ABN Amro Bank NV v. MBIA Inc. – NY Court of Appeals Allows Policy Holders’ Fraudulent Conveyance and Common Law Claims Against MBIA to Continue In State Court

On June 28, 2011, the New York Court of Appeals, the highest court in the State of New York, found that a lawsuit alleging fraudulent transfer and other claims brought by holders of insurance policies issued by MBIA that covered losses related to structured finance products could proceed, notwithstanding the approval of the restructuring transaction giving rise to the claims by the New York State Insurance Department in 2009. 

This Stroock Special Bulletin provides an overview of the Court of Appeals' decision, in which the high court rejected the decision of the Appellate Division on two grounds: (i) that the fraudulent transfer claims constituted impermissible collateral attacks on the Insurance Department's approval of the restructuring; and (ii) that the only avenue to challenge the Insurance Department's decision was under article 78 of the New York State Civil Practice Law and Rules, which requires a finding that the Insurance Superintendent's decision was "arbitrary and capricious" to be overturned.  The decision is a victory for the myriad financial institutions who, after MBIA's 2009 restructuring, were left with an insurer with far greater liabilities than assets.