Crotty also said Syncora can establish a material breach of contract by showing that breaches of representations and warranties by EMC caused a material increase in risk. He declined to award equitable relief.
The decision, if applied by other judges, could strengthen efforts by bond insurers such as Assured Guaranty Ltd, MBIA Inc and Ambac Financial Group Inc to hold banks responsible for losses on securities backed by subprime and other risky home loans.
Philip Forlenza, a lawyer for Syncora, declined to comment. JPMorgan did not immediately respond to requests for comment.
In its lawsuit, Syncora alleged it was misled before agreeing to insure interest and principal payments on part of a $666 million bond created in March 2007 by EMC and backed by 9,871 home equity loans.
It claimed that, as a result of EMC's breaches, it paid out more than $168.6 million of claims and faces more exposure.
"Syncora relied on EMC's representations and warranties in deciding whether to insure the transaction and how to price that risk," Crotty wrote. "A breach of these warranties, if proven, would have adversely affected Syncora's interests as an insurer."
The judge added that Syncora's contract with EMC did not include language requiring the bond insurer to wait for a loan to default before demanding a buyback.
While investors have raised similar repurchase claims against banks in hundreds of other lawsuits, Crotty distinguished those cases, emphasizing that a bond insurer has "legally distinct interests" from investors generally.
In January, New York State Supreme Court Justice Eileen Bransten ruled in favor of MBIA and Syncora in cases against Bank of America Corp's Countrywide Financial unit.
She said an insurer seeking to recover losses on risky mortgage-backed securities it insured need show only that it was misled about the securities, not that misrepresentations caused its losses. Those rulings are being appealed.
Syncora was once known a XL Capital Insurance Inc. EMC had been part of Bear Stearns Cos, which JPMorgan bought in 2008.
The case is Syncora Guarantee Inc v. EMC Mortgage Corp, U.S. District Court, Southern District of New York, No. 09-03106.
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