The law firm of Locke, Lord, Bissell & Liddell LLP (LLBL), has formed a new Financial Guaranty Insurers Section to aid financial guaranty insurers who will soon be traveling through a maze of legal issues surrounding the securities they insure in the subprime lending sector.

"The housing downturn is threatening to cripple some bond insurers that wrote billions of dollars of guarantees in the past few years on securities backed by risky subprime-mortgage debt because they entered into contracts known as credit-default swaps," said Brian Casey with LLB&L. "These events are also forcing the National Association of Insurance Commissioners (NAIC) and its constituent insurance regulators to reconsider how bond insurers should be regulated, particularly with respect to the insurer's backing of derivative financial instruments."

The firm says new cases are already surfacing in the marketplace.

"We are currently following over 200 active lawsuits in the United States directly resulting from the collapse of the subprime market, and we have only seen the tip of the iceberg," said Tom Cunningham, LLB&L's Class Actions Practice Group Leader.