Ambac Assurance Corp. v. Countrywide Home Loans, Inc.
56 N.Y.S.3d 21
N.Y. App. Div.2017Background
- Ambac Assurance Corporation (Ambac) issued unconditional, irrevocable financial-guaranty insurance policies backing 17 Countrywide-sponsored RMBS transactions and sued Countrywide for breaches of representations and warranties and for fraudulent inducement.
- Ambac alleges Countrywide misrepresented its underwriting/business practices and loan characteristics, inducing Ambac to insure the securities.
- Both parties moved for summary judgment; the trial court granted in part and denied in part; both appealed.
- Ambac sought monetary damages for losses it paid under the policies; Countrywide argued statutory and contractual limits (including a repurchase protocol) curtailed Ambac’s remedies.
- Key contract clauses at issue: a sole-remedy repurchase protocol (Section 2.01(l)), reimbursement/full-recourse clause for repurchase-protocol failures (Section 3.03(b)), and a fee-recovery clause (Section 3.03(c)); also disputed are the scope of certain reps (No Default, Title, Qualified Appraiser).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Ambac must prove all fraud elements (including justifiable reliance and loss causation) | Ambac suggested Insurance Law § 3105 affects or relaxes common-law fraud elements | Countrywide argued fraud elements remain required and § 3105 does not alter them | Court: Ambac must prove all fraud elements, including justifiable reliance and loss causation; § 3105 does not displace common-law requirements |
| Applicability of Insurance Law § 3105 as an affirmative basis for monetary recovery | Ambac relied on § 3105 to inform its fraud claim | Countrywide argued § 3105 applies only to rescission/defenses to claims, not affirmative damages | Court: § 3105 does not create an affirmative monetary remedy here and does not modify fraud elements |
| Whether Ambac can recover all claim payments (rescissory-type relief) as damages | Ambac characterized requested relief as compensatory | Countrywide argued such relief is rescissory and barred where policies are irrevocable | Court: Ambac cannot obtain rescissory damages covering all claim payments; issuing irrevocable policies precludes that remedy |
| Whether the repurchase protocol is the sole remedy for loan-level breaches | Ambac argued certain transaction-level reps are outside the protocol or otherwise allow other remedies | Countrywide contended Section 2.01(l) limits remedies to the repurchase protocol for defective loans | Court: The sole-remedy repurchase protocol broadly applies to defective-loan breaches; Ambac cannot sidestep it for loan-level breaches |
| Whether Ambac may seek reimbursement and full recourse under Section 3.03(b) for certain claims-paid | Ambac sought reimbursement for claims paid when Countrywide failed to follow repurchase protocol | Countrywide argued sole-remedy bars such relief | Court: Section 3.03(b) entitles Ambac to reimbursement and full recourse for claims paid due to Countrywide's failure to comply with the repurchase protocol; those claims are not barred by the sole-remedy clause |
| Whether Ambac can recover attorneys’ fees under Section 3.03(c) | Ambac sought counsel fees as part of reimbursement | Countrywide disputed fee-shifting applicability | Court: Section 3.03(c) does not show unmistakably clear intent to permit recovery of Ambac’s litigation counsel fees; fees not recoverable as a matter of law on summary judgment |
| Interpretation of certain reps (No Default, Title, Qualified Appraiser) as a matter of law | Ambac urged broad interpretations applying to many loans | Countrywide argued definitions excluded certain loan defects or categories | Court: Questions of fact exist about whether those reps cover borrower misrepresentations, small-value-title issues, and stated-value loans — trial required rather than summary adjudication |
| Mitigation — whether Ambac’s alleged discounted bond purchases reduced its recoverable losses | Countrywide argued purchases mitigated Ambac’s losses | Ambac disputed sufficiency/impact of those purchases | Court: Countrywide failed to prove mitigation on summary judgment; district left open Countrywide’s ability to pursue evidence at trial |
Key Cases Cited
- Pasternack v. Laboratory Corp. of America Holdings, 27 N.Y.3d 817 (reaffirms elements of fraud, including reliance)
- Eurycleia Partners, LP v. Seward & Kissel, LLP, 12 N.Y.3d 553 (fraud element discussion)
- ACA Financial Guaranty Corp. v. Goldman, Sachs & Co., 25 N.Y.3d 1043 (insurer-plaintiff must plead justifiable reliance)
- Laub v. Faessel, 297 A.D.2d 28 (transaction and loss causation requirement)
- Hooper Assoc. v. AGS Computers, 74 N.Y.2d 487 ("unmistakably clear" standard for fee-shifting or indemnity)
- MBIA Insurance Corp. v. Countrywide Home Loans, Inc., 105 A.D.3d 412 (contrasting treatment of Insurance Law § 3105; not followed here)