NEW YORK – MAY 14, 2012 – Arent Fox’s Elliott Kroll, a partner in the firm’s New York office, was quoted by Bloomberg News and Law360 this week commenting on the trial of a lawsuit filed by Bank of America Corp. and Société Générale against the New York State Superintendent of Insurance. The banks are seeking to overturn the state’s approval of MBIA Inc.'s restructuring in 2009, alleging the bond insurer misled the regulator. The bench trial began Monday, May 14.

Bloomberg News reports:

“There's no question that the burden here is going to be on the banks,” said Elliott Kroll, an insurance law attorney at Arent Fox who isn't involved in the case. “You look at this and say, ‘Absolutely give deference to the state,' but the state still has to have some kind of rational basis to support this.” … The banks claimed the restructuring harmed them as policyholders by transferring $5 billion in assets out of the MBIA unit that insured risky mortgage debt, exposing the banks to potential losses.

Law360 writes:

The banks' challenge shows that "there are some questions about the process that was used," according to Arent Fox LLP partner Elliott M. Kroll….

Kroll said state regulators' ability to manage situations like that in the future is going to be under greater scrutiny if the MBIA transaction is undone. In New York, insurers will have to face the reality that regulatory approval won't shield them from civil liability and regulators will be forced to deal with more judicial second-guessing of their decisions, he said.

Not only does the case have huge financial consequences for MBIA and Bank of America, but when New York's highest court revived the plenary action in June, it showed that insurers won't be able to use regulatory approval as cover for their decisions, he said.

"The Court of Appeals made clear that regulatory approval does not insulate an insurer from these types of claims," Kroll said.

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