There's a cautionary note to MBIA deep in Manhattan State Supreme Court Justice Eileen Bransten's long-awaited, 27-page loss-causation decision in MBIA's mortgage-backed securities case against Countrywide. The bond insurer, Bransten warned, must prove that it was damaged as a "direct result" of Countrywide's allegedly material misrepresentations about the MBS certificates MBIA agreed to insure. "As has been aptly pointed out by Countrywide, this will not be an easy task," the judge wrote.

But unless I am seriously misreading Branstein's ruling (and her companion decision in Syncora's case) it's going to be a lot easier for the bond insurers to recover against Countrywide as a result of the judge's reasoning. Yes, MBIA and Syncora have to prove they were duped into writing insurance policies on Countrywide mortage-backed securities. The monolines have never asserted that they don't have to show Countrywide made material misrepresentations at the time they agreed to issue insurance. They believe they've got plenty of evidence -- from the MBS pooling and servicing agreements, from the loan tapes they were permitted to see, and from the shadow credit ratings conferred on the MBS notes -- that Countrywide misled insurers about the quality of the mortgages in the underlying loan pools.

Instead, the key question before Bransten was whether the insurers would also have to show that Countrywide's alleged misrepresentations were the direct cause of the MBS failures for which insurers had to pay out policy claims. And on this issue, the judge sided squarely with the monolines. "No basis in law exists to mandate that MBIA establish a direct causal link," she concluded.

Her rulings will permit the bond insurers to argue both that Countrywide committed fraud in inducing them to write policies and that Countrywide breached its insurance agreements with Syncora and MBIA. To establish fraud, MBIA and Syncora will have to show that they relied on Countrywide's alleged misrepresentations when they agreed to write the specific policies at issue in the litigation. To prove a breach of the insurance agreements, they need only prove that Countrywide materially misrepresented the risk profile of the underlying mortgage pools. There are, in other words, a lot of routes to recovery for Syncora and MBIA -- and given that Bransten is the leading jurist in the monoline MBS litigation, for other bond insurers as well, assuming other New York state-court judges adopt her thinking.

MBIA and Syncora even still have a possibility of recovery on their alternate put-back theory, although Bransten denied them summary judgment on put-backs in Tuesday's rulings. The bond insurers had argued that Countrywide breached MBS pooling and servicing agreements when it allegedly misrepresented the quality of the underlying loan pools so it's liable, under those contracts, to put-back any deficient mortgages -- the same put-back claims some MBS investors have made against issuers. The judge denied summary judgment because she found that the Countrywide pooling and servicing contract language is ambiguous. That's a boon to Countrywide's parent, Bank of America, and to other MBS issuers facing put-back claims. (More on that tomorrow.) But for the bond insurers, the put-back contract claims -- which are still alive, even though Bransten denied summary judgment -- were always an alternative route to the damages they also sought under their insurance- law claims.

And under Bransten's rulings, even if the bond insurers end up with nothing on their put-back claims, they can still recover everything they've paid out on Countrywide MBS claims. That's because the judge adopted the monolines' theory of "rescissory damages," finding that if MBIA and Syncora prove their cases, they're entitled to be made whole by Countrywide, as if they'd never written insurance on Countrywide MBS. Again, if Bransten's reasoning on rescissory damages guides other New York State judges, Ambac and Assured Guaranty also have reason to cheer her rulings.

For the record (as if you didn't know), MBIA is represented by Quinn Emanuel Urquhart & Sullivan; Syncora by Debevoise & Plimpton; and Countrywide by Goodwin Procter.

(Reporting by Alison Frankel)