WEST VIRGINIA INSURANCE COMMISSIONER LOSES OCC PREEMPTION SUIT.

In a direct challenge to state regulation of insurance, the Fourth U.S. Circuit Court of Appeals ruled Nov. 19 the Office of the Comptroller of the Currency did not exceed its statutory authority when it issued an advisory opinion saying the federal Gramm-Leach-Bliley Act preempted West Virginia's consumer-protection statute governing the sale of insurance in banks.

In West Virginia Insurance Commissioner Jane L. Cline et al. v. Comptroller of the Currency John D. Hawke et al. (01-2100), the majority of a three-judge panel voted to dismiss Cline's petition to the court to review the OCC preemption opinion issued Oct. 3, 2001.

The dismissal, however, came in an unpublished decision, so it is not binding precedent in the Fourth Circuit.

Circuit Judge Robert B. King dissented, saying the court lacked jurisdiction to review an advisory opinion of the OCC because it did not carry "the force of law" but was only "informal agency guidance" so the "case or controversy mandate of Article III of the Constitution" was not met.

But Circuit Judges Roger L. Gregory and J. Michael Luttig said Section 304 of the GLBA gave the court jurisdiction "where there is a regulatory conflict between a state insurance regulator and a federal regulator, including the preemption of a state law."

The OCC opinion came in response to a request from the West Virginia Bankers Association for a determination whether eight provisions of the West Virginia Sales Consumer Protection Act applied to national banks or were preempted by Section 104 of the GLBA.

In addition to declaring the McCarran-Ferguson Act remains the law of the United States, Section 104 provides: "in accordance with the legal standards for preemption set forth in the decision of the Supreme Court of the United States in Barnett Bank of Marion County N.A. v. Nelson, 517 U.S. 25 (1996), no State may, by statute, regulation, order, interpretation or other action prevent or significantly interfere with the ability of a depository institution, or an affiliate thereof, to engage ... in any insurance sale, solicitation, or cross-marketing activity."

Arguing OCC had erred in its interpretation of the "significant interference" standard set forth in Barnett, the Independent Insurance Agents and Brokers of America and the National Association of Professional Insurance Agents intervened on behalf of Cline, joined by the National Association of Independent Insurers and National Association of Insurance Commissioners.

Gregory, who wrote the opinion in which Luttig concurred, said Cline and the insurers "are correct in their assertion that the GLBA does not give the OCC express power of interpretation." But he added "an administrative agency's authority need not be expressly delegated by Congress."

He noted GLBA's Section 104(d)(2)(c)(1) was titled "OCC Deference.

"Had Congress not anticipated OCC action interpreting the GLBA, there would be no need for an 'OCC Deference' provision of the GLBA," he wrote.

"Therefore, we find that the OCC has implicit interpretive authority under the GLBA."

He said Section 92 of the National Bank Act provides OCC with "explicit authority to regulate the sale of insurance by national banks located in small towns" and the GLBA expands that authority to nationwide sale of insurance by national banks.

He then ruled the GLBA gives OCC "implicit interpretive authority" to determine if provisions in the state's law "are disruptive to bank operations, increase bank operating costs, and substantively affect a bank's ability to solicit and sell insurance products."

Although OCC was "entitled to some deference" under the GLBA, he found the GLBA "does not provide guidance as to what level of deference is appropriate" and determined OCC's interpretations were entitled to respect to the extent they met the standard for persuasiveness outlined by the Supreme Court in Skidmore v. Swift & Co., 323 U.S. 134.

After reviewing the "thoroughness of the OCC's consideration, the validity of its reasoning, and its consistency with earlier and later pronouncements," he found OCC's preemption letter met the Skidmore standard for persuasiveness.

King disagreed with Gregory that OCC has authority to act unilaterally in interpreting or implementing GLBA.

"To the extent that the OCC possesses any power under GLBA, it shares that power with other federal banking agencies," he wrote.

"GLBA was not designed to expand the power of national banks to issue insurance, but rather its purpose was to remove the traditional barriers among the banking, insurance and securities industries. Therefore, the OCC does not possess, nor does it claim, a role in implementing GLBA."

If national banks rely on OCC's preemption opinion, King warns, "such reliance would result from a mistaken legal conclusion regarding the OCC's authority, and it does not create Article III jurisdiction."

NAII Counsel Mike Koziol called the ruling "disappointing" and said the court had incorrectly applied the Barnett standard for preemption.

"This ruling presents a threat to functional regulation of insurance by the states and could disrupt regulatory activity and consumer protections in other states that have similar laws," he said.

Although the decision is unpublished, "it nevertheless sends a clear signal as to how the Fourth Circuit at least will interpret such disputes in the future," said Joyce Kraeger, attorney for the Alliance and PIA.

She said "the petitioners may seek a rehearing before the full Fourth Circuit, or possibly seek review by the U.S. Supreme Court."