Whether the New York Insurance Department (NYID) can appeal a ruling that ordered it to hand over e-mails and documents regarding the restructuring of bond insurer MBIA Insurance Corp. could be decided soon.

The department wants to appeal the November 2010 ruling that came after MBIA policyholders suing the insurer filed an action a month earlier to gain access to the confidential documents. The policyholders filed suit against MBIA in June 2009 contending that when the bond insurer divided its healthy public finance portfolio from its riskier structured finance book, it diminished its claims-paying abilities for its non-muni obligations.

The suit was filed by 17 financial institutions holding RMBS insured by MBIA. As part of the restructuring MBIA transferred $5 billion of cash and securities to its new muni-only insurer, National Public Finance Guarantee Corp.

The documents relate to the NYID’s approval of MBIA’s restructuring, which came after the insurer suffered major losses on its non-muni related policies and lost its triple-A ratings. The documents include confidential correspondence between former NYID superintendent Eric Dinallo and four other senior officials.

If the NYID cannot appeal, it will have to comply with the order to hand over the e-mails and documents, which plaintiffs contend show regulators sought to protect municipal policyholders at their expense.

“We believe that the NYID e-mails covered by the discovery order could provide important evidence concerning MBIA’s illegal transactions,” said Robert Giuffra, of Sullivan & Cromwell, representing the banks. “Tellingly, the NYID has stated that the policyholders would receive 'zero’ documents, even if the department does comply with the order, so it is either seeking to hide damaging evidence about its approval of MBIA’s illegal transactions or simply trying to delay the case.”

A ruling could come soon given the length of time that has passed since the motions were filed. The NYID had no comment Monday. An MBIA spokesman had no immediate comment but has said that the information is proprietary.

Early last week nonprofit civil rights and legal services groups filed a joint amicus brief supporting the policyholder groups effort to appeal the First Department, Appellate Division’s dismissal in January of their action against MBIA.

Submissions were filed by three nonprofits, including the New York Civil Liberties Union (NYCLU), legal academics on New York administrative law and civil procedure Patrick Borchers and Arthur Miller, and investment firms Aurelius Capital Management and Fir Tree Partners.

“While this case emerged from the financial crisis, its effects reach far beyond the world of mortgage-backed securities and collateral debt obligations,” said the NYCLU, MFY Legal Services, and the Urban Justice Center. “At its core, this case is about due process and the right of every individual and corporation to have its day in court.”

If the ruling stands, “literally thousands upon thousands of informal determinations made by state agencies suddenly would have binding effect in judicial proceedings,” professors Borchers and Miller wrote.

“There’s no basis under fundamental principles of due process and New York law for MBIA to block policyholders from bringing a fraudulent conveyance action to recover for their injuries from MBIA’s unprecedented and unlawful division of its insurance company into a 'healthy’ insurer and 'dying’ insurer,” said Sullivan & Cromwell’s Giuffra.

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