Nationsbank of North Carolina, N. A. v. Variable Annuity Life Insurance
513 U.S. 251, 1995 U.S. LEXIS 691, 130 L. Ed. 2d 740 (1995)
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Rule of Law:
National banks may, under the 'incidental powers' provision of the National Bank Act, act as agents in the sale of annuities, as annuities are considered financial investment instruments falling within 'the business of banking' and are not 'insurance' for purposes of 12 U.S.C. § 92.
Facts:
- NationsBank of North Carolina, N. A. (a national bank) and its brokerage subsidiary desired to act as an agent in the sale of annuities.
- Annuities are contracts where a purchaser makes one or more premium payments to an issuer in exchange for a series of future payments, either for a fixed period or the purchaser's life.
- The specific annuities NationsBank proposed to sell allowed purchasers to direct their payments to variable, fixed, or hybrid accounts, with various insurance companies acting as issuers.
- The Comptroller of the Currency, the federal agency overseeing national banks, had determined that national banks could sell annuities, classifying them as within 'the business of banking' under 12 U. S. C. § 24 Seventh and not 'insurance' under 12 U. S. C. § 92.
- Variable Annuity Life Insurance Co. (VALIC), a company that sells annuities, opposed national banks selling annuities.
Procedural Posture:
- Variable Annuity Life Insurance Co. (VALIC) filed suit in the United States District Court for the Southern District of Texas seeking declaratory and injunctive relief against the Comptroller and NationsBank.
- The District Court granted summary judgment in favor of the Comptroller and NationsBank.
- VALIC appealed to the United States Court of Appeals for the Fifth Circuit.
- The Fifth Circuit reversed the District Court's judgment, holding that 12 U.S.C. § 92 barred banks not in small towns from selling insurance and that annuities were insurance for purposes of § 92.
- The Supreme Court granted certiorari.
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Issue:
May national banks act as agents in the sale of annuities under the 'incidental powers' provision of the National Bank Act (12 U.S.C. § 24 Seventh), and are annuities considered 'insurance' under 12 U.S.C. § 92, which restricts insurance sales by banks in larger towns?
Opinions:
Majority - Justice Ginsburg
Yes, the National Bank Act permits national banks to act as agents in the sale of annuities, and annuities are not considered 'insurance' under 12 U.S.C. § 92. The Court applied the Chevron deference framework, finding the National Bank Act ambiguous on the precise question at issue and the Comptroller of the Currency's interpretation reasonable. The Comptroller reasonably concluded that the phrase 'the business of banking' in 12 U.S.C. § 24 Seventh is an independent grant of authority, not limited to the enumerated examples, and encompasses brokering financial investment instruments. Annuities, particularly modern ones with significant investment features and less emphasis on mortality risk, are functionally akin to other investment products and debt instruments that banks traditionally broker. Therefore, selling them falls within the 'incidental powers' necessary to carry on the business of banking. Furthermore, the Comptroller's determination that annuities are not 'insurance' for the purposes of 12 U.S.C. § 92 was also reasonable. While states may classify annuities as insurance in some contexts, this characterization is not universal and is not mandated by federal banking law. The functional difference—insurance indemnifies loss, while annuities primarily serve an investment purpose—supports the Comptroller's distinction. The Court also found the Comptroller's position on annuities consistent, or at least that any change in position did not eliminate the deference owed to his reasoned determinations.
Analysis:
This case significantly broadens the scope of permissible activities for national banks, particularly in the financial services sector, by emphasizing deference to the Comptroller of the Currency's reasonable interpretations of the National Bank Act. It clarifies that the 'business of banking' is not limited to specific enumerated activities but includes 'incidental powers' that evolve with financial markets. This decision paved the way for banks to engage more deeply in investment-related activities, blurring the lines between traditional banking and other financial services, and influencing how 'insurance' is defined in a federal regulatory context, separate from state definitions.
