Request By:
Mr. Jack Keyser
Executive Vice President
Independent Insurance Agents
of Kentucky, Inc.
10221 Linn Station Road
Louisville, Kentucky 40223
Opinion
Opinion By: Steven L. Beshear
By letter dated April 28, 1981, you request an advisory opinion from this office as follows:
"Whether a bank holding company in Kentucky may acquire 100% of the outstanding common stock of an insurance agency in Kentucky pursuant to KRS 287.030."
In our opinion, the answer is "no".
There have been no reported cases construing KRS 287.030; therefore, the meaning must be drawn from the statute itself and the context in which it arose. In Fiscal Court, Etc. v. City of Louisville, Ky., 559 S.W.2d 478, 480 (1977), the Court stated:
"In the interpretation of statutes, the function of this or any court is to construe the language so as to give effect to the intent of the legislature. There is no invariable rule for the discovery of that intention. The actual words used are important but often insufficient. The report of legislative committees may give some clue. Prior drafts of the statute may show where meaning was intentionally changed. . . ."
With regard to KRS 287.030, the background of federal bank holding company legislation, related regulations, and subsequent litigation in other jurisdictions provide considerable insight into the purpose of the statute and the meaning of the language used. This background is described in Ala. Ass'n of Ins. A. v. Rd. of Gov. of F.R. System, 533 F.2d 224, 230 (5th Cir. 1976) and may be summarized as follows: In 1956 the Bank Holding Company Act, 12 U.S.C. § 1841 et seq., authorized the creation of bank holding companies but reserved to the states the power to veto such holding companies or to restrict their operation by specific legislation. 12 U.S.C. § 1846. Acquisition of nonbanking enterprises was forbidden with certain narrow exceptions. 12 U.S.C. 1848 (a). The Holding Company Act Amendments in 1970 expanded these exceptions and empowered the Federal Reserve Board to issue general regulations regarding the exceptions. One-bank holding companies also became subject to the Act in 1970. In 1971 the Board promulgated § 225.4(a) of Regulation Y which listed nonbanking activities deemed to be within the acquisition exceptions authorized by Congress. 12 CFR § 225.4(a). These activities relating to the insurance industry are specified in § 225.4(a)(9):
"(a) . . . The following activities have been determined by the Board to be so closely related to banking or managing or controlling banks as to be a proper incident thereto: . ."
"(9) acting as insurance agent or broker in offices at which the holding company or its subsidiaries are otherwise engaged in business (or in an office adjacent thereto) with respect to the following types of insurance: (i) Any insurance for the holding company and its subsidiaries; (ii) Any insurance that (a) is directly related to an extension of credit by a bank or a bank-related firm of the kind described in this regulation, or (b) is directly related to the provision of other financial services by a bank or such a bank-related firm, or (c) is otherwise sold as a matter of convenience to the purchaser, so long as the premium income from sales within this subdivision (ii)(c) does not constitute a significant portion of the aggregate insurance premium income of the holding company from insurance sold pursuant to this subdivision (ii); (iii) Any insurance sold in a community that (a) has a population not exceeding 5,000, or (b) the holding company demonstrates has inadequate insurance agency facilities."
As described in Alabama Assoc. of Insurance Agents, Id. at 232-233, a "flurry of applications for permission to engage in nonbanking activities" followed in which bank holding companies "sought authority to sell, through subsidiaries, many of the same types of insurance." This case arose on review of Federal Reserve Board orders granting permission to bank holding companies to act as agents with respect to specified types of insurance.
One year after the promulgation of § 225.4(a)(9) of Regulation Y and the flurry of applications by bank holding companies to act as insurance agents by selling insurance through their subsidiaries, the 1972 Kentucky General Assembly considered amendments to KRS 287.030. Senate Bill 332 as originally proposed, authorized one-bank holding companies and expanded the definition of person to include corporations and other forms of business organizations. (SB 332 attached). A floor amendment in the Senate further prohibited any "person" who owns or acquires more than one-half of the capital stock of one bank or combined bank and trust company from:
"(b) act as insurance agent or broker with respect to any insurance except for that which is: (i) directly related to an extension of credit by a bank or (ii) directly related to the provision of other financial service by a bank." 1972 Senate Journal p. 2068 (copy of amendment attached).
It is noted that this language closely parallels that of 12 CFR § 225.4(a)(9) and clearly restricts the scope of insurance related activity by bank holding companies in Kentucky. By a House Banking and Insurance Committee amendment these activities were further limited by narrowing the exception to a few specific types of insurance. 1972 House Journal, pp 3157-8 (copy of amendment attached). KRS 287.030 as so amended was then passed in the 1972 Regular Session of the General Assembly (copy attached).
In light of the historical context in which this legislation arose, it is our opinion that the language of KRS 287.030 expresses the clear intent of the legislature to limit the involvement of majority bank shareholders, including one-bank holding companies, in insurance related activities. Any construction which would authorize ownership of an insurance agency as a wholly owned subsidiary on the theory that it is a separate entity and is "acting" indirectly or independently of its controlling parent corporation would render that portion of the statute a nullity and lead to the absurd result that the statute can be avoided by mere organization as a bank holding company.