Huntington National Bank recently received approval to get its foot in the door of title insurance sales in Ohio, anticipating a time when banks in that state will be able to own title insurance companies entirely. An accompanying lawsuit could have a significant impact on financial modernization legislation.

The Columbus-based company received approval from the Office of the Comptroller of the Currency April 8 to own a 10% stake in a local title insurance agency, Mound and Forth Title Agency, Ltd. In the application letter from the bank’s counsel to the OCC, the bank said the only reason it was applying for a minority stake is that it is prohibited from owning a majority interest in the company by state law. It added that it believes the state law is inconsistent with federal law and is "a prohibition or significant impairment on the powers of a national bank under the National Bank Act to own and operate a title insurance agency "

The bank, along with the Ohio Bankers Association, is suing the Ohio insurance commissioner in federal court to rectify that situation. Oral arguments are scheduled for this week.

Jeff Quayle, general counsel for the Ohio Bankers Association, said the state rule barring banks, Realtors, homebuilders and others from owning a title insurance company or a controlling interest in one "flies straight in the face of Barnett." Barnett refers to a Supreme Court decision which overturned an antiaffiliation law that severely limited banks’ ability to sell insurance to their customers. While bankers are fighting the rule in court, the Ohio Association of Realtors is working to overturn it with state legislation.

He added that the model Huntington is following of minority ownership has been done by other non-bank companies, such as homebuilders.

Industry watchers believe the case could have far-reaching effects on the banking and insurance industries because of its impact on financial modernization legislation.

"If this goes through before H.R. 10 passes, then clearly national banks can sell title insurance and it would be much harder for them to hold the provision in the House version of H.R. 10 that prohibits the sale of title insurance," said Buzz Gorman, legislative counsel for the Conference of State Bank Supervisors.