Gen. 89] 89

1 You have also asked about theauthority of State-chartered banks to sell insurance directly. A separate opinion on that question will be issued later. INS URANCE
F INAN CIAL I NSTITUTIONS

) B ANKS

) M ARYLAND L AW P R OHI BITING D IRECT S ALE OF I NSURANCE BY N ATIONAL B ANKS IS P REEMPTED BY F EDERAL L AW

September 26, 1996

Mr. D wight K . Bartlett, III Insurance Commissi oner Mr. H. Robert Hergenroede r Comm issi oner of Financ ial Regul ation

You have request ed our opini on whe ther the Sup reme C ourt’s decisi on in Barnet t Bank v. Nelson, 517 U.S. 25, 116 S. Ct. 1103 (1996), affect s the aut horit y of the Maryland Insuranc e Comm issi on er to prohibi t or r egulat e the sal e of ins urance by nationa l banks i n Maryland. 1 Our opinion is as follows: 1. Federal law, as appl ied by the Sup reme C ourt in Bar nett Bank , preempts the provis ion of t he Insuranc e Code thateffectiv ely prohibi ts nat ional banks from sel ling i nsurance di rectly. 2. Th e M arylan d Insu rance Co mm issione r ma y reg ulate nationa l banks that

sellinsurance )in part icular , by requir ing lice nsing

)so l o ng as t he re gu l at i on do es no t , i n the Su pr eme Cou rt’s phrase, “prevent or signi ficantly int erfer e with the nationa l ban k’s e xer cise of its pow ers.”90 [81 O p. Att’y
I Insurance Code Restrict ion The M aryland Insurance Code provides as follows:

(1) A partner ship or c orporat ion may not acce pt in its own nam e comm issions, fees, or oth er co mpensation f

or acti ng as an agent

or brokerunless i t posses ses a cer tif icat e of qua lifica tion

.... (2) T o ob tain a certi ficat e o f qu alif icat ion, a partn ership or co rpora ti o n mu st: (i) Be primaril y eng aged in the insurance business; ( ii) File t

he appropri ate for

m as adopted by the Comm issi oner; and ( i ii) Pay the fee set f

orth i n §41 of this arti cle.
Art icle 4 8A, §168(e) of the Maryland Code. The I nsurance Comm is sioner

has consi stent ly appli ed this secti on to all ow banks to sell insu rance only through aseparat e and dist inct s ubsidi ary. The bank could not s ell insurance di rectly, because no bank could satisfy the requir ement in §168(e) (2)(i ) that it be “ prim arily engaged in the insu ran ce b usin ess.” If the bank cr eated a s eparat e and dist inc t subs idiar y for the explic it purpose of s elling insurance, t he subsidi ary could meet the requ irem ents of §168(e) and there fore be l icensed a s an in surance agency. The subsidi ar y c ould then market and sellinsurance through license d age nts an d cou ld coll ect p remiums and commissions in the c orporat e name of the subs idiar y. Such premiums might then be pa id as di vidends t o the pare nt 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

bizarr e codifi catio n 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, wher

e 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. 14 1 (1982). The ques tion is whether §168(e) , as applied to national banks, has bee n pr eem pted by fede ral la w.

II
The Barnet

t BankDecision
In 1916, Congress enacted a s tatut e th at al lowed nati onal banks to sellinsurance in sma ll t owns. 12 U.S.C. §92. 2 In 1974, Fl orida adopteda state st atute that pro hibited any f inanc ial institution in Flori da from engaging i n insurance agency acti viti es. I n 1996, the Su pr eme Co urt held that, in en acti ng the federal law, Congress intende d to o ver ride con trary state law

. Accordingly, the Co urt held that 12 U.S.C. §92 pre empted the F lori da s tatut e. Barnett Bank v. Nelson, 517 U .S. 25, 116 S .Ct. 1103 (1 996).
In concludi ng that

Con gr es s h ad pr ee mpt ed co ntrary st at e l aw, the Co urt rejec ted F lorida’s argu me nt that th e fede ral statute shou ld be constr

ued “to grant t

he [nati onal] bank only a very li mited permissi on, that i s, per mission t o sellinsurance to t he extent that state law also gran ts permissi on to do so. ” Barnett Bank , 116 S . Ct. at 110 8 (emph asis omit ted). Inste ad, the Court rul ed, the federa l statutory langu age “ sugg ests a b road , not a lim ited, per miss ion” to sell insu ran ce. Id . Moreover, the fede ral s tatut e “contai ns no indicationthat Congre ss int ended to subj ect that power to l ocal restr ictio n.” 116 S. Ct. at 1109-10 ( inter nal quotation marks om itted). Since the Flori da stat ute eff ecti vely prohibited banks from sell ing insurance, t

he Court hel d that t

he Flori da stat

ute was preempted. 392 [81 O p. Att’y

4 Federal regulations allow national banks to engage in activities whichare incidental to banking, either directly or throug h operating (continued...) III
Pre em ption An alysis The Maryland stat

ute unde r r eview broadl y prohibi ts any corporat io n from operat ing as an i nsurance age nt unles s the co rpor ationits elf i s “pri marily engage d in the bus iness of insu ran ce.” Articl e 48A, §168(e). This requi rement has the eff ect of pro hibiti ng a nati onal bank fr om selli ng insurance it self or from being an insur ance agent. Since 12 U.S.C. §92 specif ical ly provi des that a nati onal ba nk “may . .. a ct as age nt for any .. . ins urer, ” the M aryland

stat ute and the federa l law are in ir reconci lable con fli ct

. Section 168( e) would cle arly “f orbid, or ... impa ir significa ntly the exercise of a power that

Congress expl icitly grant ed.” Barnett Bank , 116 S. C t. at 110 9. Fo r that rea son, § 168 (e) is preempted by federal la w, as enunciat ed in Barnett Bank , to the extent that 168 (e ) proh ibits nationa l banks f rom sellin g in sura nce
. See, e .g., Fra nklin Nation al Bank v. New York , 347 U .S. 373 (195 4) (New York ’s restrict ions on ad vertis in g were incompati ble with f ederal grant of autho rity to accept

deposit and were ther efore pr eempted by feder al law). The fact t

hat a nat ional bank could, under Marylandlaw, c reate and operate a subsidi ary for the purpos e of sel ling insurance does not change our ana l ysis. A subs idiary is b y def inition a sepa rate corporat ion, with a sep arate c orpo rate ex istence and s epara te corp orate liabilities. W hile the subsidiary ma y be w holly owned by a ba nk, i t is a d istinc t lega l enti ty an d is n ot itse lf the ban k. Federal law gives national banks the power to a ct as i nsurance agents. As noted by the Court in Barnett Bank , Congress did not intend “to subj ect that power to l ocal re stri ction. ” 116 S. C t. a t 1110. Section 168( e) does pr event, or at least sign ificantly restrict, a nationa l bank’s authori ty to s ell insurance directly orotherwis e act as age nt fo r an y au tho rized insu rer. A national bank ma y cho ose to create a separate an d distinct subsidiary for this p urpo se, bu t, in our vi ew, ma y no t b e requir ed to do so by St ate l aw. The choice whether to sell i nsurance directly or t hrough a su b sidi ary is , under federallaw, for

the nat ional bank to make. 4Gen. 89] 93

4 (...continued) subsidiar ies. Howeve

r, it is the est ablish ed policy of the Office of the Comptroller

of the Currency to consider such corporate structure issuesto be business decisions, which ar e leftto banks’ management. See12 C.F.R. §5.34.

5 The Court

gave the following

example s: Anderson Nat. Bank v

. Luckett , 321 U.S. 233, 247-252, 64 S.Ct. 599, 606-609, 88 L .Ed. 6 92 (1944) (state statute adm i nistering abandoned deposit accoun ts did not“unlawful[ly] encroac[h] onthe rights and privileges of national ban ks ”); McClellan v. Chipman, 164 U.S. 347, 35 8, 17 (continued...) Accordingly, it is our view that Maryland may not, consi stent with Barnett Bank , appl y §168(e) t o nation al ban ks and ther eby forbid nationa l ba nk s from se lling insurance d irectly or require na tional b anks to cr eate a s ubsidi ary for the purpos e of sel ling insurance.

IV

Preser ved R egulator y Au thority
In Ba rnett

Bank, the S upre me Co urt spe cificall y recogniz ed th e autho rity of a st ate i nsurance commissi oner to r eg ul ate nat ional banks in t

he sale of

insurance: In defi ning the pr e-emptive s cope of stat utes and r egula tions g ranting a pow er to nationa l banks, [prior] cases t ake the vi ew that norm ally Co ngre ss w ould not w ant S tates to forbi d, or to impair signifi cantly, t he exercise of a power that

Congress ex pli citly granted. To say thi s is not

to depri ve State s of the power to regul ate nat io nal bank s, where (unli ke here) doi ng so does not pr eve n t or significa ntly interfere with the na tional bank’s exercise of it s powers. 116 S.Ct. at 1109. 594 [81 O p. Att’y

5 (...continued) S.Ct. 85, 87-88, 41 L.Ed. 461 (1896) (application to nati on al banks of state statute forbidding certain real estate transfers by insolvent transferees would not “destro[y] or hampe[r]” national banks’ function s); National Bank v. Commonwealth , 76 U.S. (9 Wa ll.) 353, 362, 19 L.Ed. 701 (1869) (national banks subject to state lawth at d oes not “i

nterfe re with, or impair [national banks’] eff

icie ncy in performing the functions bywhich they are designed to serve [the Federal] Government”). Id

. The exact dim ensions of the Insurance Com missione r’s resi dual regulat ory author ity ar e diff icult to st ate i n the abstra ct. A precis e desc riptio n m ust aw ait spec ific regu latory q uestion s, for on ly then can it

be deter mined whether spec ific requ irem ents “p rohib it or significa ntly interfere with” nationa l bank’s power to sel l ins urance. At a mi ni mum, however, the Insuranc e Comm issi oner may subject nationa l bank s to stand ard S tate licen sing re quirem ents applic able to all entities oper ating a s insur ance agenci es. Thus, the Insuranc e Comm issi oner may require a nationalbank t o have an agency license and operat e only thr ough l ice nsed agents employed by the bank, sellinsurance only on behal f of l icensed i nsurers , and meet other State l aw requirements regulating the s ale of i nsurance imposed on li censees gene rall y. Arti cle 48A, §§167 and 168.

V Conclusion
In summary, it i s our opini on that f ederal law pree mpts the provisi on of the I nsurance Code that eff ecti vel y proh ibit s nati onal banks from sell ing ins urance di rectly. However, the Maryland Insura nce Co mm issione r ma y reg ulate n ationa l bank s that se ll insurance )in part icular, by r equiri ng lice nsing

)so long as t heGen. 89] 95 regulation does not “p reven t or sign ificantly inte rfer e with the natio nal b ank ’s ex ercis e of its po we rs.” J. Joseph C urran, Jr. AttorneyGeneral
De nnis W . Carro ll Assist ant Attorney General Jack Sch wa rtz Chief Counsel Opinions and Advic e