NEW YORK—MBIA Inc. is entitled to $30 million in coverage under two directors and officers liability policies for costs related to federal and state investigations of alleged securities law violations, a federal appeals court ruled Friday.

MBIA, an Armonk, N.Y.-based financial guarantee insurer that writes coverage for governmental entities, claimed its D&O coverage written in two, $15 million policies by Federal Insurance Co. and ACE American Insurance Co. should cover the costs MBIA incurred in responding to investigations into the company’s accounting practices.

Robert H. Shulman, an attorney with the New York firm Kasowitz, Benson, Torres & Friedman L.L.P. who represented MBIA in the case, said the decision is important because it marks the first time an appeals court has ruled for such broad coverage of securities claims arising out of “investigatory subpoenas.”

Case began in 2004

MBIA was targeted in November 2004 as part of a larger investigation into insurance market accounting practices. Several subpoenas required the company to produce documents on transactions involving “nontraditional products” and details of its accounting treatment of those products, among other paperwork, according to court documents.

Three MBIA transactions ultimately came under regulatory scrutiny, and regulators told the company in August 2005 that action would be taken for securities violations, according to court documents. The company subsequently agreed to a $75 million settlement with regulators regarding one transaction and was exonerated of wrongdoing in the other two.

Federal Insurance agreed to pay about $6.4 million to cover expenses related to the investigation of the transaction that MBIA agreed to settle, but refused to cover losses related to the other two. ACE’s coverage was written above the Federal Insurance policy, so it paid nothing.

However, a lower court ruled that the costs were covered, and the appeals court 2nd U.S. Circuit Court of Appeals on Friday upheld most of that decision. The appeals court did agree with insurers on one point: that costs charged by an independent consultant hired by MBIA were not covered.

Insurers had argued that the investigations are not covered as “securities claims” under the policies. The appeals court noted, though, that a subpoena is “at absolute minimum, a ‘similar document’ to those listed” as securities claims in MBIA’s coverage.