Page 83

Bond Accountability Commission 2 Recommendations Page 80

their securities by doing so, but they are entering into long-term business arrangements with parties that have a strong financial interest in bringing litigation against the issuers in the event that the insurers must make payments on the insured municipal securities. In addition, insurers have the financial capacity, aggressiveness and sophistication to prosecute complex, hard-fought and lengthy legal actions. Recent experience demonstrates an increasing willingness to do so.96 For the first time in the history of the municipal securities market, several pending legal actions involve litigation between bond insurance companies, either as insurers or as swap counterparties, and local governments.

                                                            96

The following legal actions have been brought in recent years by bond insurers in their capacities as bond or swap insurers or as swap counterparties, or in one case, by a private obligor for a declaratory judgment in response to a bond insurer’s claims asserted against the obligor for continued premium payments when the obligor did not utilize the bond insurer (which had been downgraded) in connection with a refinancing: AMBAC Assurance Corp. v. Adelanto Public Utility Authority, Case No. 09-5087 (SDNY); NPS LLC v. Ambac Assurance Corp., Case No. 08-11281 (D MA) (held for the insurer on a motion for summary judgment); Ambac Financial Services, LLC v. Bay Area Toll Authority, Case No. 09-7062 (SDNY); Bank of New York Mellon, as Trustee, Financial Guaranty Insurance Corp., and Syncora Guarantee Inc. v. Jefferson County, Alabama, et al., Case No 08-1703, Complaint filed Sept. 16, 2008 (ND AL); and In re River Park Square Project Bond Litigation, Case No. CS-01-0127-EFS (ED Wash.) See also Financial Security Assurance, Inc. v. Stephens, Inc., et al., 500 F.3 rd 1276 (11 th Cir. 2007), an action by a bond insurer against an underwriter.

BAC2 Recomendations Final 04062010