State Regulation of an Insurance Program Conducted by the Export-Import Bank of the United States ( 1986 )

State Regulation of an Insurance Program Conducted by the
Export-Import Bank of the United States
Entities who participate as interm ediaries with small businesses in an insurance program oper­
ated by the Export-Import Bank are subject to non-discrim inatory state regulation o f their
activities.
March 19, 1986
M em orandum O p in io n for the G eneral C oun sel,
E x p o r t -I m po rt Bank of the U n it e d S t a t e s
This memorandum responds to your request for the Department of Justice’s
opinion whether the states may regulate or tax certain entities involved in an
insurance program developed by the Export-Import Bank of the United States
(Eximbank) for small business.1 Your request is limited to the single issue of
whether the states may regulate the “Administrators” who participated in the
program and act as agents for the small businesses purchasing the insurance
developed by Eximbank. We conclude that the Administrators are subject to
nondiscriminatory state regulation.
I. Background
Eximbank is a wholly owned government corporation and an agency of the
United States. 12 U.S.C. § 635(a)(1). Congress originally established it to
facilitate the exchange of commodities between the United States and other
countries. In 1953, for the first time, Eximbank was granted, in addition to the
power to make loans and guarantees, the power to provide insurance against
risks of loss associated with commercial exportation of goods. Pub. L. No. 83-
30,67 Stat. 28 (1953). Current law authorizes Eximbank to “guarantee, insure,
coinsure, and reinsure against political and credit risks of loss.” 12 U.S.C.
§ 635(a)(1).
Eximbank also is authorized to employ “exporters, insurance companies,
financial institutions, or others or groups thereof’ to act as its agents in the
issuance and servicing of insurance. Id. 635(c)(2). The Foreign Credit Insur­
1The entities involved in the program are: (1) Eximbank itself; (2) the Foreign Credit Insurance A ssocia­
tion, an association o f private insurers that acts as E xim bank's agent in providing insurance; and (3) various
‘‘A dm inistrators” who act as agents for the small businesses w ho purchase the insurance developed by
Eximbank.
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ance Association (FCIA) is an association composed of private commercial
insurance carriers created in 1961 to act with Eximbank in providing protection
against certain of the commercial and political risks faced by American export­
ers when they sell to foreign customers on credit terms. The FCIA is the agent
of Eximbank in selling such insurance.
The final significant participants in Eximbank insurance activities are known
as “Administrators.” Your office has described the role of the Administrators
as follows:
In response to a Congressional mandate for Eximbank to en­
courage the participation of small business in international trade,
Eximbank has developed a new insurance policy, the Export
Credit Insurance Umbrella Policy (the “Umbrella Policy”) . . . .
The Umbrella Policy was devised to improve distribution of,
and simplify the paperwork associated with, our export credit
insurance by using certain entities, which have frequent contact
with small businesses, as intermediaries (the “Administrators”).
Eximbank is the only insurer on the Umbrella Policy, and FCIA
acts as Eximbank’s agent. A number of exporters can be insured
under one policy and have the policy paperwork handled by an
Administrator who is free to charge the insured exporters a fee
for its services.
The Administrators are thus essentially insurance brokers for the small busi­
nesses who wish to purchase insurance from Eximbank through the FCIA.
II. Analysis
Federal instrumentalities are immune from state regulation, in the absence of
“clear and unambiguous” congressional authorization. Hancock v. Train, 426
U.S. 105, 179 (1976). It is well settled, however, that independent federal
contractors are not federal instrumentalities and therefore may be subject to
state regulation even if such regulation increases the burden on the federal
government. See Penn Dairies, Inc. v. Pennsylvania Milk Control Comm’n,
318 U.S. 261, 269 (1943) (“those who contract to furnish supplies or render
services to the government are not [federal] agencies and do not perform
governmental functions”). We understand that the Administrators are not even
agents of federal government, but instead are agents of the small business
exporters for whom they obtain Eximbank’s umbrella insurance and do the
policy paperwork and from whom they receive a fee for their services. There­
fore, it is clear that the Administrators are not immune from state regulation on
the grounds that they constitute federal instrumentalities.
The remaining basis for exempting the Administrators from state regulation
is federal preemption. A state law will be deemed preempted by federal law
either if it conflicts with federal law, or if the federal law suggests that
Congress intended its own law to occupy the field fully, irrespective of the
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substance of the state law. Florida Avocado Growers v. Paul, 373 U.S. 132,
141 (1963). We understand that state laws that restrict certain institutions such
as state banks from acting as insurance brokers limit the potential class of
Administrators, thus possibly inhibiting the distribution of insurance in the
small business community.2 We are also informed that some states impose
licensing requirements on corporations engaged in insurance activities such as
those undertaken by the Administrators, and thereby subject such corporations
to regulation. The overall effect of these state laws may be to discourage some
institutions, particularly banks, from becoming Administrators.3
The touchstone of a preemption claim is the intent of Congress. See, e.g.,
Malone v. White Motor Corp., 435 U.S. 497, 504 (1978). Preemption analysis,
however, begins with certain presumptions, because congressional intent with
respect to displacing state regulations is often unclear. When Congress legis­
lates “in a field which the states have traditionally .. . occupied we start with
the assumption that the historic police powers of the States [are] not to be
ousted by the Federal Act unless that was the clear and manifest purpose of
Congress.” Rice v. Santa Fe Elevator Corp., 331 U.S. 218, 230 (1947). The
regulation of insurance is a field traditionally occupied by the states and
therefore it cannot lightly be inferred that Congress intended to legislate in
derogation of state regulation of corporations operating in this area.4
After a survey of the statute and the legislative history we are unable to
locate any statutory provision that conflicts with state insurance law or any
congressional intent to abrogate state licensing and regulatory schemes. To be
sure, the November 30, 1983 Amendments to the Export-Import Bank Act,
Pub. L. No. 98- 181, 97 Stat. 1254, evince an intent to increase Eximbank aid
to small business. In the 1983 Amendments Congress stated:
(i) (I) It is further the policy of the United States to encourage
the participation of small business in international com­
merce.
(II) In exercising its authority, the Bank shall develop a
program which gives fair consideration to making loans
and providing guarantees for the export of goods and
services by small businesses.
(ii) It is further the policy of the United States that the
Bank shall give due recognition to the policy stated
in § 631(a) of Title 15 that “the Government should
2See, e.g., Conn. Gen. Stat. § 38-72(a).
3 See generally W ise. G en Stat. § 618.
4 Indeed, Congress has recognized the im portance o f local regulation o f insurance in the M cCarran-
Ferguson Act, which provides that “ [tjhe business o f insurance, and every person engaged therein, shall be
subject to the laws o f the several States which relate to the regulation or taxation o f such businesses." 1S
U.S.C § 1012(a). A subsequent provision o f the Act provides that “ [njo Act o f C ongress shall be construed to
invalidate, impair, or supersede any law enacted by any state for the purpose o f regulating the business of
insurance, unless such A ct specifically relates to the business o f insurance ” Id § 10 12(b). Because we
conclude that state regulation o f the A dm inistrators is not prohibited under general principles o f preem ption,
we do not have to decide w hether the M cCarran-Ferguson Act would preclude preemption in any event.
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aid, counsel, assist, and protect insofar as is possible,
the interests of small business concerns in order to
preserve free competitive enterprise.”
12 U.S.C. § 635(b)(1)(E).5 The Amendments also provide that one of the
members of Eximbank’s board of directors is to “be selected from among the
small business community .. . and represent the interests of small business.”
Id. § 635(b)(l)(E)(v). Finally, the Amendments direct Eximbank to render
reports on the allocation of sums set aside for small business. Id. § 635g(c).
Notably lacking in the Amendments or their legislative history is any language
which suggests that insurance brokers for exporters connected with an Eximbank
program are relieved of the obligation to comply with state insurance require­
ments. Nor is there any suggestion that state insurance laws have proved an
obstacle to the sale of Eximbank’s insurance to small business.6
Acknowledging that there is no direct conflict between state and federal law,
Eximbank argues that state insurance regulation and licensing is preempted
because by inhibiting certain kinds of corporations from becoming Administra­
tors such laws impose burdens on the means Eximbank has chosen to meet the
congressional goal of developing export insurance for small business. How­
ever, courts have uniformly refused to displace state regulations applicable to
federal contractors even if such regulations impose incidental burdens on the
means of fulfilling a congressional mandate. See, e.g., Penn Dairies v. Milk
Control C om m ’n, 318 U.S. 261, 271 (1943) (state can refuse to renew the
license of a milk dealer who sold milk below the state minimum price to United
States despite impact in United States’ procurement policy; “state regulations
are to be regarded as the normal incidents within the same territory of a dual
system of government”); James Stewart & Co. v. Sadrakula, 300 U.S. 94(1939) (sanctioning state’s imposition of safety requirements upon a contractor
constructing a federal building in the face of arguments that such regulations
would raise the cost to the government); O ’Reilly v. Board o f Medical Examin­
ers, 426 P.2d 167 (Cal. 1967) (Traynor, C.J.) (refusing to infer federal preemp­
tion of state licensing rules for doctors even in light of burdens such licensing
imposed on foreign medical exchange program authorized by Congress); United
States v. Town o f Windsor, 496 F. Supp. 581, 591 (D. Conn. 1980) (upholding
5 In o rd er to assure that the policy of aid in g sm all business is carried out, Eximbank is directed to:
prom ote sm all business export financing programs in cooperation w ith the Secretary of Com ­
m erce, the O ffice o f International T rade o f Small Business A dm inistration, and the private
sector, particularly sm all business organizations, state agencies, cham bers o f com m erce, banking
o rganizations, export management com panies, export trading com panies, and private industry.
12 U .S.C . § 6 3 5 (b )(I)(E )(v iii).
6 In a hearing before a subcomm ittee o f the Senate C om m ittee on Sm all B usiness, the C hairm an o f
E xim bank described the proposed “um brella” insurance program for small businesses but now here suggested
th at th is program w ould require the abrogation o f state insurance regulation or licensing schemes. To the
con trary , one o f the them es o f the C hairm an’s testimony was that he had cooperated with state agencies in the
past and expected to continue to work clo sely w ith them in the future. Financing o f Small Business Exports by
The Export-Import Bank: Hearing before the Subcomm. on Export Promotion and Market Development o f the
Senate Comm, on Small Business, 98th C ong., 1st Sess. 8 - 9 (1983) (“ W e have m et several times with
rep resen tativ es o f state governments an d we w ill continue to work closely with them as*the cam paign
dev elo p s.” ).
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state’s right to require building permit of contractor who was building gasifica­
tion plant pursuant to congressional mandate to develop a more efficient means
of utilizing coal). An essential rationale underlying these cases is that state
regulation of private contractors, unlike state regulation of federal instrumen­
talities or federal officials, cannot be viewed as superfluous, because the
federal ties government does not directly supervise private contractors even
when they ties act as its agents. This rationale applies a fortiori to the Adminis­
trators who are not even agents of the federal government and are not subject to
any federal supervision.
Therefore, we conclude that in the absence of some contrary indication of
congressional intent states are not preempted from regulating private entities
even if such regulations impose some burdens on their participation in a federal
program.7 When Congress establishes an objective for a federal agency, it is to
be presumed that it wishes the agency to pursue the objective against the
background of ordinary state regulation of private entities because such regula­
tion has legitimate objectives of its own. Any other conclusion would curtail
the ability of the states to protect the welfare of their citizens: federal agencies
possessed of some statutory mandate would acquire the authority to grant
immunity from state regulation to private entities simply on the grounds that
such immunity would lead to the more efficient fulfillment of their mandate.8
Conclusion
On the basis of the analysis set forth above, we have concluded that the
Administrators are subject to non-discriminatory state regulation.
D ouglas W. K m ie c
Deputy Assistant Attorney General
Office o f Legal Counsel
1 Fidelity Federal Savings & Loan Ass'n v. De La Cuesta, 458 U.S. 141 (1982), a case principally relied on
by Eximbank to support its argum ent that the 1983 Export-Im port Bank A mendments preem pt state insurance
licensing requirem ents does not change the foregoing analysis. In Fidelity , the Federal Home Loan Bank
Board had issued a regulation providing that a federal savings and loan association continued to have the
pow er to include a due-on-sale provision in its loan agreem ents. Id. at 146-47. The pream ble to the regulation
also stated that the banks would not be subject to any conflicting state law with respect to due-on-sale
provisions. Id. at 147. The C ourt held that the B oard’s due-on-sale regulations preem pted conflicting state
lim itations on the due-on-sale provisions o f a federal savings bank. Id. at 1SS. Fidelity thus sim ply represents
an instance o f federal preem ption arising from an express conflict betw een state and federal laws. It stands for
the proposition that a duly prom ulgated and authorized regulation o f an agency has the sam e pow er to
preem pt contrary state law as a statute passed by the C ongress. Fidelity does not support the argum ent for the
preem ption o f state insurance regulation because neither any provision o f the statute under which Exim bank
operates nor any regulation issued by Eximbank conflicts with state law.
8 O ur opinion that the A dm inistrators w ould ordinarily be subject to State regulation is not inconsistent w ith
the argum ents advanced in Squire, Inc. v. Export-Import Bank o f the United States, No. 84-0 2 3 4 (S.D . Cal.
1985), that Exim bank and the FCIA should not be subject to punitive dam ages. First, the argum ent in Squire
is not based on a claim that the federal statute preem pts all state regulation, but rather that in litigation arising
out o f nationw ide program s in the param ount federal interest com pels the application o f federal law to
questions o f liability in governm ental program s and transactions. See United States v Little Lake Misere
Land Co., 412 U .S. 580, 5 9 2 -9 4 (1974); Clearfield Trust Co. v. United States, 318 U.S. 363 (1943). Second,
this m em orandum does not address w hether ^xim bank o r the FCIA may be immune from state regulations on
the ground that they are federal instrum entalities.
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