August 28, 2014

Going to the High Court

John D. McKinnon | 1/1/1996
Nestled in a strip mall between a pet store and Donna's Diner, the Linda Clifford Insurance Agency hardly looks like the subject of a life-or-death struggle between two of the nation's biggest financial industries.

But this month, the U.S. Supreme Court takes up a hotly contested lawsuit over the Clifford agency that could determine whether banks across the country can enter lucrative auto, homeowners and life insurance sales markets. Agents worry that banks quickly will come to dominate many insurance markets if they win the lawsuit -- with adverse consequences for consumers. Banks contend that agents really are worried about losing business.

The case began two years ago, when Barnett Banks' Marion County subsidiary purchased Clifford's ten-year-old insurance agency in the tiny, tree-shaded town of Belleview in Marion County. Barnett Bank of Marion County immediately announced its intention to start selling policies through the agency "regardless of where the insurance customers are located." Four days later, the state Department of Insurance ordered the agency to halt most sales activities, citing a 21-year-old state law that prohibits Florida banks from selling most types of insurance. Barnett sued, but lost at the trial court and again at the 11th Circuit U.S. Court of Appeals in Atlanta.

But there is reason to believe that Barnett will win in the U.S. Supreme Court, thanks in part to an obscure federal law that banks across the country have succeeded in reviving to boost their insurance-sales ambitions.

The law, enacted in 1916, authorized national banks located in towns of fewer than 5,000 people to act as agents for fire, life and other insurance companies. Barnett now contends that the 1916 law allows it to operate insurance sales statewide and even nationwide through its branch in Belleview, which has a population of about 3,000.

Until recently there was doubt about whether the law even existed anymore. In 1918, because of misplaced quotation marks in the original bill, Congress appeared to repeal the law. It actually was dropped from the official federal statute book, the United States Code. However, no one bothered to tell the federal Office of the Comptroller of the Currency (OCC), which continued to approve applications under the 1916 law. Finally, in a ground-breaking case brought by an Oregon bank, the U.S. Supreme Court concluded three years ago that the law had merely been misplaced all these years, and not repealed. The high court declared it alive and well.

But the Oregon case didn't resolve another key question in the banking-insurance debate: namely, whether restrictive laws like Florida's -- which still exist in most states -- can trump the 1916 federal law and allow states to prevent national banks from selling insurance. The answer will come in Barnett's case. The decision likely will turn on the high court's interpretation of the 1916 law under the federal McCarran-Ferguson Act of 1945, which divided responsibility for insurance regulation between the states and the federal government. McCarran-Ferguson says that a federal law would pre-empt state insurance regulations if the federal law "specifically relates" to insurance. In a seemingly strained interpretation, the 11th Circuit concluded in Barnett's case that the 1916 law doesn't specifically relate to insurance. The OCC, which has encouraged bank sales of insurance, sides with Barnett.

Even if Barnett wins, the courts likely will continue to wrestle for a while with other important questions, such as the extent to which small-town branches can be used for statewide or nationwide insurance sales.

Insurance agents promise to fight on in Congress and state legislatures. Says Scott Johnson, executive vice president of the Florida Association of Insurance Agents: "This is a gut-level issue with us in which we believe we have the moral high ground."

Lawyers as judges
The most interesting idea to come out of the recent statewide task force on the judiciary (called the "Article V Task Force") might be one that has gotten little attention to date: a sweeping proposal to allow civil litigants to hire Florida lawyers as private judges.

As discussed by task force members in recent weeks, the reform would let litigants hire anyone who's a member of the Florida Bar to try the case, for a fee that would be subject to negotiation. The proposal comes in response to perceived delays for civil litigants, as well as the ineffectiveness of current alternatives.

The delays aren't imaginary. According to 1993 statistics from the National Center for State Courts, Florida had the second-lowest resolution rate for civil cases among 43 reporting states, at 84%. And the state had one of the lowest rates of cases actually going to trial -- 2.7%, the third lowest of 27 states reporting.

Current law allows for voluntary binding arbitration with limited appeals as an alternative to standing in the civil-docket line. But that alternative has been used only a handful of times over the years, according to task force staff. If approved by the Legislature, the idea would represent a huge change from current law and a step beyond states like California, where retired judges have been available for hire for several years. The new concept of private judges reportedly has been pushed by leaders of the Florida Bar's Trial Lawyers Section.

Strange bedfellows
As Florida Trend predicted ("Bar Bashing," November 1994), some embattled Florida plaintiff lawyers are seeking to make peace with their traditional enemies in the medical community. Florida Workers' Advocates, a group composed largely of lawyers who represent injured workers, is pushing an initiative that would give all individuals a constitutional right to choose their own health-care providers. The lawyers are hoping to gain support for their initiative campaign from the providers, who say they're being squeezed by cost-cutting managed-care plans.

What's in it for lawyers? Plenty. In addition to gutting managed-care programs, the initiative would undo much of the Legislature's 1993 reform of workers' compensation, which relied on managed care to reduce insurance costs. Allowing injured workers and their lawyers to choose friendly doctors and chiropractors would boost the size of injury awards to many workers, thereby increasing attorneys' fees, which are tied to the awards. Business lobbyists who oppose the initiative are gearing up for a campaign that could prove to be even costlier than the $14 million battle over personal-injury damage caps in 1988.

Tags: Florida Small Business, Politics & Law, Business Florida

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