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Barnett Bank, N.A. v. Nelson - 517 U.S. 25, 116 S. Ct. 1103 (1996)

Rule:

A federal statute will not pre-empt a state statute enacted for the purpose of regulating the business of insurance -- unless the federal statute specifically relates to the business of insurance. 

Facts:

A federal statute allowed certain national banks to sell insurance in small towns. Subsequently, a Florida statute prohibited banks from selling insurance except for unaffiliated small town banks. Barnett Bank, an affiliated national bank with a branch in a small town in Florida, bought a Florida licensed insurance agency. The Florida State Insurance Commissioner ordered Barnett’s insurance agency to stop selling insurance as it violated the state statute since the exception did not apply to Barnett.

The District Court ruled that the state statute was not pre-empted because of the McCarran-Ferguson Act's special insurance-related anti-pre-emption rule. Under the rule, a federal statute does not pre-empt a state law enacted for regulation of the business of insurance except when the federal statute specifically relates to the business of insurance.

The Eleventh Circuit Court of Appeals affirmed.

Issue:

Did the federal statute, which permitted national banks to sell insurance in small towns, pre-empt Florida’s state statute that forbade such banks to do so?

Answer:

Yes.

Conclusion:

The Supreme Court ruled that under ordinary pre-emption principles, the Florida state statute is pre-empted as it was irreconcilably in conflict with the federal statute. Also, the permission granted by the federal statute was broad enough as the grant of power was not subject to state statutes. The wording of the federal statute that authority to sell insurance is in “addition to the powers now vested by law in national [banks]” is significant. Historically, interpretation of express and incidental powers to national banks ordinarily pre-empts contrary state law. Since Congress did not expressly conditioned the grant of power upon state permission, no such condition applies. Florida’s argument that Congress intended to grant a limited permission based on special circumstances in the federal statute’s enactment is unpersuasive.

The Court also ruled that the McCarran-Ferguson Act’s special anti-pre-emption rule does not apply because the federal statute specifically relates to insurance business. This conclusion rests upon the Act's language and purposes, taken together. The word "relates" is highly general; and federal statute focusing directly upon industry-specific selling practices, affecting the relation of insured to insurer, and the spreading of risk, all "specifically" relate to the insurance business. The Act's mutually reinforcing purposes -- that state regulation and taxation of the insurance business is in the public interest, and that Congress' silence shall not be construed to impose any barrier to such regulation or taxation -- also support this view. This phrase, especially the word "silence," indicates that the Act seeks to protect state regulation primarily against inadvertent federal intrusion, not to insulate state insurance regulation from the reach of all federal law. The circumstances surrounding the Act's enactment also suggest that the Act was passed to ensure that generally phrased congressional statutes, which do not mention insurance, are not applied to the issuance of insurance policies, thereby interfering with state regulation in unanticipated ways. The Court reversed the appealed decision.

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