Gen. 89] 89

1

 You have also asked about the authority of State-chartered banks

to sell insurance directly. A separate opinion on that question will be

issued later.

INSURANCE

FINANCIAL INSTITUTIONS ) BANKS ) MARYLAND LAW

PROHIBITING DIRECT SALE OF INSURANCE BY NATIONAL

BANKS IS PREEMPTED BY FEDERAL LAW

September 26, 1996

Mr. Dwight K. Bartlett, III

Insurance Commissioner

Mr. H. Robert Hergenroeder

Commissioner of Financial Regulation

You have requested our opinion whether the Supreme Court’s

decision in Barnett Bank v. Nelson, 517 U.S. 25, 116 S. Ct. 1103

(1996), affects the authority of the Maryland Insurance

Commissioner to prohibit or regulate the sale of insurance by

national banks in Maryland.1 Our opinion is as follows:

1. Federal law, as applied by the Supreme Court in Barnett

Bank, preempts the provision of the Insurance Code that effectively

prohibits national banks from selling insurance directly.

2. The Maryland Insurance Commissioner may regulate

national banks that sell insurance ) in particular, by requiring

licensing ) so long as the regulation does not, in the Supreme

Court’s phrase, “prevent or significantly interfere with the national

bank’s exercise of its powers.”
90 [81 Op. Att’y

I

Insurance Code Restriction

The Maryland Insurance Code provides as follows:

(1) A partnership or corporation may not

accept in its own name commissions, fees, or

other compensation for acting as an agent or

broker unless it possesses a certificate of

qualification....

(2) T o obtain a certificate of

qualification, a partnership or corporation

must:

(i) Be primarily engaged in the

insurance business;

(ii) File the appropriate form as

adopted by the Commissioner; and

(iii) Pay the fee set forth in §41 of

this article.

Article 48A, §168(e) of the Maryland Code. The Insurance

Commissioner has consistently applied this section to allow banks

to sell insurance only through a separate and distinct subsidiary. The

bank could not sell insurance directly, because no bank could satisfy

the requirement in §168(e)(2)(i) that it be “primarily engaged in the

insurance business.”

If the bank created a separate and distinct subsidiary for the

explicit purpose of selling insurance, the subsidiary could meet the

requirements of §168(e) and therefore be licensed as an insurance

agency. The subsidiary could then market and sell insurance

through licensed agents and could collect premiums and

commissions in the corporate name of the subsidiary. Such

premiums might then be paid as dividends to the parent bank.
Gen. 89] 91

2

 Under this provision, a national bank “located and doing business

in” a town with a population of 5,000 or less may “act as the agent for any

... insurance company ... by soliciting and selling insurance and collecting

premiums ....” The bizarre codification history of 12 U.S.C. §92,

including its seeming repeal, is recounted in United States Nat’l Bank v.

Independent Ins. Agents of America, Inc., 508 U.S. 439, 113 S. Ct. 2173

(1993).

3

 Of course, where a state statute is preempted by federal law, courts

are required, under the Supremacy Clause, to follow federal, not state,

law. Fidelity Fed. Sav. & Loan Ass’n v. de la Cuesta, 458 U.S. 141

(1982). 

The question is whether §168(e), as applied to national banks,

has been preempted by federal law. 

II

The Barnett Bank Decision

In 1916, Congress enacted a statute that allowed national banks

to sell insurance in small towns. 12 U.S.C. §92.2 In 1974, Florida

adopted a state statute that prohibited any financial institution in

Florida from engaging in insurance agency activities. In 1996, the

Supreme Court held that, in enacting the federal law, Congress

intended to override contrary state law. Accordingly, the Court held

that 12 U.S.C. §92 preempted the Florida statute. Barnett Bank v.

Nelson, 517 U.S. 25, 116 S.Ct. 1103 (1996).

In concluding that Congress had preempted contrary state law,

the Court rejected Florida’s argument that the federal statute should

be construed “to grant the [national] bank only a very limited

permission, that is, permission to sell insurance to the extent that

state law also grants permission to do so.” Barnett Bank, 116 S. Ct.

at 1108 (emphasis omitted). Instead, the Court ruled, the federal

statutory language “suggests a broad, not a limited, permission” to

sell insurance. Id. Moreover, the federal statute “contains no

indication that Congress intended to subject that power to local

restriction.” 116 S. Ct. at 1109-10 (internal quotation marks

omitted). Since the Florida statute effectively prohibited banks from

selling insurance, the Court held that the Florida statute was

preempted.3
92 [81 Op. Att’y

4

 Federal regulations allow national banks to engage in activities

which are incidental to banking, either directly or through operating

(continued...)

III

Preemption Analysis

The Maryland statute under review broadly prohibits any

corporation from operating as an insurance agent unless the

corporation itself is “primarily engaged in the business of

insurance.” Article 48A, §168(e). This requirement has the effect of

prohibiting a national bank from selling insurance itself or from

being an insurance agent. Since 12 U.S.C. §92 specifically provides

that a national bank “may ... act as agent for any ... insurer,” the

Maryland statute and the federal law are in irreconcilable conflict.

Section 168(e) would clearly “forbid, or ... impair significantly the

exercise of a power that Congress explicitly granted.” Barnett Bank,

116 S. Ct. at 1109. For that reason, §168(e) is preempted by federal

law, as enunciated in Barnett Bank, to the extent that 168(e)

prohibits national banks from selling insurance. See, e.g., Franklin

National Bank v. New York, 347 U.S. 373 (1954) (New York’s

restrictions on advertising were incompatible with federal grant of

authority to accept deposit and were therefore preempted by federal

law).

The fact that a national bank could, under Maryland law, create

and operate a subsidiary for the purpose of selling insurance does not

change our analysis. A subsidiary is by definition a separate

corporation, with a separate corporate existence and separate

corporate liabilities. While the subsidiary may be wholly owned by

a bank, it is a distinct legal entity and is not itself the bank. 

Federal law gives national banks the power to act as insurance

agents. As noted by the Court in Barnett Bank, Congress did not

intend “to subject that power to local restriction.” 116 S. Ct. at

1110. Section 168(e) does prevent, or at least significantly restrict,

a national bank’s authority to sell insurance directly or otherwise act

as agent for any authorized insurer. A national bank may choose to

create a separate and distinct subsidiary for this purpose, but, in our

view, may not be required to do so by State law. The choice

whether to sell insurance directly or through a subsidiary is, under

federal law, for the national bank to make.4
Gen. 89] 93

4

 (...continued)

subsidiaries. However, it is the established policy of the Office of the

Comptroller of the Currency to consider such corporate structure issues to

be business decisions, which are left to banks’ management. See 12

C.F.R. §5.34. 

5

 The Court gave the following examples: 

Anderson Nat. Bank v. Luckett, 321 U.S. 233,

247-252, 64 S.Ct. 599, 606-609, 88 L.Ed. 692

(1944) (state statute administering abandoned

deposit accounts did not “unlawful[ly] encroac[h]

on the rights and privileges of national banks”);

McClellan v. Chipman, 164 U.S. 347, 358, 17

(continued...)

Accordingly, it is our view that Maryland may not, consistent

with Barnett Bank, apply §168(e) to national banks and thereby

forbid national banks from selling insurance directly or require

national banks to create a subsidiary for the purpose of selling

insurance.

IV

Preserved Regulatory Authority

In Barnett Bank, the Supreme Court specifically recognized the

authority of a state insurance commissioner to regulate national

banks in the sale of insurance:

 In defining the pre-emptive scope of

statutes and regulations granting a power to

national banks, [prior] cases take the view that

normally Congress would not want States to

forbid, or to impair significantly, the exercise

of a power that Congress explicitly granted.

To 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.

116 S.Ct. at 1109.5
94 [81 Op. Att’y

5

 (...continued)

S.Ct. 85, 87-88, 41 L.Ed. 461 (1896) (application

to national banks of state statute forbidding

certain real estate transfers by insolvent

transferees would not “destro[y] or hampe[r]”

national banks’ functions); National Bank v.

Commonwealth, 76 U.S. (9 Wall.) 353, 362, 19

L.Ed. 701 (1869) (national banks subject to state

law that does not “interfere with, or impair

[national banks’] efficiency in performing the

functions by which they are designed to serve [the

Federal] Government”).

Id.

The exact dimensions of the Insurance Commissioner’s

residual regulatory authority are difficult to state in the abstract. A

precise description must await specific regulatory questions, for only

then can it be determined whether specific requirements “prohibit or

significantly interfere with” national bank’s power to sell insurance.

At a minimum, however, the Insurance Commissioner may subject

national banks to standard State licensing requirements applicable to

all entities operating as insurance agencies. Thus, the Insurance

Commissioner may require a national bank to have an agency

license and operate only through licensed agents employed by the

bank, sell insurance only on behalf of licensed insurers, and meet

other State law requirements regulating the sale of insurance

imposed on licensees generally. Article 48A, §§167 and 168.

V

Conclusion

In summary, it is our opinion that federal law preempts the

provision of the Insurance Code that effectively prohibits national

banks from selling insurance directly. However, the Maryland

Insurance Commissioner may regulate national banks that sell

insurance ) in particular, by requiring licensing ) so long as the 
Gen. 89] 95

regulation does not “prevent or significantly interfere with the

national bank’s exercise of its powers.”

J. Joseph Curran, Jr.

Attorney General

Dennis W. Carroll

Assistant Attorney General

Jack Schwartz

Chief Counsel

 Opinions and Advice