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RE: Summary of the Ohio Barnett Litigation: Association of Banks in Insurance et al v. Duryee (U.S.D.C. S.D. Ohio) Case C-298-1120

December 5, 2001

December 5, 2001

From: Ann vom Eigen, Legislative/Regulatory Counsel American Land Title Association®

In November, 1998, the Association of Banks in Insurance, Inc., the American Bankers Association Insurance Association, the Ohio Bankers Association and the Huntington National Bank (collectively, the "Banks") filed suit against the Ohio Commissioner of Insurance in the United States District Court for the Southern District of Ohio, Case No. C2-98-1120, seeking preemption of several Ohio insurance consumer protection regulations based on the United States Supreme Court?s decision in Barnett Bank of Marion Co., N.A. v. Nelson, 517 U.S. 25 (1996).

In Barnett, the Supreme Court concluded that Section 13 of the Federal Reserve Act, 12 U.S.C. § 92 "Section 92", (which authorizes national banks located in doing business in places with populations not exceeding 5,000 residents), preempted the state of Florida?s general prohibition on bank sales of insurance. In its holding, however, the Barnett Court stated that "[t]o say this is not to deprive States of the power to regulate national banks where (unlike here) doing so does not prevent or significantly interfere with the national bank?s exercise of its powers." Barnett, 517 U.S. at 33. The question presented in this Ohio case is whether the challenged Ohio statutory insurance consumer protection provisions exceed the permissible scope of the State of Ohio?s regulatory authority over national banks that wish to exercise some of their Section 92 small-town insurance sales powers. In essence, the question is whether the Ohio insurance requirements "prevent or significantly interfere" with the national bank?s ability to sell insurance.

The banks assert three core challenges justifying national bank preemption of the Ohio law:

(1) A preemption challenge to Ohio?s general prohibition on bank sales of insurance to the extent that the prohibition applies to small-town national banks exercising their Section 92 insurance sales powers (Count 1). (The State has essentially conceded that the title insurance sales prohibition is preempted by Barnett?s prevent or significantly interfere standard );

(2) Preemption challenges to the Ohio prohibitions on the licensure of any applicant whose "principal purpose" in obtaining a producer?s license would be to service "controlled business" of the parent (Counts 2 and 3); and

(3) A preemption challenge to Ohio?s corporate qualification requirements (Count 4).

The Ohio Land Title Association, IIIAA, NALU, and PIA, joined by their respective Ohio affiliates intervened in the case on behalf of the Ohio Insurance Commissioner. The District Court granted judgment in favor of the banks on June 19, 1999 on all 3 issues in a very broad opinion.

The insurance agent associations appealed that judgment to the Sixth Circuit on the latter two issues only. On November 1, 2001, the Sixth Circuit issued its ruling affirming the two challenged holdings of the District Court but on much narrower grounds, essentially concluding that the "principal purpose" test is preempted because it operates to actually prevent national banks from selling insurance in many instances. The Sixth Circuit remanded the case to the District Court on the corporate qualification requirements issues so that the District Court can determine whether those requirements are saved from preemption by the Gramm-Leach-Bliley Act provisions that expressly require all financial institutions to comply with state insurance agent licensure requirements unless those requirements "prevent or significantly interfere with" their ability to act as insurance agents.

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