The insurer, Assured Guaranty Corp, was severely limited, by a Federal Judge, in its ability to seek damages in a lawsuit against Credit Suisse.  The insurer accused Credit Suisse Group AG 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 Oct. 12.
• Assured can still seek compensatory damages for losses arising from the defective loans.

Case Background:

• Assurance Corp has sued Credit Suisse, JPMorgan Chase & Co and Bank of America. Assured has also sued other lenders.

• 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).

For Credit Suisse: John Ansbro, Daniel Robertson and Richard Jacobsen of Orrick Herrington and Sutcliffe.

For Assured Guaranty: Philippe Selendy, Adam Abensohn and Nicholas Joseph of Quinn Emanuel Urquhart and Sullivan.