Justice Shirley Werner Kornreich
Insurer Assured Guaranty Municipal issued policies for the sale of residential mortgage-backed securities. The complaint alleged claims for breach of contract, among other things, and a demand for consequential damages. DLJ Mortgage Capital and Credit Suisse Securities moved to dismiss plaintiffs’ demands for rescissory damages. The policies issued by the insurers were financial guaranty policies issued to holders of certain classes of certificates and all stated they could not be canceled and premiums were non-refundable. Defendants argued plaintiffs waived their right to rescission as they continued to perform under the policies and accepted payments. Plaintiffs alleged rescission was available under the common law for pervasive and material breaches undermining the purpose of a contract. The court ruled defendants established that plaintiffs were estopped from avoiding the policies by their acceptance of premiums after knowledge of alleged misrepresentations, and estoppel remained even if the insurer accepted premiums in order to “protect” the insureds while the rescission action was pending.