Shares of MGIC Investment Corp. tumbled Wednesday after the mortgage insurer disclosed it was being sued by Bank of America's mortgage unit in a dispute over claims.
The suit was filed Dec. 17, according to MGIC's filing with the Securities and Exchange Commission on Tuesday.
The complaint alleges that MGIC "denied and continues to deny" valid mortgage insurance claims submitted by Bank of America's Countrywide unit.
Representatives of Bank of America and MGIC declined to comment beyond the documents.
In the complaint filed in California Superior Court in San Francisco, Bank of America says MGIC denied claims based on "unreasonable interpretations" of its policies. The suit seeks "declaratory relief" for interpretation of the policies. A dollar figure is not cited, but Bank of America notes that Countrywide's mortgage defaults are expected to continue considering the economic downturn.
Bank of America said it paid "hundreds of thousands of dollars" in premiums to MGIC.
In its filing with the SEC, MGIC said it will defend itself against the allegations. But the company, based in Milwaukee, noted that it was "unable to predict the outcome of this case or its effect on us."
Bank of America's lawsuit notes that MGIC reaped "hundreds of millions of dollars" from the mortgage market during better economic times. MGIC's "unreasonable interpretations" of its policies to deny claims comes as it faces steep losses in the downturn, the complaint notes.
MGIC, along with the entire mortgage insurance industry, has been hit hard by the deteriorating mortgage and housing markets. As homeowners default on mortgages, the banks that hold those mortgages submit claims with insurers such as MGIC to recoup losses.
Countrywide, meanwhile, was the nation's largest mortgage originator before its business was ravished by the downturn and a spike in bad loans. Bank of America acquired the company last year.
Shares of MGIC fell 60 cents, or 9.4 percent, to close at $5.76. Bank of America shares slipped 14 cents to $15.19.