Banks file another complaint against MBIA
A group of the world’s largest financial companies have followed up a lawsuit filed last month against Armonk-based bond insurer MBIA Inc. with an additional court filing that criticizes the New York State Insurance Department’s approval of a controversial restructuring at MBIA.
The insurance department and Eric Dinallo, the outgoing state insurance superintendent, are named as defendants in the newest complaint.
The filing cites Article 78 of the New York state civil code that allows parties to challenge decisions of public agencies.
The filing is designed to preserve “potential challenges to MBIA’s fraudulent restructuring before the expiration of any statutes of limitations,” Vince DiBlasi, a Sullivan & Cromwell LLP lawyer for the banks, said in a written statement.
The 18 financial instititions and policyholdres that are suing MBIA include JPMorgan Chase & Co., Bank of America Corp. and UBS AG. The banks’ original case, filed May 13 in in state Supreme Court, questions MBIA’s decision earlier this year to split its bond insurance business from its traditional municipal bond insurance business to isolate the riskier operations that brought on the company’s huge losses related to subprime mortgages.
As a result of the restructuring, MBIA’s insurance subsidiary is an “effectively insolvent shell company” and so undercapitalized that it has no means of paying existing policyholders’ future claims or writing new insurance policies, the lawsuit alleges.
MBIA declined comment. The state insurance department could not be immediately reached for comment.