A New York judge has dealt a setback to at least one insurer hoping to recover losses stemming from claims on policies that covered mortgage-backed securities.

Assured Guaranty Corp., which insured mortgage bonds sold by Credit Suisse Group, cannot recover all the damages it seeks in a lawsuit that charges Credit Suisse with misleading ratings agencies as to the creditworthiness of the borrowers whose loans backed the bonds, Judge Shirley Werner Kornreich of State Supreme Court in Manhattan ruled last week. The reason, she said, is because Assured continued to collect premiums on the policies after bringing the deficiencies to the bank's attention.

"It is black letter law that acceptance of premiums after knowledge of an existing breach of condition gives rise to wavier, or more properly, estoppel of the right to avoid the policy," Kornreich wrote in an order filed Oct. 12.

The decision, which followed a motion by Credit Suisse to dismiss the lawsuit, may provide a basis for other banks to challenge lawsuits by insurers of mortgage-backed securities during the run-up to the housing crisis.

"We have reviewed our case and the judge's opinion and will continue to pursue our contractual and other rights," a spokesperson for Assured told American Banker. Credit Suisse declined to comment on the ruling.

Assured sued Credit Suisse in October 2011, charging the bank with making misrepresentations in connection with applications for insurance that covered six transactions in 2006 and 2007. Assured alleged that its review of nearly 8,000 mortgage loans with a combined balance of $1.8 billion that backed the securities showed that roughly 93% of the loans suffered some defect in their credit quality, and that the insurer paid "hundreds of millions of dollars" in claims on the policies.

The judge also dismissed claims by Assured for damages tied to Credit Suisse's alleged failure to supply ratings agencies with information about the loans' actual credit quality, and for damages Assured says stemmed from its inability to pursue other business opportunities.

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