NEW YORK (Reuters) - A New York judge has limited the damages Assured Guaranty Corp (AGO.N) can seek in a lawsuit accusing Credit Suisse Group AG CSGN.VX of misrepresenting the quality of loans underlying mortgage-backed securities it insured.
The decision is likely to be cited by other lenders being sued by insurers over mortgage-backed securities they guaranteed before the housing market collapsed.
In ruling on a motion to dismiss in the Assured case, New York state Supreme Court Justice Shirley Werner Kornreich said the bond insurer could not recover the full amount of its exposure under the policies “as a result of their acceptance of premiums after their knowledge of the alleged breach.”
Assured is barred from “rescinding the policies and from obtaining the equivalent...in the form of rescissory damages”, she said in her decision filed October 12.
Assured can still seek compensatory damages for losses arising from the defective loans.
Assured spokeswoman Ashweeta Durani had no immediate comment. Jack Grone, a spokesman for Credit Suisse, declined comment.
Similar cases have been brought by MBIA Inc (MBI.N), which has sued lenders such as Bank of America Corp (BAC.N), Ally Financial Inc and Credit Suisse, while Ambac Assurance Corp ABKFQA.UL has sued Credit Suisse, JPMorgan Chase & Co (JPM.N) and Bank of America. Assured has also sued other lenders.
Assured sued Credit Suisse unit DLJ Mortgage Capital Inc. and Credit Suisse Securities (USA) LLC last year, claiming misrepresentations of six mortgage-backed securities transactions from 2006 and 2007.
The complaint said Credit Suisse failed to verify income and employment and otherwise did not conform to underwriting guidelines.
The insurer said it is exposed to “hundreds of millions of dollars” in claims because 93 percent of the 7,918 mortgage loans it reviewed breached representations.
The transactions had an original principal loan balance of about $1.8 billion, according to court papers.
In her decision, the judge also dismissed claims for consequential damages and fees, as well as a claim involving breach of contract in connection with AAA ratings.
The case is Assured Guaranty Municipal Corp v. DLJ Mortgage Capital Inc., 652837/2011, New York state Supreme Court, New York County (Manhattan).
Editing by Edwina Gibbs