Allstate Insurance Co. has sued Bank of America to recoup losses suffered from its purchase of more than $700 million in Countrywide-issued mortgage-backed securities.

Bank of America acquired Countrywide in 2008 and assumed most of its liabilities.

The insurer's lawsuit claims the excessively high default rates on the underlying loans shows that Countrywide Financial Corp. disregarded its underwriting guidelines to match the "worst features of mortgage products" offered by its competitors.

"Whereas Allstate was made to believe it was buying highly rated, safe securities backed by pools of loans with specifically-represented risk profiles, in fact the [Countrywide executives] knew the loans they offloaded onto Allstate were a toxic mix of loans given to borrowers that could not afford the properties and, thus were highly likely to default," according to a complaint filed in U.S. District Court for the Southern District of New York in Manhattan.

The insurer's lawsuit lists Bank of America as well as former Countrywide executives Angelo Mozilo, David Sambol and others as defendants.

"We are still reviewing the complaint, but this unfortunately appears to be a situation where a sophisticated investor is looking for someone to blame for a downturn in the economy and losses on an investment it made," said BofA spokesman Bill Halldin.

Allstate purchased 67 separate Countrywide MBS between March 2005 and June 2007 when the MBS market was riding high.

Some of the MBS have delinquency rates above 60%, Allstate says in the lawsuit, and 40% of the loans in some MBS are delinquent or written off.

"The drastic rise in default rates on the mortgage loans underlying Allstate's certificates reflects Countrywide's faulty underwriting rather than the downturn in the housing market," the insurer said.

Allstate is claiming damages in an amount to be proven at trial, including, at a minimum, rescission, monetary losses, attorney’s fees and costs, and prejudgment interest.

Alvin Hellerstein is the presiding judge.