NU Online News Service, June 1, 2:56 p.m. EDT
Justices for the Court of Appeals for the State of New York peppered attorneys with questions for close to 45 minutes during a hearing on whether a group of banks can go ahead with a lawsuit against bond insurer MBIA.
The lawsuit stems from a decision by the state's insurance department three years ago to split MBIA into two companies.
In response to questions from the justices, Attorney Robert L. Giuffra Jr. argued that previous court rulings have denied the plaintiffs their right to bring debtor and creditor claim against MBIA.
Giuffra says that the procedure denied the plaintiffs of notice of the plan to split the company, creating what he says in an insolvent entity. He says the decision by the New York State Insurance Department was done in secret, depriving the interested parties of their right to comment on the plan.
During questioning, Giuffra admitted that no claims have gone unpaid, but insisted that the plaintiffs were damaged when the company was split with a less financially strong structured finance insurer in place.
Attorney Marc E. Kasowitz, representing MBIA, says the law does not require the state insurance department to open its proceedings to policyholders. The policyholders can seek a remedy to the department's decisions through an Article 78 appeal, which they have done.
The justices repeatedly sought justification in the law from Kasowitz for the denial of the plaintiffs' lawsuit. He admitted that there was no express prohibition that barred the plaintiffs from filing their suit, but language in state statute gave the insurance department the proper authority and denied the policyholders from filing suit.
MBIA has been split into two individual operating companies under one corporate umbrella.
One company, National Public Finance Guarantee, holds onto the company's healthy portfolio of municipal bond insurance. The second company, MBIA Insurance, retains the structured finance policies that became toxic with the housing implosion during the great recession.
A decision by the justices is expected in that next few weeks, according to a statement released by the policyholders.
MBIA did not immediately return a request for comment.
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