The Richmond City Council, at its meeting on May 23, 2017, accepted a proposed settlement with defendant Ambac Assurance Corporation in litigation pending in San Francisco Superior Court entitled In re Ambac Bond Insurance Cases, Case No. JCCP 4555. The City is pleased to have reached this favorable settlement with this defendant. The litigation continues against defendant MBIA. 

The settlement was in the multiple six figures, and being one-time revenue, will be used to bolster the City’s reserves.

By way of background, in 2010, Richmond joined with 25 other public entities that filed individual complaints that were consolidated for pretrial purposes against these bond insurance companies beginning in 2008, alleging Cartwright antitrust claims as well as fraud, unfair business practices and breach of contract arising out of the bond insurers conduct. Richmond’s complaint alleges that the bond insurers committed fraud and breach of contract when they sold bond insurance to Richmond and charged exorbitant premium payments so that Richmond’s lower-rated bonds could be “enhanced” or “wrapped” with the bond insurers’ highest, triple-A credit rating, but failed to disclose they were increasingly insuring toxic subprimes resulting in the 2007-2008 downgrading of the bond insurers’ credit ratings that caused Richmond’s variable rate bonds to become unmarketable.  The complaint alleges that the bond insurers and credit rating agencies used a methodology referred to as the dual credit rating system that suppressed the credit ratings assigned to public entities compared to corporations thereby requiring public entities to purchase bond insurance in violation of the antitrust laws.   

In addition to compensating the public entities for their losses attributed to the bond insurers conduct, this litigation has contributed, in part, to abolishment of the dual credit rating system used by credit rating agencies to assign credit ratings to municipalities.