American International Group Inc. won a federal-court ruling on
a core claim in a lawsuit accusing a Philadelphia-area firm of
cheating it of more than $150 million in amassing a portfolio of
"life settlements."
Federal Judge Jed S. Rakoff in Manhattan ruled Friday in AIG's
favor on a breach-of-contract claim against Coventry First LLC,
while leaving other claims, and determination of any damages and
relief, on track for trial as early as next month. The other claims
accuse Coventry of fraud and racketeering tied to an alleged
"egregious criminal scheme" in the obscure investment area.
The judge said in the order that an opinion explaining his
reasoning for summary judgment in favor of AIG would be issued "in
due course."
Life settlements are life-insurance policies typically sold by
ill or elderly people, often because they can't afford or don't
need the coverage any longer. Investors bet the future death
benefit will exceed the cash spent to buy the policy and pay
premiums while waiting for the person to die, triggering the
death-benefit payout. Critics sometimes call them "death bets."
Coventry, founded by Philadelphia-area philanthropist Alan
Buerger, has long been a leading middleman in the life-settlements
industry, and helped AIG build a large portfolio of contracts
between 2001 and 2011 through an entity named Lavastone Capital
LLC, according to court filings.
Coventry's Mr. Buerger said in an emailed statement Sunday "The
Court's ruling pertained to part of one claim against Coventry
First only, requiring a trial on both the remainder of that claim
and all others. The factual record does not support AIG's
revisionist history and spurious claims. We look forward to that
factual record being presented at trial."
An AIG spokesman, in an emailed statement, said "AIG is pleased
that the Court has granted it summary judgment on its core claim
that Coventry breached its contract with Lavastone and looks
forward to proceeding to trial on its additional claims."
AIG held about 5,700 life-settlement policies with anticipated
net death benefits totaling about $18 billion at the time of the
lawsuit. AIG's financial filings show the portfolio's carrying
amount was $3.75 billion at year-end, a tiny sliver of AIG's total
investments of about $356 billion.
Last September, AIG and Coventry filed dueling lawsuits.
According to AIG's suit, Coventry was supposed to identify
attractive policies to acquire from policyholders at the lowest
possible prices. Instead, the suit alleges, Mr. Buerger and certain
family members procured many policies at lower prices than they
acknowledged to AIG. The suit asserts that Coventry hid these
original purchase prices through the use of affiliated shell
companies and induced AIG to purchase the policies at inflated
prices.
Coventry countered in its lawsuit that AIG fabricated the
allegations to escape contractual provisions that are favorable to
Coventry. Coventry alleged AIG had breached contractual terms by
acquiring policies outside of the Coventry arrangement.
In February, Judge Rakoff dismissed the breach-of-contract and a
second claim brought by Coventry.
The life-settlements market suffered during the 2008 financial
crisis, when lending dried up for hedge funds, which were among the
biggest buyers of the contracts. The market has remained depressed,
as life expectancies used by investors to gauge potential returns
have repeatedly proved wrong.
AIG began to wind down its acquisition of life settlements in
2011 under its then chief executive, the late Robert Benmosche, who
narrowed the company's focus, improved results and sold units so
AIG could repay one of the biggest government bailout packages of
the 2008 financial crisis.
Write to Leslie Scism at leslie.scism@wsj.com
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