the New York Insurance Law

MBIA Allowed to Pursue Fraudulent Inducement Claim Against J.P. Morgan

On September 19, Justice Alan D. Scheinkman of the New York Supreme Court for Westchester County granted in part MBIA’s motion for leave to amend its complaint against J.P. Morgan in an action related to a Bear Stearns RMBS transaction that MBIA insured. In May, the court granted summary judgment in favor of J.P. Morgan on the sole claim of fraud in the original complaint. In that decision, however, the court noted that while MBIA could not demonstrate fraud, there may have been unpleaded causes of action for fraudulent concealment and/or relief available under Section 3105 of the New York Insurance Law. MBIA then sought to file an amended complaint containing those two new claims and an amended fraud claim. As all of these claims were viable at the time of the original complaint, J.P. Morgan argued that the claims were precluded by the doctrine of res judicata based on the court’s summary judgment decision. The court rejected this argument and held that res judicata only applied to the pleaded fraud claim and not to the new claims. As to the substance of MBIA’s amended claims, the court granted leave to file an amended complaint on the fraudulent concealment claim alone, dismissing the previously pleaded fraud claim and MBIA’s Section 3105 claim. Order.