We previously posted about the October 5, 2011 hearing before Justice Eileen Bransten in the New York Supreme Court’s Commercial Division in MBIA Ins. Co. v. Countrywide Home Loans, Inc., et al. (Index No. 602825/08), during which Justice Bransten heard arguments concerning the causation burden presented by monoline insurers’ fraud and breach of warranty claims against Countrywide relating to mortgage-backed securities transactions the plaintiffs insured. Last week, Justice Bransten issued decisions (available here and here) in both the MBIA case and in Syncora Guarantee Inc. v. Countrywide Home Loans Inc. (Index No. 650042/09) holding that (i) for the fraud claims, plaintiffs must show only that “misrepresentations by the defendant(s) induced [plaintiffs] to issue insurance policies on terms to which [they] otherwise would not have agreed and that [plaintiffs are] not required to establish a direct causal link between defendant(s) misrepresentations and [plaintiffs'] claims payments made pursuant to the insurance policies at issue” and (ii) for the breach of warranty claims, plaintiffs need only show that defendants’ “breach of warranties in the issued insurance policies’ transaction documents increased the risk profile of the issued insurance policies and [plaintiffs are] not required to establish a direct causal connection between proven warranty breaches by [defendants] and [plaintiffs'] claim payments made pursuant to the insurance policies at issue.”
Justice Bransten posited that “[b]oth New York common law and Insurance Law are clear that a material misrepresentation made at the time an insurance policy is being procured may lead to a policy being rescinded and/or avoided,” and that “fraud is complete when a misrepresentation is made that induces a party to take action and that party suffers damages as a result.” MBIA at 14. Thus, “no basis in law exists to mandate that MBIA establish a direct causal link between the misrepresentation allegedly made by Countrywide and the claims made under the policy.” Id.
Justice Bransten did hold, however, that
MBIA must then prove it was damaged as a direct result of the material misrepresentations. As has been aptly pointed out by Countrywide, this will not be an easy task. Upon reaching its burden of proof for each claim, MBIA must then prove the amount of its damages.
MBIA at 15 (emphasis added). From the opinion, the implications of proving that plaintiffs’ damages were a “direct result” of the misrepresentations is unclear, beyond the court’s observation that the task will not be “easy.” Justice Bransten also held that the plaintiffs were able to seek recsissory damages (in lieu of actual recsission).
In the MBIA case, the court did reject MBIA’s request for partial summary judgment on its claim that Countrywide breached the repurchase provisions of the governing contracts. MBIA had asserted that the repurchase agreement is not limited to non-performing loans, but the court found that this issue was “unripe” for summary judgment and that the contractual documents did not show that certain repurchase provisions were applicable to all of the securitizations. Thus, in the court’s view, they were ambiguous and not subject to determination on a motion for summary judgment.
These highly anticipated decisions have been covered in several articles. See, e.g., NY court keeps burden of proof lower in MBIA v. BofA case; Setback for Bank of America in a Lawsuit Filed by MBIA; and Another Legal Blow For Bank of America Countrywide Unit.