(Adds Merrill comment and other details)
NEW YORK, April 9 A New York judge threw out on
Friday most of bond insurer MBIA Inc's (MBI.N) lawsuit against
Merrill Lynch & Co that cited losses from complex debt
securities it insured for the investment bank.
In a 13-page written decision, New York State Supreme Court
Justice Bernard Fried dismissed five of six causes of action,
including fraud, but allowed MBIA to move ahead with its breach
of contract claim. He said MBIA could still seek damages.
"Plaintiffs may claim that the wrapped notes were not
qualified to be AAA rated, as promised, regardless of the label
they carried, as a claim for breach of contract," the judge
The lawsuit, filed last year in New York State Supreme
Court in Manhattan, sought to void certain credit default swaps
and related insurance contracts that MBIA, through a special
purpose vehicle, wrote on the securities held by Merrill, which
is now owned by Bank of America Corp (BAC.N).
The insurer wrote $5.7 billion in guarantees on these
securities, which were packages of mortgages known as
collateralized debt obligations (CDOs), MBIA said.
MBIA faces several hundred million dollars of losses on
these contracts because Merrill misrepresented the credit
quality of the CDOs, the insurer said.
"We are pleased with the ruling and will vigorously defend
against the breach of contract claim," Shirley Norton, a
spokeswoman for the investment bank, said in a statement.
Bank of America Corp bought Merrill Lynch in January, after
losses from complex debt securities and mortgages forced the
brokerage and investment bank to sell itself.
In late afternoon New York Stock Exchange trading, Bank of
America shares were off 9 cents or 0.5 percent to $18.56 and
MBI shares were up 20 cents or 2.7 percent to $7.75.
The case is MBIA Insurance Co. v Merrill Lynch, New York
State Supreme Court, No. 09-601324.
(Reporting by Edith Honan, Editing by Gerald E. McCormick)