A group of MBIA Insurance Co. policyholders Tuesday filed a motion seeking to unseal more than 1,000 confidential documents relating to the New York Insurance Department’s approval of MBIA’s contentious 2009 restructuring.

The case, filed in June 2009 by 17 financial institutions holding residential mortgage-backed securities insured by MBIA, is set to go to trial Jan. 19, 2011.

The banks contend that when MBIA divided its healthy public finance portfolio from its riskier structured finance portfolio — which included transferring $5 billion of cash and securities to a new municipal-only insurer called National Public Finance Guarantee Corp. — it severely diminished its claims-paying abilities for its non-muni obligations.

MBIA says its regulator, the NYID, approved the transaction after a thorough investigation that determined the insurer would still have “sufficient assets” to cover expected losses for more than 30 years, court filings said.

The documents leading to that approval, however, have largely been shielded from public scrutiny.

Robert Giuffra Jr. of Sullivan & Cromwell LLP is lead attorney for the banks. He said Tuesday that close to 98% of the 1,100 documents involved in the NYID’s decision-making process have been designated “confidential,” including 300 designated “highly confidential.”

Giuffra, who calls the restructuring “one of the most significant transactions” in the Insurance Department’s history, added that many documents discussed in court are not open to the public, while others have been blocked even to the plaintiffs, and some have not been filed at all.

In short, the designations create the situation of “a lawyer without a client,” he said.

“Unless addressed by this court,” Giuffra added, “respondents’ wholesale designation of these highly relevant documents will prevent petitioners themselves ... from reviewing the documents, and ... prevent petitioners’ counsel from advising petitioners concerning the very merits of their case.”

MBIA spokesman Kevin Brown said Wednesday there was nothing unique in keeping proprietary information private.

“As is common in litigation, we have appropriately designated the documents produced to protect MBIA’s proprietary and confidential information,” he said in an e-mail. “We will address any challenge to those designations in court and look forward to a prompt resolution of the case.”

The court Tuesday also ordered MBIA chief executive officer Jay Brown to testify at the trial.

The case, known as an Article 78 proceeding, is one of four in which MBIA Inc. is defending the 2009 restructuring. Until the litigation is resolved, its muni-only bond insurer is not expected to be able to insure new debt in the municipal market.

Article 78 of the New York Civil Practice Laws and Rules is the only avenue allowing the banks to directly contest the NYID’s approval of the restructuring. To overturn the decision, the banks must show the department’s approval was arbitrary and capricious, or an abuse of discretion, or made in violation of lawful procedure.

Giuffra has stated in earlier testimony that the NYID only had access to “outdated, inaccurate, and incomplete ­information.”

MBIA, which maintains that “a detailed review” was conducted at the time of the restructuring, argues that the banks have not demonstrated that the department was acting out of its jurisdiction when it approved the restructuring.

The insurer also points out that it has fulfilled all owed claims, including those which it hopes to recover through the courts because of alleged fraud and misrepresentation.

Eric Dinallo, former superintendent of the NYID who now teaches at New York University’s Stern School of Business, said in February 2009 that his department had performed “a lot of stress-testing” before allowing MBIA to restructure.

Dinallo also denied that the portfolio split was akin to a “bad bank-good bank” restructuring, contending that it was more like an “adequate bank-adequate bank” split.

“That’s what we do for a living,” Dinallo told Bloomberg TV. “We believe there is adequate capital against the claims-paying necessities of the structured side. Personally, I think people could consider even investing in that.”

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