1911 intended to license all full-time

agents; New York considered requiring examinations of applicants for soliciting licenses

as early as 1911).) Insurance companies also were subject to state licensing

requirements. (NOTE: See id. at 436. In addition, state

laws required that an out-of-state insurance company must grant state-wide power of

attorney for acceptance of legal service of summons and complaint to someone residing

in the state. These requirements led insurance companies to give broad general

powers to their principal selling representative, i.e. the “general” agent, and thus state

lines tended to become the boundaries of the agent’s power of attorney as well as his

selling activities. Today insurance companies have made the superintendent of

insurance (insurance commissioner) the agent for service of process. See id

hese requirements led insurance companies to give broad general

powers to their principal selling representative, i.e. the “general” agent, and thus state

lines tended to become the boundaries of the agent’s power of attorney as well as his

selling activities. Today insurance companies have made the superintendent of

insurance (insurance commissioner) the agent for service of process. See id. at 379-

80.)

Section 92 as enacted in 1916 generally described the ways national bank insurance

agencies operated: by soliciting and selling, by collecting premiums, and by receiving

commissions and fees for these services from the insurance company. Congress knew

how to, but conspicuously did not delineate or curtail how these activities were to be

conducted by bank insurance agencies. Thus, Congress permitted national banks to

operate effectively in the insurance business that existed in 1916, and also did not

restrain banks’ ability to modernize their solicitation and sales methods as needed to

remain competitive as the insurance business evolved.

Thus, today, insurance agents enjoy expanded geographic flexibility, and employ

technological innovations and contemporary marketing methods and facilities. The

language of section 92, its legislative history, the practices of banks and insurance

agents in 1916, the OCC’s longstanding interpretive ruling, and recent cases, all support

the conclusion that a national bank insurance agency located in a “place of 5,000"

should be permitted the same marketing range and be able to use the same marketing

tools and facilities as generally available for licensed insurance agencies in the state(s)

in which the bank agency operates

and insurance

agents in 1916, the OCC’s longstanding interpretive ruling, and recent cases, all support

the conclusion that a national bank insurance agency located in a “place of 5,000"

should be permitted the same marketing range and be able to use the same marketing

tools and facilities as generally available for licensed insurance agencies in the state(s)

in which the bank agency operates.

Accordingly, the following general principles can be distilled from the foregoing analysis

to define the scope of solicitation and sales activities permissible for national banks

under section 92:(NOTE: This description is not

intended to be exhaustive and we recognize that solicitation and sales techniques can

vary with the different marketing strategies employed by different banks and yet still be

consistent with the general principles set forth herein.)

The agency located in the “place of 5,000" must, of course, be bona fide. In the

present situation that will clearly be the case. Agents will be managed through

the agency and the “place of 5,000" will be the agency’s business location for

licensing purposes. Each agency will be responsible for collecting commissions

from insurance carriers and paying commissions to its licensed sales staff. The

agency also generally will be responsible for processing insurance applications,

delivery of insurance policies, and collection of premiums, where consistent with

procedures of the relevant insurance carriers

y’s business location for

licensing purposes. Each agency will be responsible for collecting commissions

from insurance carriers and paying commissions to its licensed sales staff. The

agency also generally will be responsible for processing insurance applications,

delivery of insurance policies, and collection of premiums, where consistent with

procedures of the relevant insurance carriers. In addition, business records of

the agency, including copies of customer application and policy information, and

licensing, customer complaint, and other compliance records, will be available at

the “place of 5,000.” (NOTE: As previously

noted, business records may be maintained and available at the agency in

electronic form, with the original hardcopy kept in off-site storage.)

The bank agency and its agents may seek the same market range and use the

same marketing tools and facilities as generally available for a licensed insurance

agency, not affiliated with a bank, that is based in the “place of 5,000." <font

size=-1>(NOTE: As previously noted, this letter does not

address and is not intended to express any opinion on any state law preemption

issues. See note 5 supra and accompanying text.) This will generally

allow the following:

··

Meetings with customers and solicitations and sales of insurance by

agents of the bank agency may take place at locations inside the “place of

5,000" as well as at locations outside that “place,” provided the agents are

managed and paid through the bank agency located in the “place of

ion

issues. See note 5 supra and accompanying text.) This will generally

allow the following:

··

Meetings with customers and solicitations and sales of insurance by

agents of the bank agency may take place at locations inside the “place of

5,000" as well as at locations outside that “place,” provided the agents are

managed and paid through the bank agency located in the “place of

5,000" and use that location as their place of business for licensing

purposes. If an insurance company has adopted other procedures for its

nonbank agents, however, the bank agency may follow the same

procedures as other insurance agents selling the company’s policies.

··

Mailings to advertise and sell insurance may originate from inside or

outside of the “place of 5,000,” and brochures, leaflets, and other literature

alerting potential customers to the bank’s insurance activities may be

distributed from locations both inside and outside of the “place of 5,000,”

including other branches of the same bank. Personnel of bank branches

outside of the “place of 5,000" also may make referrals to the bank’s

insurance agency. Likewise, telephone and cybermarketing may be used

and the calls and messages need not originate within the “place of 5,000.”

··

The bank may contract with third parties to assist the agency’s sales

activities. For example, third parties might provide advertising support,

direct mail marketing services, telemarketing services, payments

processing, or other types of “back office” support.

Based on the foregoing analysis and conclusions, and the representations made by the

Banks that the Subsidiaries would operate in a manner that is consistent with the

analysis described above, the OCC concludes that the Subsidiaries’ proposed

insurance agency activities are permissible under section 92 and that the Subsidiaries’

proposed activities as agent for the sale of fixed and variable annuities are permissible

under 12 U.S.C. § 24(Seventh)

representations made by the

Banks that the Subsidiaries would operate in a manner that is consistent with the

analysis described above, the OCC concludes that the Subsidiaries’ proposed

insurance agency activities are permissible under section 92 and that the Subsidiaries’

proposed activities as agent for the sale of fixed and variable annuities are permissible

under 12 U.S.C. § 24(Seventh).

Accordingly, the OCC approves the Banks’ operating subsidiary notification. If you have

any questions, please do not hesitate to contact me (202/874-5200) or Suzette H.

Greco, Senior Attorney (202/874-5210).

Sincerely,

/s/

Julie L. Williams

Chief Counsel

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.