Nbd Bank, N.A. v. Donna D. Bennett, Indiana Insurance Commissioner

Citations: 67 F.3d 629; 1995 U.S. App. LEXIS 27835; 1995 WL 581175Docket: 95-1310

Court: Court of Appeals for the Seventh Circuit; October 4, 1995; Federal Appellate Court

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NBD Bank operates a branch in Corydon, Indiana, which, due to its population of fewer than 5,000, is permitted under 12 U.S.C. Sec. 92 to act as an agent for selling insurance. The regulation allows national banks in small towns to solicit and sell insurance, with the Comptroller of the Currency affirming that this applies to branches as well. NBD contends it should be able to sell insurance throughout Indiana, while the Indiana Insurance Commissioner issued a geographically limited license for sales only to Corydon's inhabitants. NBD is challenging this limitation in court, supported by the Comptroller, who asserts that Indiana's interpretation of Sec. 92 is incorrect. Previous court rulings have indicated that the location of the bank's office, not the residence of insureds, dictates the scope of sales. A magistrate judge sided with the Indiana Commissioner, granting summary judgment against NBD. The only issue before the court is whether Indiana can limit NBD's activities under Sec. 92, with Indiana not claiming authority from the McCarran-Ferguson Act to restrict these activities. Comparisons are made with other circuit rulings on the interaction between Sec. 92 and the McCarran-Ferguson Act.

Section 92 of the National Bank Act specifies that national banks may engage in insurance sales as agents in locations with populations not exceeding 5,000. It indicates that while the bank's location is defined, the residency of customers is not explicitly limited by the statute; however, it implies that customers must reside in areas where the insurer is authorized to operate. The lack of explicit customer location restrictions could suggest broader customer engagement; nonetheless, if banks are confined to local operations for deposits and loans, similar limitations might apply to their role as insurance agents.

Historical context shows that banks have always engaged in interstate transactions, and this practice has only expanded over time. Examples illustrate that banks operate across state lines for various financial services, promoting commerce, competition, and risk diversification. The Supreme Court affirmed in Marquette National Bank that a bank's location for legal purposes is defined by its physical presence, not by the location of its customers, thereby supporting the legality of interstate banking practices and addressing competitive concerns from local banks.

Omaha Bank retains its right to operate from its Nebraska location while extending credit to Minnesota residents, as these individuals can historically receive loans in Nebraska without the application of Minnesota usury laws. The bank's loans are considered made in Nebraska, as they honor sales drafts from Minnesota merchants, regardless of whether the borrower or merchant physically visits Nebraska. The interpretations of Sections 85 and 92 of the relevant statutes are aligned, with both defining a bank's location based on its physical premises rather than the residence of customers. Historical context indicates that since national banks were established in 1864, they have engaged in interstate transactions without geographic restrictions on customer locations. When Congress enacted Section 92 in 1916, it did not impose limits on customer locations for loan transactions, as was done for loan brokerage (which was later repealed). This suggests that small-town banks can act as insurance agents without regard to customer locations. The Comptroller of the Currency interprets Section 92 as allowing small-town banks to sell insurance, which is seen as beneficial for diversifying bank revenues and enhancing competition. The long-standing interpretation by the Comptroller, dating back to 1986, is authoritative, as delegated powers allow for reexamination and changes in interpretation over time.

The magistrate judge posited that Congress had a clear intent regarding the geographic scope of banks' authority to sell insurance, suggesting either local sales or a broader market. However, this interpretation is criticized as both incorrect and irrelevant. It is deemed incorrect because Congress cannot foresee all future issues when drafting legislation, often leaving unresolved questions due to competing interests or unforeseen circumstances. Therefore, Congress frequently delegates authority to executive officials, as illustrated by Section 92. 

The discussion distinguishes between two inquiries: 1) the interpretation of Congress's intent behind Section 92, which can inform the understanding of the law, and 2) Congress's expectations about the outcomes of the statute, which are less relevant to legal interpretation. Ultimately, what matters is the enacted text, not the abstract intentions of Congress. Examples are provided to illustrate that expectations not codified in statutory law do not govern legal outcomes, as seen in cases involving repealed price controls and budgetary appropriations. Additionally, while economic changes may affect the implications of statutes like Section 85, they do not alter the statutes' meanings, reaffirming that courts cannot reinterpret laws based on legislative expectations or unforeseen developments.

Surviving text of Section 92 does not establish geographic limits on customers, and intent cannot restrict the Comptroller’s regulatory power. The legislative history similarly does not address customer location, focusing instead on banks' locations. Two appellate courts have interpreted Section 92 to imply that banks outside small towns cannot serve as insurance agents. The Supreme Court, in reversing one of these cases, did not decide on this implication. Assuming the negative implication holds, it only restricts banks from acting as insurance agents outside small towns, not customers.

Indiana's argument that the case should be in state court was rejected, supported by prior legal analysis in Alleghany Corp. v. Haase, which, despite being vacated due to mootness, remains valid. A claim by NBD based on Indiana law for judicial review of administrative decisions faces a barrier under the Eleventh Amendment, which protects states from being sued in federal court. The Indiana Commissioner of Insurance, sued in her official capacity, constitutes "the state" under constitutional interpretations.

NBD contends it does not seek relief based on state law, asserting that Indiana law merely provides authority to annul unlawful administrative actions, with the relevant law being federal Section 92. However, treating Indiana law as jurisdictional does not apply in federal court, as state statutes governing state court authority are irrelevant in federal litigation. The Eleventh Amendment presents issues regarding state law's relevance either as a substantive limit or a waiver of immunity.

Consequently, the district court's judgment is vacated regarding the state law claim, and the case is remanded for dismissal of this claim due to lack of jurisdiction. The remainder of the judgment is reversed, instructing the district court to issue a declaratory judgment consistent with this opinion.