Insurers Win Pair of Key Rulings in Countrywide Suits

Lawyers lining the trenches in litigation over mortgage-backed securities have waited for months for a Manhattan state court judge to answer a crucial question in a pair of monoline insurers’ suits against Bank of America’s Countrywide Financial unit. To back their fraud claims, do MBIA Inc. and Syncora Guarantee Inc. need to show that Countrywide’s alleged misrepresentations led them to insure billion of dollars in mortgage bonds? Or must the insurers meet the much higher burden of proving that any misrepresentations directly caused the multibillion-dollar losses they’ve suffered?

On Tuesday, Justice Eileen Bransten sided with MBIA and Syncora, ruling that they must only show that Countrywide’s alleged misrepresentations about the quality of tens of thousands of mortgages duped the monolines into insuring securities backed by those loans. Under their insurance agreements, MBIA and Syncora could also prove breach of contract by establishing that Countrywide’s alleged misstatements increased the monolines’ risk, the judge ruled.