In the case of MBIA v. Countrywide (a/k/a Bank of America), New York County trial court Judge Eileen Bransten was asked to decide the question of when “causation occurs in claims for insurance fraud and breach of representations and warranties.” The question arose because MBIA had paid out more than $2.5 billion in insurance claims on mortgage securities sponsored by Countrywide. In answering Judge Bransten’s question, MBIA claimed that causation occurred when Countrywide “made misrepresentations that were material and which induced MBIA to issue financial guaranty insurance policies” which MBIA would not have have issued if it had known of the true facts. Countrywide, in contrast, argued that MBIA had to prove that its claims payments were directly and proximately caused by Countrywide’s misrepresentations.
In a lengthy and complicated opinion, Judge Bransten has sided with MBIA. The decision, which leaves open trial questions on the exact quantum of damages (dependent on the adduced proof) has the potential to require BOA to repay the monies MBIA has already paid out.
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