Barnett Bank of Marion County, N. A. v. Nelson

Background

Barnett Bank, an affiliated national bank with a branch in a small Florida town, bought a Florida-licensed insurance agency after Congress enacted a 1916 federal law saying national banks in small towns may act as insurance agents. Florida law generally barred banks from selling most insurance, except unaffiliated small-town banks. The State Insurance Commissioner ordered Barnett’s agency to stop selling certain policies, and Barnett sued, saying the federal law preempted Florida’s restriction. Lower federal courts sided with Florida because of a special federal rule protecting state insurance laws (the McCarran-Ferguson Act), so the case reached the Supreme Court.

Reasoning

The Court addressed two questions: whether the federal statute preempts conflicting state law under ordinary principles, and whether the McCarran-Ferguson Act blocks preemption unless the federal law specifically relates to insurance. The Court concluded the 1916 statute explicitly authorizes banks to act as insurance agents, mentions insurance-specific activities, and empowers the federal Comptroller to regulate those activities. Because the federal law "specifically relates to the business of insurance," the McCarran-Ferguson exception does not apply. Applying ordinary preemption rules and past bank-power cases, the Court held the federal grant of authority preempts the Florida prohibition and reversed the court of appeals.

Real world impact

As a result, national banks that fall under the federal statute can sell insurance in small towns despite contrary state bans. States retain power to regulate banks in ways that do not significantly interfere with federally granted bank powers. The ruling settles a split among lower courts about when federal bank statutes preempt state insurance rules.