An American International Group Inc. (AIG) subsidiary, Lavastone Capital LLC, is seeking to make a Philadelphia-area company pay more than $2 billion for overcharging it for life insurance policies acquired from elderly people. It’s contended in the lawsuit that Coventry First, founder Alan Buerger, and others in his family involved with the company engaged in “deviousness and duplicity” in inflating the price of 315 “life settlement” policies the insurance company bought. The trial of the case ended late last month, but at press time we didn’t have the result.
As you may already know, life settlements involve the sale of life insurance policies by policyholders for more than their cash value – but less than their face value – to investors, who then pay the premiums and ultimately collect the payout under the policy when the individuals die. Coventry, headed by Buerger and owned by Montgomery Capital Inc., describes itself on its website as the “leader and creator” of the life settlement industry.
AIG’s Lavastone bought nearly 7,000 life settlements from Coventry with a total face value of $20 billion from 2001 to 2011, when AIG stopped acquiring life settlements. Lavastone filed the lawsuit in September 2014, stating that the Fort Washington, Penn.-based firm caused it to pay about $160 million in hidden markups and fee overcharges. The alleged scheme ramped up during the financial crisis in 2008, when AIG was receiving government bailouts to avert its collapse. U.S. District Judge Jed Rakof will ultimately rule in this case.
AIG claims that it is entitled to receive more than $250 million in damages, including interest, because of pretrial rulings finding Coventry liable on certain breach of contract claims. In total, the damages claimed amount to $2.02 billion, based on AIG’s demands that Coventry disgorge all of the fees it collected and its request for Rakoff to impose triple damages under the civil racketeering statute. The case was tried in the Southern District of New York. We will report the verdict in the January issue.
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