You are here:HomeIssuesProtecting State Insurance Regulation 2009Supreme Court Decision in Line With Obama's Restrictions on Preemption of State Law

Supreme Court Decision in Line With Obama's Restrictions on Preemption of State Law

The U.S. Supreme Court's decision in Cuomo v. The Clearing House Association is in line with President Obama's May 20 memo that requires all federal...
July 1, 2009

The U.S. Supreme Court's decision in Cuomo v. The Clearing House Association is in line with President Obama's May 20 memo that requires all federal departments and agencies to meet very specific and high legal standards and process regarding actions to preempt state law. 

The memo states, in part:

"The purpose of this memorandum is to state the general policy
of my Administration that preemption of State law by executive
departments and agencies should be undertaken only with full
consideration of the legitimate prerogatives of the States and
with a sufficient legal basis for preemption. Executive
departments and agencies should be mindful that in our Federal
system, the citizens of the several States have distinctive
circumstances and values, and that in many instances it is
appropriate for them to apply to themselves rules and principles
that reflect these circumstances and values."

The Presidential memo also says:

"An understanding of the important role of State governments in
our Federal system is reflected in longstanding practices by
executive departments and agencies, which have shown respect
for the traditional prerogatives of the States. In recent years,
however, notwithstanding Executive Order 13132 of August 4, 1999
(Federalism), executive departments and agencies have sometimes
announced that their regulations preempt State law, including
State common law, without explicit preemption by the Congress or
an otherwise sufficient basis under applicable legal principles.

"…executive departments and agencies [should] include
statements of preemption in regulations only when such statements
have a sufficient legal basis ... As Justice Brandeis
explained more than 70 years ago, "[i]t is one of the happy
incidents of the federal system that a single courageous state
may, if its citizens choose, serve as a laboratory; and try novel
social and economic experiments without risk to the rest of the
country."

What It Means to Agents:  Most aggressively since 1999, various federal agencies have adopted regulations that declare certain state laws to be null and void, trumped by the agencies' interpretation of federal law. This was often done absent any specific action by Congress, or any clear authorization in existing federal law. The Office of the Comptroller of the Currency (OCC) was notorious for declaring state insurance laws preempted by federal banking laws.

The U.S. Supreme Court's decision in Cuomo v. The Clearing House Association follows several recent decisions the Court has issued since March 2009 on the matter of federal department/agency overreach in exercising federal preemption of state law. 

It is clear that the Obama Administration has seriously considered the Court decisions' implications for revision and review of federal department and agency legal protocols when acting or speaking on the matter of federal pre-emption and state law.  The President's May 20th memo also reflects consideration of the many state vs. federal authority conflicts that state officials in banking and equities outlined for Congress during the January through March hearings on the financial services crisis.

It appears that borne out of the realities of the economic crisis that we face and the Court's recent rulings, President Obama's policy and legal practices position for his Administration will take far more deliberate care to weigh and consider federal vs. state law and authority issues, and less likely to knee-jerk pre-empt and ignore the existence, value, partnership and primacy of state law to federal.  This "deliberate caution" is a very real sign of victory for state regulation in financial services, and even more so for insurance.

Adding to that victory is the fact that the Obama administration's Treasury report on regulatory reform released on June 17 leaves state regulation of insurance intact and does not propose federal regulation. PIA was active in shaping that decision, speaking forcefully in favor of state regulation and against federal regulation during a pivotal White House meeting on June 4, 2009. Following the meeting, the Wall Street Journal reported that Administration officials were caught off guard by the lack of industry consensus. Subsequently, federal regulation of insurance was not proposed in the Treasury report.

White House Memo to Heads of Executive Departments and Agencies (May 20, 2009)

PIA Advocates for State Insurance Regulation During White House Meeting  (6/9/09)