The dispute has been closely watched by the banking community.
Bank of America and other banks lined up to sue MBIA after the company split itself in two in 2009, creating a healthy municipal bond insurance company and another firm that insured complex financial instruments, including commercial mortgage backed securities.
The banks reasoned that the split was intended to put some of MBIA's resources out of reach as they tried to collect on claims.
The Wall Street Journal reported Monday that MBIA was also suing Bank of America, which purchased Countrywide Financial in 2008.
That lawsuit claimed that Countrywide was reckless and fraudulent as a lender.
In the settlement announced Monday, Bank of America agreed to establish a $500 line of credit for MBIA and to accept stock-purchase warrants in MBIA's holding company.
That would make Bank of America owner of 4.9 percent of MBIA Holding Co.
Shareholders recognized the benefits of the firm, which was struggling financially, to tie in with Bank of America and its share values jumped 42 percent after the deal was announced.
Bank of America shares also rose, climbing 5 percent, as it put one more legal dispute having to do with Countrywide Financial behind it.
"It ties the state of these two companies together and gives MBIA an anchor in one of the big four banks," said attorney Isaac Gradman, who specializes in mortgage-backed-securities litigation.