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Valley National Bank v. Lavecchia

59 F. Supp.2d 432 (D. N.J. 1999)

TITLE INSURANCE; BANKS—Federal law preempts state law that would otherwise bar a national bank from selling title insurance.

A bank opened a branch and located a title company in a municipality with a population of 2,370 people and located a title company. The title company was an operating subsidiary created to sell title insurance and other insurance from the branch. It contracted with a licensed insurance producer to sell title insurance. Federal law provides that “a national bank may act as an agent for any fire, life or other insurance company in any place the population of which does not exceed 5,000 inhabitants.” This provision is applicable to any office of a national bank when the office is located in a community having a population of less than 5,000 even though the principal office of such bank is located in a community whose population exceeds 5,000. On the other hand, a New Jersey statute declares that in New Jersey: “[n]o bank, trust company, bank and trust company or other lending institution, mortgage service, mortgage brokerage or mortgage guaranty company or any service company of or for any lending institution or any officer or employee of the foregoing shall be licensed as or permitted to act as an insurance producer for a title insurance company… .” The question presented to the Court was whether the Federal statute preempted the New Jersey statute. The bank claimed that the Federal statute conferred a “broad, not a limited” permission for national banks to sell all types of insurance. It argued that the New Jersey statute, if upheld, would be an absolute bar to the licensure of any bank seeking to act as an agent for a title insurance company. The bank contended that, as a result, the State’s statute directly conflicted with Federal law and was therefore preempted. It further argued that the term “or other insurance” in the Federal law meant that Congress intended for the statute to apply to title insurance. The named defendant was included in her official capacity as the Commissioner of the New Jersey Department of Banking and Insurance. The State argued that because the Federal statute specified some types of insurance (“fire, life”) but did not enumerate title insurance, Congress did not intend to include title insurance within the Federal statute’s purview. It argued that “if Congress [had] meant to allow banks to sell title insurance, it would have specifically so stated, as it did with other forms of insurance.” The Court rejected the State’s argument. “There is a cardinal rule of statutory construction under which a court must give effect to the plain meaning of a statute.” The Court found that by using the words “or other insurance” and not carving out an exception, “Congress meant what it said, any other insurance authorized by the State to do business in that State.” The Court further found that a title insurance company surely is an insurance company. It further cited cases from other jurisdictions that found that this Federal law allows national banks located and doing business in communities of 5,000 or fewer inhabitants to sell any type of insurance and, in fact, the Office of the Comptroller of the Currency had also published that “[t]he authority to sell insurance under Section 92 includes the authority to sell title insurance, as agent.”

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