American International Group has cleared an important legal hurdle in its battle against an insurance firm it says engaged in an “egregious criminal scheme” to cheat the company out of more than $150 million.
Federal Judge Jed S. Rakoff of Manhattan ruled this week that
AIG’s allegations against Coventry First LLC can proceed, upholding 10 out of 13 of its claims against the Philadelphia-based organization, including racketeering and fraud.
The judge also dismissed a breach-of-contract suit and a second claim filed by Coventry in response to AIG’s allegations.
The dispute stems from a contract between AIG and Coventry, under which Coventry was charged with helping AIG amass an investment portfolio of life settlements – sales of life insurance policies from elderly or ill people who can no longer afford, or no longer need, the coverage. AIG would benefit as the future death benefit would exceed the cash spent to buy the policy, and that spent on premium payments while the person lives.
Coventry, however, allegedly bought policies for AIG at lower prices than they acknowledged to the insurer. According to the lawsuit, Coventry willfully hid the original purchase prices from AIG through affiliated shell companies.
In the end, AIG purchased the life insurance policies at inflated prices.
AIG filed its suit against Coventry in September, at which point Coventry filed a competing, breach of contract lawsuit alleging AIG investment firm Lavastone Capital fabricated the charges in order to avoid its contractual obligations to Coventry.
The dueling lawsuits come at a time when the life-settlements market is still struggling to recover from the hit it took during the 2008 financial crisis. According to a
Wall Street Journal report, life expectancies used by investors continue to be proven wrong as many people outlive their policies and hurt returns for investors.
AIG has cut back on its purchase of life settlements, beginning in 2011, but still looks for a victory in the suit.
In response to this week’s ruling, a company spokesman said: “We are pleased to be one step closer to holding the Coventry defendants responsible for their massive, multi-year scheme to defraud Lavastone, its Agent Banks and others out of at least $150 million.”
