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Commitments and Contingencies

9 Months Ended

Sep. 30, 2018

Commitments and Contingencies Disclosure [Abstract]

12. COMMITMENTS AND CONTINGENCIES

The following commitments and contingencies provide an update of those discussed in Note 18: Commitments and Contingencies in the Notes to Consolidated Financial Statements included Part II, Item 8 in the Company’s Annual Report on Form 10-K for the year ended December 2017, and should be read in conjunction with the complete descriptions provided in the aforementioned Form 10-K.

The Segregated Account and Wisconsin Rehabilitation Proceeding

On September 25, 2017, the Rehabilitator filed in the Rehabilitation Court a Motion to Further Amend The Plan of Rehabilitation Confirmed on January 24, 2011 To Facilitate An Exit from Rehabilitation. The evidentiary Confirmation Hearing was held on January 4, 2018, and continued on January 22, 2017. On January 22, 2018, the Rehabilitation Court entered an order (the "Confirmation Order") granting the Rehabilitator’s motion and confirming the Second Amended Plan of Rehabilitation, which became effective on February 12, 2018. Pursuant to the Confirmation Order, the Rehabilitation Court also ruled that, contrary to allegations made by certain parties to certain military housing litigations (the "MHPI Projects"), the Rehabilitation Court did not previously enter any order that could form the predicate for a claim of “Ambac Default” and confirmed Section 6.13 of the Second Amended Plan of Rehabilitation which, among other things, provided that any such default is deemed not to have existed or to be cured.

On February 7, 2018, the Rehabilitator filed a motion with the Rehabilitation Court requesting injunctive relief against the MHPI Projects that would, among other things, enjoin the MHPI Projects from taking further actions or making further arguments, in any court or otherwise, in contravention of the Confirmation Order, the findings contained in the Confirmation Order or the provisions of the Second Amended Plan of Rehabilitation. On the same day, the Rehabilitation Court issued an order granting the Rehabilitator's February 7th motion (the “February 7 Order”).

On February 26, 2018, the MHPI Projects filed a Notice of Motion and Motion for Reconsideration as well as a Notice of Motion and Motion for Expedited Hearing in the Rehabilitation Court, requesting reconsideration of the February 7 Order on an expedited basis (the “February 26 Motion”). Briefing on the motions was completed on April 5, 2018, and a hearing was scheduled for May 10, 2018.

On March 2, 2018, the MHPI Projects noticed their appeal from the Confirmation Order and the February 7 Order. On March 6, 2018, the MHPI Projects filed in the Rehabilitation Court a Notice of Motion and Motion for Stay Pending Appeal. On March 9, 2018, the MHPI Projects filed in the Wisconsin Court of Appeals a Motion for Ex Parte Relief Pending Appeal and Relief Pending Appeal. After accelerated briefing, the Court of Appeals granted the MHPI Projects’ Motion for Relief Pending Appeal on March 13, 2018 and stayed enforcement of the February 7 Order and enforcement of Articles 6.8 and 6.13 of the Second Amended Plan of Rehabilitation, including but not limited to the extent that those Articles affect arguments that the MHPI Projects may make in any court (the “March 13 Order”).

On May 4, 2018, the Rehabilitator filed in the Rehabilitation Court a Motion to Dissolve the Injunction dated February 7, 2018 and Amend Confirmation Order (the “May 4 Motion”) and a Motion for Final Decree and Order Discharging the Rehabilitator. In the May 4 Motion, the Rehabilitator requested the Rehabilitation Court to dissolve the injunction put in place under the February 7 Order and to amend the Confirmation Order, and thereby amend Section 6.13 of the Second Amended Plan of Rehabilitation, to limit the application of Section 6.13 to defaults or alleged defaults related to policies formerly allocated to the Segregated Account. The Rehabilitator also requested in the May 4, 2018 filings that the Rehabilitation Court remove the May 10, 2018 hearing from its calendar and enter a final decree and order closing the case. On May 10, 2018, the Rehabilitation Court set a briefing schedule with respect to the motions filed by OCI on May 4, 2018 and set a hearing on the motions for June 7, 2018. Upon stipulation of the parties, the hearing was adjourned.

On June 21, 2018, Ambac Assurance and the MHPI Projects entered into a settlement agreement whereby the parties agreed, among other things, that the February 7 Order could be dissolved, the February 26 Motion and the May 4 Motion would each be withdrawn, and the parties would petition the Wisconsin Court of Appeals to vacate the March 13 Order and dismiss the appeal of the MHPI Projects. On June 22, 2018, the Rehabilitation Court entered an order to dissolve the February 7 Order, grant the withdrawal of the February 26 Motion and the May 4 Motion, and close the case. On June 25, 2018, the Rehabilitator, Ambac Assurance and the MHPI Projects filed with the Wisconsin Court of Appeals a Stipulation and Joint Motion to Vacate the March 13 Order. On July 3, 2018, the Wisconsin Court of Appeals vacated the March 13 Order and on July 6, 2018, the Court of Appeals dismissed the appeal of the MHPI Projects.

Litigation Against Ambac

Ambac Assurance has been defending several lawsuits in which borrowers brought declaratory judgment actions claiming, among other things, that Ambac Assurance’s claims for specific performance related to the construction and development of housing at various military bases to replace or cash-fund a debt-service-reserve surety bond, as required under the applicable loan documents (see Litigation Filed By Ambac), are time-barred or are barred by the doctrine of laches, that Ambac lacks standing on the basis that there has been an “Ambac Default,” and that Ambac is not entitled to specific performance pursuant to the terms of the loan documents. The parties to the cases described below have reached a settlement resolving all litigation between and among them (except for the RICO action described below). In connection with the settlement of these cases, related cases brought by Ambac Assurance seeking specific performance related to the construction and development of housing at various military bases to replace or cash-fund a debt-service-reserve surety bond, and the litigation involving the MHPI Projects in Wisconsin relating to orders issued by the Rehabilitation Court with respect to the conclusion of the rehabilitation of the Segregated Account of Ambac Assurance, Ambac Assurance has paid the military housing project companies for their costs and other amounts. Such settlement resulted in a net loss for Ambac of approximately $20,413 for the second quarter of 2018.

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Meade Communities LLC v. Ambac Assurance Corporation (Circuit Court, Anne Arundel County, Maryland, Case No. C-02-CV-15-003745). On January 22, 2018, the court granted Meade's motion for summary judgment finding that Ambac Assurance lacked standing on the basis that there had been an "Ambac Default" by virtue of certain orders of the Rehabilitation Court. On January 26, 2018, Ambac Assurance filed a Motion to Alter or Amend Judgment with the Maryland Court arguing that the Rehabilitation Court's January 22 Confirmation Order constituted grounds for altering the judgment to award summary judgment on the "Ambac Default" issue for Ambac Assurance. On February 7, 2018, the Rehabilitation Court entered a further order enjoining Meade from continuing to argue that an Ambac Default occurred by virtue of the Rehabilitation Court's prior orders and requiring Meade to file that order with the Maryland Court. On February 8, 2018, Meade complied and filed the January 22nd and February 7th Rehabilitation Court orders with the Maryland court. On February 12, 2018, the Maryland Court granted Ambac Assurance's motion to stay enforcement of the Court's January 22nd amended order concerning "Ambac Default" and granting Meade an extension until March 14, 2018 to oppose Ambac Assurance's Motion to Alter or Amend Judgment. On March 14, 2018, Meade filed its opposition brief. On May 10, 2018, the Maryland Court denied Ambac Assurance’s January 26, 2018 Motion to Alter or Amend Judgment and lifted the February 12, 2018 stay order. Ambac Assurance filed a notice of appeal on May 16, 2018 and, concurrently therewith, filed a Motion to Set Supersedeas Bond Amount pending the appeal. Plaintiff opposed such motion on May

31, 2018 and the court denied Ambac Assurance’s motion on June 15, 2018. Pursuant to an agreement to settle the case, Ambac agreed to dismiss its appeals and on July 9, 2018, the parties filed a consent motion to vacate the Circuit Court's prior orders, which was granted.

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Monterey Bay Military Housing LLC and Monterey Bay Land LLC v. Ambac Assurance Corporation (Superior Court, Monterey County, California, Case No. 15CV000599). On June 19, 2017, the court issued a preliminary order that partially granted Monterey Bay's motion for summary judgment and ruled that the California statute of limitations had run on Ambac Assurance's claim for specific performance, subject to Ambac Assurance’s defense of equitable tolling. The court also partially granted Ambac Assurance's motion for summary judgment on certain of Monterey Bay’s declaratory judgment claims. On June 23, 2017, Ambac Assurance withdrew its defense of equitable tolling. The parties agreed that the court’s summary judgment ruling on the statute of limitations was sufficient to end the case at the trial court level and submitted final orders to the court for approval. The court signed the final orders on July 13, 2017. On September 14, 2017, Ambac Assurance filed a notice of appeal. On April 19, 2018, the court entered an order awarding plaintiffs an amount representing a portion of their fees and costs incurred. On May 1, 2018, Ambac Assurance filed a notice of appeal. Pursuant to an agreement to settle the case, Ambac Assurance filed a motion to dismiss its appeal, which was granted on July 3, 2018.

Monterey Bay Military Housing, LLC, et al. v. Ambac Assurance Corporation, et al. (United States District Court, Northern District of California, San Jose Division, Case No. 17-cv-04992-BLF, filed August 28, 2017). On November 13, 2017, Ambac Assurance and the other defendants filed motions to dismiss the first amended complaint asserting, among other claims, civil claims based on the Racketeer Influenced and Corrupt Organizations Act (“RICO”), which Plaintiffs opposed. Oral argument was held on April 12, 2018. On July 17, 2018, the court granted Ambac Assurance’s and the other defendants’ motion to dismiss the first amended complaint without prejudice. Plaintiffs’ deadline to file a second amended complaint is currently November 16, 2018, but Plaintiffs have requested an extension.

It is not reasonably possible to predict whether additional suits will be filed or whether additional inquiries or requests for information will be made, and it is also not possible to predict the outcome of litigation, inquiries or requests for information. It is possible that there could be unfavorable outcomes in these or other proceedings. Legal accruals for litigation against Ambac which are probable and reasonably estimable, and management's estimated range of loss for such matters, are not material to the operating results or financial position of the Company. For the litigation matters Ambac is defending that do not meet the “probable and reasonably estimable” accrual threshold and where no loss estimates have been provided above, management is unable to make a meaningful estimate of the amount or range of loss that could result from unfavorable outcomes. Under some circumstances, adverse results in any such proceedings could be material to our business, operations, financial position, profitability or cash flows. The Company believes that it has substantial defenses to the claims above and, to the extent that these actions proceed, the Company intends to defend itself vigorously; however, the Company is not able to predict the outcomes of these actions.

Litigation Filed or Joined by Ambac

In the ordinary course of their businesses, certain of Ambac’s subsidiaries assert claims in legal proceedings against third parties to recover losses already paid and/or mitigate future losses. The amounts recovered and/or losses avoided which may result from these proceedings is uncertain, although recoveries and/or losses avoided in any one or more of these proceedings during any quarter or fiscal year could be material to Ambac’s results of operations in that quarter or fiscal year.

Student Loans Exposure:

CFPB v. Nat’l Collegiate Master Student Loan Trust (United States District Court, District of Delaware, Case No. 1:17-cv-01323, filed September 18, 2017). On September 20, 2018, the case was reassigned to a new judge, who invited additional letter submissions from the parties. Ambac Assurance submitted a letter on September 28, 2018, reiterating its request to intervene in the action. The CFPB also submitted a letter, which asserted that the court can resolve the outstanding intervention motions on the papers. In additional submissions, the CFPB and a firm purporting to represent the Defendant Trusts argued that the court should resolve a dispute relating to the payment of counsel fees out of Trust assets, so that the Trusts can secure representation for the case. On October 19, 2018, the court granted Ambac’s motion to intervene. On November 1, 2018 the court issued an oral order directing the parties to file by November 16, 2018 a joint proposed briefing schedule regarding the CFPB’s motion for entry of the proposed consent judgment, including a proposal for any discovery the parties wish to take in order to respond to the motion.

Nat’l Collegiate Master Student Loan Trust v. Pa. Higher Education Assistance Agency (PHEAA) (Delaware Court of Chancery, C.A. No. 12111-VCS, filed March 21, 2016). On January 12, 2018, Plaintiffs filed a motion for injunctive or declaratory relief requiring Wilmington Trust Company, as Owner Trustee, and GSS Data Services, Inc., as Administrator, to resume processing for payment bills submitted by lawyers purporting to act on the Trusts’ behalf. Oppositions to Plaintiffs’ motion were filed by Ambac and others on March 1, 2018. Plaintiffs filed a reply brief in further support of their motion on March 16, 2018. At a hearing on April 3, 2018, the court denied Plaintiffs’ motion without prejudice. The court later entered an order memorializing its oral ruling on April 16, 2018. The court also granted Ambac’s motion to intervene on April 10, 2018 and Ambac filed its complaint in intervention on April 16, 2018. On June 15, 2018, the Owner Trustee filed a stipulation and proposed order addressing the selection of a Successor Owner Trustee. Among other provisions, the stipulation calls for the appointment of a Special Master to adjudicate disputes regarding "Owner Instructions," and raises the annual expense caps that apply to the Owner Trustee and Indenture Trustee. The stipulation was negotiated and agreed to by the Owner Trustee, the Indenture Trustee, the Administrator, Ambac Assurance, and various noteholders. Plaintiffs withdrew from the negotiations and later opposed the stipulation. The Owner Trustee proposed that the court schedule a hearing to consider any objections to the stipulation submitted by noteholders. The court held a hearing on September 21, 2018, and heard arguments regarding the stipulation at that time. The court ruled that a Special Master would be appointed, and invited the parties to submit

a revised stipulation and proposed order to conform to the court’s rulings at the hearing. The Owner Trustee and Plaintiffs each submitted competing draft orders on September 28, 2018.

Puerto Rico:

Bank of New York Mellon v. COFINA, et al. (United States District Court, District of Puerto Rico, No. 1:17-ap-00133, filed May 16, 2017). On November 6, 2017, a number of parties, including Ambac Assurance, filed motions for summary judgment; Ambac Assurance argued that the Commonwealth’s and COFINA’s pre-petition actions constituted defaults under the COFINA bond resolution, and these defaults have ripened into events of default resulting in the senior COFINA bondholders’ absolute priority to the funds in BNY’s possession. Briefing on the summary judgment motions was completed on January 5, 2018. On September 27, 2018, in light of the pending agreement in principle between the Agent for COFINA and the Agent for the Commonwealth in adversary proceeding no. 1:17-ap-00257 (the "Commonwealth-COFINA Dispute" discussed below), the Court terminated the pending motions for summary judgment without prejudice. On October 19, 2018, the Oversight Board filed (i) a disclosure statement and plan of adjustment in the COFINA Title III case incorporating a resolution of the Commonwealth-COFINA Dispute, and (ii) a motion under Bankruptcy Rule 9019 in the Commonwealth Title III case for approval of the settlement of the Commonwealth-COFINA Dispute. The Commonwealth Agent is not presently a party to the settlement of the Commonwealth-COFINA Dispute incorporated into the COFINA disclosure statement and plan of adjustment and the Commonwealth Rule 9019 motion.

Peaje Investments LLC v. Puerto Rico Highways and Transportation Authority, et al. (United States District Court, District of Puerto Rico, No. 1:17-ap-00151, filed May 31, 2017). On June 15, 2017, Ambac Assurance moved to intervene in an adversary proceeding brought by Peaje Investments (Peaje), a holder of 1968 Bonds issued by PRHTA, against PRHTA. On May 31, 2017, Peaje filed a complaint seeking relief with respect to its ownership of the 1968 Bonds, including a declaration that the toll road revenues pledged to the 1968 Bonds are “special revenues” under Section 922 of the Bankruptcy Code, an injunction preventing the diversion of toll revenues to the Commonwealth and ordering the application of the toll revenues to the 1968 Bonds, and various declarations and injunctions related thereto. Peaje also filed a motion for a temporary restraining order and preliminary injunction on the same day, seeking to enjoin PRHTA from diverting the toll revenues to the Commonwealth. A hearing on the motion for a temporary restraining order was held on June 5, 2017, at which time Peaje withdrew the motion for a temporary restraining order. In its motion to intervene, Ambac Assurance argued that issues in this case will have a significant impact on Ambac Assurance’s own interests with respect to PRHTA bonds. On July 21, 2017, the District Court denied Ambac Assurance's motion to intervene. On September 8, 2017, the District Court denied Peaje’s motion for a preliminary injunction, finding that Peaje had not demonstrated either (i) a likelihood of success on the merits of its underlying claim that the 1968 bonds are secured by a statutory lien, or (ii) that it would be irreparably harmed in the absence of a preliminary injunction. Peaje has appealed this denial of the preliminary injunction to the U.S. Court of Appeals for the First Circuit; the First Circuit held argument on the appeal on June 5, 2018. On August 8, 2018, the First Circuit affirmed the District Court’s ruling that Peaje does not have a statutory lien on toll revenues pledged for repayment of the 1968 PRHTA bonds. The First Circuit vacated the District Court’s rulings that Peaje failed to establish irreparable harm and that defendants had established adequate protection of Peaje’s interests, remanding these rulings to the District Court for further consideration in light of the First Circuit’s determination that Peaje does not hold a statutory lien.

Ambac Assurance Corporation v. Puerto Rico, et al. (United States District Court, District of Puerto Rico, No. 1:17-ap-00159, filed June 8, 2017). On July 28, 2017, Defendants moved to dismiss Ambac Assurance’s complaint; briefing on the motion to dismiss concluded on October 31, 2017, and oral argument on the motion was held on November 21, 2017. On February 27, 2018, the court granted Defendants’ motion to dismiss. As to certain of the claims, the District Court found that it lacks subject matter jurisdiction (i) to the extent the claims seek to invalidate the certification of the FEGP and prohibit certain actions under PROMESA due to alleged non-compliance with PROMESA requirements that are predicates to certification of the FEGP, or (ii) to the extent Ambac Assurance sought a determination of its lien rights over the PRHTA reserve accounts. As to other claims, the court found that Ambac Assurance had failed to state a claim upon which the District Court could grant relief, including that (i) as to constitutional issues, Ambac Assurance had failed to plead facts sufficient to allow the court to draw a reasonable inference that the Moratorium Legislation, Moratorium Orders, and Fiscal Plan Compliance Act were “unreasonable or unnecessary to effectuate an important government purpose” and had failed to allege plausibly that the FEGP is an exercise of Commonwealth legislative power, (ii) Ambac Assurance had failed to plead facts sufficient to show that the Moratorium Legislation and Moratorium Orders prohibited the payment of principal and interest or purported to bind creditors to any reduction of the outstanding obligations and therefore would have been preempted by PROMESA under PROMESA Section 303(1), and Ambac Assurance failed to plead plausible, ripe claims that the Moratorium Orders are unlawful under PROMESA section 303(3), (iii) the automatic stay is currently in effect and renders unavailable any cause of action pursuant to Section 407 of PROMESA, including claims by PRHTA bondholders that PRHTA should be compensated for any pledged special revenues transferred away from it in violation of applicable law, (iv) the court is not required or empowered under PROMESA or the Bankruptcy Code to order the payment of pledged special revenues to the PRHTA bondholders, and (v) Ambac Assurance had failed to plead facts sufficient to show that the PRHTA reserve accounts are the property of the bondholders. Finally, the District Court held that PROMESA section 305 prevented it from ordering any relief on Ambac’s claim that the PRHTA reserve accounts are held in trust for bondholders. On March 9, 2018, Ambac Assurance appealed this ruling to the First Circuit. Briefing is complete and oral argument will be held on December 5, 2018.

Official Committee of Unsecured Creditors v. Whyte (United States District Court, District of Puerto Rico, No. 1:17-ap-00257, filed September 8, 2017) (the Commonwealth-COFINA Dispute). Motions for summary judgment were filed on February 21, 2018; a hearing on the summary judgment motions was held on April 10, 2018. On February 26, 2018, the COFINA Agent moved to certify questions of law to the Supreme Court of Puerto Rico regarding COFINA’s constitutionality under the Puerto Rico Constitution. On April 3, 2018, Ambac Assurance filed an

opposition to the motion to certify and, in the alternative, a cross-motion to certify alternative questions to the Supreme Court of Puerto Rico. Briefing on the motion to certify concluded on April 18, 2018; a hearing on the motion to certify was held on May 9, 2018. On May 24, 2018, the District Court denied the motion to certify questions of law to the Supreme Court of Puerto Rico. On June 5, 2018, the Commonwealth Agent and COFINA Agent filed a joint motion asking the court to hold its decision on the summary judgment motions in abeyance for 60 days on account of an agreement in principle between the Agents to settle the Commonwealth-COFINA dispute, which the court granted. Additional joint motions to hold the summary judgment motions in abeyance were filed on August 2, 2018 and September 6, 2018. On September 27, 2018, in light of the pending agreement in principle, the Court terminated the pending motions for summary judgment without prejudice. On October 19, 2018, the Oversight Board filed (i) a disclosure statement and plan of adjustment in the COFINA Title III case incorporating a resolution of the Commonwealth-COFINA Dispute, and (ii) a motion under Bankruptcy Rule 9019 in the Commonwealth Title III case for approval of the settlement of the Commonwealth-COFINA Dispute. The Commonwealth Agent is not presently a party to the settlement of the Commonwealth-COFINA Dispute incorporated into the COFINA disclosure statement and plan of adjustment and the Commonwealth Rule 9019 motion. On October 30, 2018, the Commonwealth Agent filed a statement in the Commonwealth Title III case indicating its intent to challenge the Oversight Board's authority to propose a settlement of the Commonwealth-COFINA Dispute for the District Court's approval.

Military Housing:

Ambac Assurance filed various lawsuits seeking specific performance of obligations of borrowers on loans related to the construction and development of housing at various military bases to replace or cash-fund a debt-service-reserve surety bond provided by Ambac Assurance, as required under the applicable loan documents. The parties to these cases reached a settlement resolving all claims and counterclaims between and among them with respect to the debt-service-reserve surety bonds and related issues (other than the aforementioned RICO action), which have resulted in agreed dismissals of the following cases with prejudice:


•	Ambac Assurance Corporation v. Riley Communities, LLC (District Court, Shawnee County Kansas, No. 2016-CV-00026,filed September 29, 2017). The parties filed a joint motion stipulating to the dismissal of the matter with prejudice, which was granted by the Court on July 6, 2018.


•	Ambac Assurance Corporation v. Fort Leavenworth Frontier Heritage Communities, II, LLC (U.S. District Court, District of Kansas, Index No. 15-CV-9596, filed November 19, 2015). The parties filed a joint motion stipulating to the dismissal of the matter with prejudice, which was granted by the Court on July 6, 2018.


•	Ambac Assurance Corporation v. Carlisle/ Picatinny Family Housing Limited Partnership (Court of Common Pleas, Cumberland County, Pennsylvania, No. 2015-6348, filed January 11, 2016). The parties filed a Joint Praecipe to Settle and Discontinue, which ended the matter effective July 3, 2018.


•	Ambac Assurance Corporation v. Fort Lee Commonwealth Communities, LLC (Circuit Court, Roanoke City, Virginia, No. CL16000072-00). The parties filed a joint motion stipulating to the dismissal of the matter with prejudice, which was granted by the Court on July 9, 2018.


•	Ambac Assurance Corporation v. Fort Bliss/White Sands Missile Range Housing LP (District Court, El Paso County, Texas, Cause No. 2016DCV0094, filed January 8, 2016). The parties filed an agreed motion to dismiss all claims between and among the parties with prejudice, which was granted by the Court on July 5, 2018.

RMBS Litigation:

In connection with Ambac Assurance’s efforts to seek redress for breaches of representations and warranties and fraud related to the information provided by both the underwriters and the sponsors of various residential mortgage-backed securities transactions and for failure to comply with the obligation by the sponsors to repurchase ineligible loans, Ambac Assurance has filed various lawsuits, including the following:

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Ambac Assurance Corporation and The Segregated Account of Ambac Assurance Corporation v. Countrywide Securities Corp., Countrywide Financial Corp. (a.k.a. Bank of America Home Loans) and Bank of America Corp. (Supreme Court of the State of New York, County of New York, Case No. 651612/2010, filed on September 28, 2010). On May 1, 2015, Ambac Assurance filed motions for partial summary judgment, which defendants opposed. Defendants also each filed motions for summary judgment, which Ambac Assurance opposed. On October 27, 2015, the court issued a decision dated October 22, 2015 granting in part and denying in part the parties’ respective summary judgment motions regarding Ambac Assurance’s claims against Countrywide (primary-liability claims), and issued a second decision granting Ambac Assurance’s partial motion for summary judgment and denying Bank of America’s motion for summary judgment regarding Ambac Assurance’s secondary-liability claims against Bank of America. Ambac Assurance and Countrywide filed notices of appeal of the October 22, 2015 decision relating to primary liability and Bank of America filed a notice of appeal of the October 27, 2015 decision relating to its secondary-liability to the New York Appellate Division, First Department. On May 16, 2017, the First Department issued rulings in both appeals, reversing a number of rulings that the trial court had made and affirming other rulings. On June 15, 2017, Ambac Assurance filed a motion with the First Department for leave to appeal certain rulings in the May 16, 2017 decision to the Court of Appeals, which Countrywide opposed. On July 25, 2017 the First Department granted Ambac Assurance’s motion. The Court of Appeals heard oral argument on June 6, 2018. On June 27, 2018, the Court of Appeals denied Ambac Assurance’s appeal and affirmed the rulings of the First Department. Trial is currently scheduled to commence on February 25, 2019. Defendants filed certain pre-trial motions on August 22, 2018 seeking to (1) strike Ambac’s jury demand for its fraudulent inducement claim; (2) strike Ambac’s jury demand for its successor liability claim; (3)

bifurcate the trials for Ambac’s primary and successor liability claims; (4) limit the loans for which Ambac may seek to recover damages; and (5) preclude Ambac from using sampling to prove liability or damages for breach of contract. Ambac opposed these motions on September 5, 2019 and the court heard oral argument on September 27, 2018. On October 2, 2018 Countrywide moved to dismiss Ambac’s fraudulent inducement claim as duplicative of its contract claim. Ambac opposed this motion and the court heard oral argument on November 5, 2018. The court has not issued any decisions on the pending motions.

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The Segregated Account of Ambac Assurance Corporation and Ambac Assurance Corporation v. Countrywide Home Loans, Inc. (Wisconsin Circuit Court for Dane County, Case No 14 CV 3511, filed on December 30, 2014). On June 23, 2016, the Wisconsin Court of Appeals reversed the trial court’s prior dismissal of the complaint, and on October 11, 2016, the Wisconsin Supreme Court granted Countrywide’s petition for review of the June 23 decision by the Wisconsin Court of Appeals. The Wisconsin Supreme Court appeal was argued on February 28, 2017. On June 30, 2017, the Wisconsin Supreme Court reversed the decision of the Wisconsin Court of Appeals and remanded the case to the Wisconsin Court of Appeals for further proceedings. On December 14, 2017, the Wisconsin Court of Appeals affirmed the trial court’s July 2, 2015 decision dismissing the case for lack of personal jurisdiction. On January 16, 2018, Ambac Assurance filed a petition with the Supreme Court of Wisconsin for review of the December 14, 2017 decision. On January 30, 2018, Countrywide opposed the petition. On March 13, 2018, the Wisconsin Supreme Court denied Ambac Assurance’s petition for review, ending the Wisconsin Action. In the 2015 New York Action, on September 20, 2016, the New York Court granted Ambac Assurance’s motion to stay, holding Countrywide’s motion to dismiss the complaint in abeyance pending resolution of the Wisconsin Action. On March 30, 2018, the court vacated its stay of the 2015 New York Action, and the parties submitted supplemental letter briefs on April 11, 2018 addressing newly-issued authority relevant to Countrywide’s pending motion to dismiss, which was restored to the calendar.

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Ambac Assurance Corporation and The Segregated Account of Ambac Assurance Corporation v. U.S. Bank National Association (United States District Court, Southern District of New York, Docket No. 17-cv-00446 (SHS)), filed January 20, 2017, (the “2017 S.D.N.Y. Action”)); Ambac Assurance Corporation v. U.S. Bank National Association (United States District Court, Southern District of New York, Docket No. 18-cv-5182 (LGS), filed June 8, 2018 (the “2018 S.D.N.Y. Action”)); In the matter of HarborView Mortgage Loan Trust 2005-10 (Minnesota state court, Docket No. 27-TR-CV-17-32 (the “Minnesota Action”)). These three actions relate to U.S. Bank National Association’s (“U.S. Bank) proposed settlement of claims related to the Harborview Mortgage Loan Trust, Series 2005-10. On December 6, 2017, in the 2017 S.D.N.Y. Action, the court granted U.S. Bank’s motion for reconsideration and granted U.S. Bank’s motion to dismiss, and on January 18, 2018, the court issued an opinion memorializing the reasons for its decision. Ambac did not appeal that decision, and judgment was entered on March 5, 2018. On March 6, 2017, U.S. Bank filed the Minnesota Action, a trust instruction proceeding in Minnesota state court concerning the proposed settlement. On April 5, 2017, Ambac Assurance filed a motion to dismiss the Minnesota Action. On June 12, 2017, U.S. Bank filed an amended petition in the Minnesota Action, and on July 7, 2017 Ambac Assurance filed a renewed motion to dismiss, which U.S. Bank opposed. On November 13, 2017, the court denied the motion to dismiss the proceeding. On February 7, 2018, Ambac Assurance appealed this dismissal and U.S Bank opposed the appeal. On September 4, 2018, the Court of Appeals affirmed the dismissal. On September 17, 2018, Ambac Assurance filed a petition for review with the Minnesota Supreme Court, which U.S. Bank opposed. The petition for review remains pending. On September 6, 2018, the court granted U.S. Bank's motion for leave to file a Second Amended Petition seeking approval of its acceptance of a second offer to settle the separate litigation being prosecuted by U.S. Bank, as Trustee. On September 6, 2018, U.S. Bank filed its Second Amended Petition, and Ambac Assurance and certain other certificateholders objected to, or otherwise responded to, the petition. On June 8, 2018, Ambac Assurance filed the 2018 S.D.N.Y. Action asserting claims arising out of U.S. Bank’s acceptance of the second settlement offer and treatment of trust recoveries. Ambac asserts claims for declaratory judgment, breach of contract, and breach of fiduciary duty. On July 20, 2018, U.S. Bank filed a pre-motion letter indicating that it intends to file a motion to dismiss the complaint. Ambac filed a responsive letter on August 2, 2018, and a pre-motion conference and initial pretrial conference was held on August 14, 2018. On September 12, 2018, the court adjourned U.S. Bank's deadline to file a motion to dismiss to November 20, 2018.

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Ambac Assurance Corporation v. U.S. Bank National Association (United States District Court, Southern District of New York, Docket No. 17-cv-02614, filed April 11, 2017). On September 15, 2017, U.S. Bank filed a motion to dismiss, which Ambac Assurance opposed on October 13, 2017. Oral argument on that motion was held on November 17, 2017. On March 12, 2018, Ambac Assurance filed an Amended Complaint removing the Segregated Account as a plaintiff. As a result, defendant agreed to withdraw certain arguments in support of its motion to dismiss. On June 29, 2018, the Court granted in part and denied in part U.S. Bank’s motion to dismiss. The Court dismissed the breach of fiduciary duty claim in part as duplicative of the breach of contract claim; dismissed the breach of contract claim as untimely only to the extent that it was premised on U.S. Bank's obligation to certify that mortgage documents were properly delivered to the Trusts; dismissed the Streit Act claims; and otherwise denied the motion to dismiss. Discovery is ongoing.

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Ambac Assurance Corporation v. Deutsche Bank National Trust Company (United States District Court for the Southern District of New York, Docket No. 18-cv-07457(VM)), filed August 15, 2018 (the “SDNY Action”); In re application of Deutsche Bank National Trust Company as Trustee of the Harborview Mortgage Loan Trust Mortgage Loan Pass-Through Certificates, Series 2006-9 (Supreme Court of the State of New York, County of New York, No. 654208/2018), filed August 23, 2018 (the “Trust Instruction Proceeding”). These two actions relate to Deutsche Bank National Trust Company’s (“DBNT”) proposed settlement of claims related to the Harborview Mortgage Loan Trust Series 2006-9. On August 15, 2018, Ambac Assurance filed a complaint in the SDNY Action alleging that Deutsche Bank National Trust Company breached its obligations as trustee of the Harborview Mortgage Loan Trust 2006-9 (“Harborview 2006-9”) by failing to investigate and enforce breaches of representations and warranties in Harborview 2006-9, failing to immediately reject a proposed

settlement related to Harborview 2006-9, and instituting an inadequate certificateholder approval process for the proposed settlement. Ambac Assurance asserted claims for declaratory judgment, breach of contract, and breach of fiduciary duty. On October 22, 2018, Ambac voluntarily dismissed its claims without prejudice pending resolution of the Trust Instruction Proceeding. On August 23, 2018, DBNT filed a Petition commencing the Trust Instruction Proceeding, seeking judicial instruction pursuant to CPLR Article 77, inter alia, to accept the proposed settlement with respect of claims relating to Harborview 2006-9. On September 6, 2018, the Court entered an Order to Show Cause, setting out procedures for DBNT to give notice of the proceedings and for interested persons to appear. On November 2, 2018, Ambac Assurance and other interested persons filed notices of intention to appear and answers to DBNT’s petition. In its answer, Ambac Assurance opposed DBNT’s request for an order instructing it to accept the proposed settlement and sought a period of discovery before resolution on the merits.

Other Litigation

U.S. Securities and Exchange Commission (the “SEC”) v. Citigroup Global Markets Inc. (“Citigroup”) (United States District Court Southern District of New York, Docket No. 11-CV-7387, filed in October 2011). This suit related to a collateralized debt obligation transaction arranged by Citigroup where Ambac Credit Products, LLC (insured by Ambac Assurance) provided credit protection through a credit default swap to a bank counterparty that was exposed to the transaction. The SEC and Citigroup reached a settlement of this action for $285,000. The presiding judge approved the settlement in August of 2014. A fair fund has been established to distribute the $285,000 (plus $2,550 received from a related proceeding). RCB Fund Services (the “Distribution Agent”) has been appointed as distribution agent for the fund and has invited investor participants in the CDO transaction to provide information regarding their investments in the CDO transaction. Ambac Assurance filed a submission with the requested information on February 28, 2018. The Distribution Agent, in consultation with the SEC, is to develop a distribution plan for the fair fund, which will be filed with the Court and will be subject to a comment period. The SEC filed a status report on August 13, 2018 to update the court on the process relating to the distribution plan. The Distribution Agent stated that it intends to complete its review of the submissions it received from investors by the end of this year. Once their review is complete, the Distribution Agent will formulate a plan of distribution, which will then be reviewed by the SEC prior to being filed with the court. The submission states that Distribution Agent expects to file the plan of distribution and distribute the funds in the first quarter of 2019. There is no guarantee that there will actually be a first quarter 2019 distribution as it depends on the judge and any objections that may be filed to the plan. While there can be no assurance as what the distribution plan will provide, or the timing or substance of what the court will decide, Ambac Assurance expects to receive a significant portion of the settlement funds. Ambac has not recorded any receivable for its estimated portion of these settlement funds.

NECA-IBEW Health & Welfare Fund v. Goldman, Sachs & Co., et al., (United States District Court for Southern District of New York, No. 1:08-cv-10783-LAP) and Police and Fire Retirement System of the City of Detroit v. Goldman, Sachs & Co. et al. (United States District Court for the Southern District of New York, No. 10 Civ. 4429-LAP). In this class action, Plaintiffs alleged that the offering documents for various residential mortgage-backed securities sold by Goldman Sachs entities in 2007 and 2008 contained false and misleading statements. The parties to the litigation reached a negotiated settlement for $272,000. The settlement class approved by the court included all persons who prior to December 11, 2008 purchased or otherwise acquired any of the securities at issue in the actions and were damaged thereby. Ambac Assurance and its subsidiaries purchased or otherwise acquired certain securities at issue in the class action and were thereby included in the settlement class. Ambac submitted a claim form and in November 2018 received a distribution of approximately $26,721.