A New York appellate court recently ruled that an insurer is entitled to a jury trial for claims of fraudulent inducement despite policy language waiving that right.
In MBIA Ins. Corp. v. Credit Suisse Sec. (USA), LLC, the insurer, MBIA, claimed that the insured, Credit Suisse, fraudulently induced MBIA to issue a policy covering payments on $900 million in residential mortgage-backed securities. MBIA alleged that before the 2008 recession, Credit Suisse bundled risky mortgages and passed them off as high-quality securities when seeking insurance coverage from MBIA.
MBIA sought a jury trial on the issue of Credit Suisse’s alleged fraud, probably because they want to appeal to a jury’s sympathy and leverage the public’s negative view of Wall Street banks. However, a policy provision provided that both parties waived their rights to a jury trial for any litigation arising out of a policy dispute. The lower court ruled that MBIA was not entitled to a jury trial because it could not, on the one hand, claim that it was entitled to remedies under the policy while, on the other hand, claim that the language in the policy regarding the jury trial waiver was not valid.
But the appellate court disagreed, finding that an insurer’s fraudulent inducement claim is, in essence, a claim that the policy is no longer valid regardless of whether the insurer seeks to rescind the policy.
Thanks to Mendel Simon for his contribution to this post.
If you would like more information, please write to Mike Bono.