XL Capital Assurance's (XLCA) parent company Security Capital Assurance (SCA) responded to a lawsuit filed yesterday in New York by Merrill Lynch, accusing XLCA of refusing to cover losses on $3.1 billion in seven CDOs that the company had written swaps on. SCA said that it had terminated XLCA's contracts with Merrill Lynch due to a breach of contract in the obligations by promising control rights in the investment to various parties. "Merrill had repudiated its contractual obligations to XLCA by committing to provide one or more third parties with the same CDO control rights that it had previously promised to XLCA." As a result, SCA said that is in not obligated to make these payments. Quinn Emanuel Urquhart Oliver & Hedges will represent SCA in court.

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