CIFG Assurance N.A. v. Assured Guaranty Corp. (Supreme Court, County of New York, July 26, 2010)
A New York Monoline bond insurer filed suit against its reinsurer for bailing on a contract and compelling it to assume responsibility for a bond insurance policy issued by the insurer after the policy became risky and unprofitable.
The complaint, filed in New York County Supreme Court, alleges that the reinsurer agreed to reinsure a policy for bondholders of an Iowa water company then changed its mind as soon as it suspected it would have to make a payment. As a result of the breach, the insurer was forced to cover a claim submitted in May that should have been the reinsurer's responsibility and will likely have to spring for several future claims.
The case poses the question of whether the reinsurer accepted more than $75 million in reinsurance premiums knowing it would not hold up its end of the bargain, and whether bondholders can safely rely on its protection. The six-count, 33-page complaint asserts two counts of breach of contract, three counts of anticipatory breach for future claims, and a count for declaratory judgment of the reinsurer’s obligations. The insurer is seeking damages equal to the claim it has already paid plus legal costs and fees, as well as a judgment that the reinsurer acted in bad faith and orders directing it to fulfill its duties.
The complaint alleges that defendant agreed to take on the policy and reaffirmed its commitment and responsibility in several subsequent conversations. Despite financial issues, defendant reaffirmed its commitment to take on the policy. It was not until it appeared that claims was inevitable that defendant announced it would not cover the bonds on account of their below-investment-grade rating. Plaintiff alleges that the bonds were above investment grade when defendant agreed to take them on, rendering defendant contractually responsible for them regardless of future decline.
A copy of the complaint is attached here
Sarah Fang and Rich Cohen