The case is the first of two state challenges of OCC action to limit state regulation of bank insurance sales. A case involving Massachusetts is pending.

The 4^th Circuit dismissed a petition from West Virginia Insurance Commissioner Jane L. Cline to strike down the OCC's preemption of part of a state law that forbids banks from selling insurance to a loan customer until after the loan is approved, and stops banks from sharing customer information with their insurance affiliates.

The ruling also lifted a state requirement that banks isolate insurance sales from other bank functions.

The OCC cited provisions of the Gramm-Leach-Bliley Act of 1999 that authorized it to preempt state statutes it believes substantially limit national banks' ability to sell insurance.

The National Association of Insurance Commissioners, the Independent Insurance Agents & Brokers of America, and the National Association of Professional Insurance Agents supported West Virginia in the case.

On the other side, the American Bankers Association in Washington and its affiliate, the American Bankers Insurance Association, and the West Virginia Bankers Association supported the OCC.

The court's ruling may not be the last word on the issue, however. One state regulator said the split decision was "muddy" and held out the prospect of continued legal action.

West Virginia Deputy Insurance Commissioner Bill Kenny said the decision "doesn't mean too much, because we have no case [involving a bank's sale of insurance] in front of us. If there's something presented to us with respect to banks in the future, we will try to enforce [the state law]. But by no means are we looking to pick a fight."

Speaking for bankers, Mike Crotty, deputy general counsel for litigation for the ABIA, took issue with Mr. Kenny's contention.

"The decision says the [state's] law is preempted," Mr. Crotty observed flatly.

However, the decision is unpublished, meaning it is not a binding precedent within the Fourth Circuit.

Meanwhile the Massachusetts preemption case is awaiting a decision from the First Circuit Court of Appeals.

"If the First Circuit upholds the OCC and the soundness of its reasoning, the handwriting will be on the wall" against state challenges to OCC preemption, Mr. Crotty said.

The OCC has reserved decision on another case, involving a Rhode Island law.