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Wednesday, January 19, 2005

Federal Court Ruling Eases Bank Insurance Sales

Article from The National Underwriter Company.

The U.S. District Court in Boston issued a declaratory judgment Wednesday in favor of banks that sought an end to state rules placing various procedural roadblocks that limited the way banks could sell insurance.

The case is Massachusetts Bankers Association, Inc. et al. v. Julianne M. Bowler and Steven L. Antonakes (Case No. 03-11522-RWZ). If you're interested in a copy of the case, e-mail me at alvin dot borromeo at mt-law dot com. MBA press release here (PDF).

In May 2000, the Massachusetts Bankers Association, Inc. ("MBA") requested the opinion of the Office of the Comptroller of the Currency of the United States ("OCC"), the primary regulator of federally charted banks, whether the Gramm-Leach-Bliley Act of 1999, 15 U.S.C. Sec. 6701, preempted certain provisions of the Massachusetts Consumer Protection Act Relative to the Sale of Insurance by Banks, Mass. Gen. Laws ch 167F, Sec. 2A. On March 18, 2002, the OCC opined that the provisions were preempted by federal law.

MBA challenged "four provisions of Massachusetts law, which they have labeled as the Referral Prohibition, the Referral Fee Prohibition, the Waiting Period Restriction, and the Separation Restriction. The Referral Provision, Mass. Gen. Laws ch. 167F, Sec. 2A(b)(2), allows officers, tellers, and other bank employees who are not licensed insurance agents to refer a bank customer to a licensed insurance agent only when the customer inquires about insurance."

One of the Plaintiffs, Banknorth, N.A. has 360 branches in six northeastern states, including 121 Massachusetts branches. During the first six months of 2003, Banknorth did not refer a single Massachusetts customer to its insurance affiliates. By comparison, the Maine, New Hampshire, and Vermont branches referred 4,200 customer, 2,016 customers, and 1,522 customers, respectively, to their insurance affiliates.

The court said:

The dismmal number of referrals is clearly a result of the statutory structural impediments to cross marketing insurance products, which include the requirement that any solicitation attempt must capriciously rely on the customer initiating the inquiry.

The court examined the other provisions as well.

In the end, the court ruled that the GBLA preempts the Massachusetts provisions because they seriously impede the plaintiffs' ability to solicit, cross market, and sell insurance products.


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