The megabillion-dollar game of chicken between Bank of America and the bond insurer MBIA just got even more perilous. On Monday MBIA filed a notice that it is cross-appealing the ruling by Manhattan State Supreme Court Justice Eileen Bransten. MBIA wants reconsideration of Bransten's finding that the bond insurer is not entitled to summary judgment on its claims that Countrywide breached representations and warranties on the mortgage-backed securities MBIA agreed to insure. You might think MBIA's decision to appeal is a surprise, given the many routes to recovery Bransten gave MBIA on its insurance fraud claims against Countrywide. But as always in the incredibly complex litigation between Bank of America and MBIA, there are many layers to every move by either side.

Bransten's rulings were undoubtedly a boon for the monolines Syncora and MBIA. The judge said the bond insurers don't have to establish a direct causal link between the alleged deficiencies in the mortgage loans underlying the securities they agreed to insure and the subsequent payouts the insurers had to make on those MBS policies. Under Bransten's opinion, MBIA and Syncora can prove insurance fraud merely by establishing that they relied on Countrywide's alleged misrepresentations when they agreed to write the policies at issue in the litigation. And to prove a breach of the insurance agreements, they need only prove that Countrywide materially misrepresented the risk profile of the underlying mortgage pools.

Nevertheless, two days after Bransten issued her opinion, Syncora's lawyers at Debevoise & Plimpton filed a notice of appeal. That's because the decision wasn't all good news for the monolines: Bransten denied Syncora and MBIA summary judgment on their interpretation of the MBS contracts they signed with Countrywide. The monolines argued that Countrywide was required to buy back every underlying mortgage that didn't live up to the representations and warranties the issuer made about the mortgage pool. Bransten, however, said the contract language was too ambiguous for the issue to be decided on summary judgment. Syncora said it was seeking a reversal of that part of the ruling.

For Countrywide and Bank of America, Syncora's appeal notice set off alarm bells. Bransten's ruling on the reps and warranties question was actually more important to Bank of America -- in the broad scope of MBS litigation -- than the judge's insurance-law conclusions. If Bransten had agreed with the monolines' argument on Countrywide's obligation to buy back deficient mortgages, the bank's total MBS exposure could have increased drastically, because the ruling would have extended to MBS investors as well as bond insurers. The bank avoided a calamity in Bransten's decision; Syncora's appeal revived the prospect of reps and warranties disaster.

So on Jan. 25, Countrywide's lawyers at Goodwin Procter filed their own notices of appeal of Bransten's ruling in both the Syncora and MBIA cases. Countrywide's biggest fear is that the state appeals court will disagree with Bransten on the reps and warranties issue, so its notice in the MBIA case pointed out to the appellate court that Bransten had sided with the bank on that issue. The notice asked only for a reconsideration of Bransten's ruling that the bond insurers are entitled to damages on the insurance-law claims.

MBIA obviously wasn't going to permit Syncora and Countrywide to argue at the appeals court without having a say of its own. The bond insurer's notice raises the stakes for the Appellate Division, First Department, by explicitly citing Bransten's ruling that Countrywide may assert an affirmative defense that the monolines' losses were due to economic circumstances, not to alleged deficiencies in MBS underwriting. MBIA wants the appeals court to reverse Bransten not only on the reps and warranties ruling, but also on Countrywide's affirmative defenses.

For all three of these litigants, sending the case to the appellate division means more uncertainty and a much longer wait for an ultimate resolution. MBIA and Bank of America each seem to be waiting for the other side to run out of time; cash-strapped MBIA is already booking almost $3 billion in expected reps and warranties revenue from BofA; and BofA's stockholders would doubtless appreciate resolution of the MBIA mess. But to return to the chicken-game metaphor, neither the bank nor the bond insurer appears willing to be the first to get out of the way.

(Reporting By Alison Frankel)