US appeals court rules for MBIA in liability case

Fri Jul 1, 2011 11:26am EDT

* Court orders D&O insurers to cover all of MBIA's costs

* Lower court had found for both MBIA and insurers

By Ben Berkowitz

NEW YORK, July 1 (Reuters) - A federal appeals court on Friday ruled for bond insurer MBIA Inc (MBI.N) in a dispute with its insurers over liability coverage for MBIA's directors and officers in a series of investigations.

The 2nd Circuit Court of Appeals upheld a lower-court ruling that MBIA's insurers were liable for certain of MBIA's costs. The appellate court also overturned a ruling that denied one of MBIA's other claims.

The claims arose from state and federal investigations into a series of transactions entered into by MBIA as well as from lawsuits filed against MBIA by shareholders related to some of those investigations.

MBIA had sued Federal Insurance Co, a unit of Chubb Corp (CB.N), and ACE American Insurance Co, a unit of ACE Ltd (ACE.N), after they denied claims by the bond insurer under two $15 million insurance policies.

The lower court ruled for MBIA on its demand for coverage of losses after investigations by federal and state regulators. It also ruled for MBIA on its demand for coverage of costs related to a probe by a special litigation committee.

But the lower court had also ruled for the insurers on MBIA's demand for coverage of losses related to an independent consultant's review. The appellate court overturned that ruling on Friday and ordered the lower court to enter a new judgment in MBIA's favor.

"We're pleased that the matter has been resolved in MBIA's favor," spokesman Kevin Brown said.

ACE declined to comment, while a Chubb spokesman could not immediately comment.

Friday's ruling is the third this week by an appellate court involving MBIA, once one of the world's largest bond insurers before the financial crisis.

On Tuesday, New York's highest court reinstated a lawsuit filed by some of the world's biggest banks against MBIA, allowing them to pursue claims that MBIA fraudulently restructured itself. [ID:nN1E75R0DN]

On Thursday, a New York appellate court ruled MBIA could pursue a lawsuit accusing Bank of America's (BAC.N) Countrywide unit of fraudulently misleading MBIA about mortgage-backed securities it insured. [ID:nN1E75T1FU]

MBIA shares were up 3.9 percent to $9.03 in late-morning trading.

Friday's case is MBIA Inc vs. Federal Insurance Co., et al., United States Court of Appeals for the Second Circuit, No. 10-355. (Reporting by Ben Berkowitz; Editing by Tim Dobbyn)

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