Assured, which guaranteed the loans, sued Credit Suisse in 2011 claiming the bank misrepresented the quality of loans, and that a "massive number" of bad mortgages were packaged into the securities.

The lawsuit is among numerous cases brought after the housing collapse seeking to hold banks accountable for losses incurred by insurers who guaranteed securities during the financial crisis. Many of the cases have been settled.

In a unanimous opinion in the Assured case, the Appellate Division, First Department, ruled a lower court wrongly held that the only remedy available to the insurer was to cure the defect or repurchase the loan. Their contract said otherwise, the appeals court found.

The insurer, "is not one of the parties affected by the 'sole remedy' clause of the representations and warranties provision," the five-judge panel wrote.

The ruling reinstates Assured's demands for rescissory and other damages and fees. The lower court had held that the bond insurer was barred from rescinding the policies or obtaining the equivalent in damages as a result of accepting premiums after they knew of the alleged breach.

Drew Benson, a spokesman for Credit Suisse, declined to comment.

Assured spokeswoman Ashweeta Durani had no immediate comment.

The transactions at issue had an original principal loan balance of about $1.8 billion, according to court papers.

The case is Assured Guaranty Municipal Corp v DLJ Mortgage Capital Inc, New York state Supreme Court, New York County, No. 652837/2011.

(Reporting By Karen Freifeld.; Additional reporting by Bernard Vaughan. Editing by Andre Grenon)

By Karen Freifeld

Stocks treated in this article : Assured Guaranty Ltd., Credit Suisse Group AG