(Reuters) — Trial in Ambac Financial Group Inc.’s $2.7 billion suit against Bank of America is expected to begin in New York state court on Wednesday, 12 years after the bond insurer sued troubled mortgage-backed securities issued before the 2008 financial crisis.
Beginning in 2004, Ambac insured securities with 375,000 home loans from the bank’s nationwide unit. The insurer claims that 80% of the loans were the result of poor underwriting standards or had other defects that violated insurance contracts and that Bank of America failed to repurchase the loans as required.
Ambac is seeking $2.7 billion in damages and interest for what it paid investors under the policies. New York Supreme Court Justice Robert Reed will oversee the trial, which is expected to last several weeks.
Bank of America has said in court filings that Ambac accepted the risks of insuring the mortgage bonds in order to receive multimillion-dollar premiums. The bank also claims that Ambac̵7;s losses are not due to loan guarantees but to the fall in housing prices after the 2008 financial crisis.
The bank also said in filings that Ambac cannot rely on statistical sampling and must prove it breached the covenants on a loan-by-loan basis.
At its peak, Ambac was the second largest bond insurer in the world, having guaranteed the timely payment of interest and principal on more than $550 billion in debt.
The case is the largest of several lawsuits that Ambac has pursued against issuers of mortgage-backed securities. The company filed for bankruptcy in 2010, after the housing market crashed, and emerged in 2013.
Bank of America spent years cleaning up the mess from the 2008 crisis. It repaid a $45 billion taxpayer bailout and received over $76 billion in fines in the decade following the housing crash.