A Minnesota judge has denied Sun Life Assurance Co. of Canada’s request to amend a complaint in a lawsuit alleging that 7 life insurance policies purchased by an 84-year-old businessman did not have an insurable interest.

Sun Life, Toronto, originally filed the complaint (Civil No. 07-3877) in U.S. District court in Minneapolis on Sept. 4, 2007. The suit named John Paulson, the purchaser of the policies as well as the agents in the transaction and several investors, including Coventry First LLC, Fort Washington, Pa.

Coventry ultimately moved to dismiss the complaint arguing that the complaint did not sufficiently allege that Coventry intended and agreed to purchase the policy when the defendant, John R. Paulson acquired it. The court granted the motion.

Following that dismissal, the other defendants asked for a similar dismissal because of the “identical” nature of the claims.

The latest order, signed on Sept. 3, 2008, states that Sun Life then asked the defendants to agree to an amended complaint and when the defendants declined, filed a request to file an amended complaint with the court.

In denying Sun Life its request, U.S. Magistrate Judge Susan Richard Nelson cited Sun Life’s lack of “requisite specificity” that the defendants reached an agreement with defendant Paulson or “intended to purchase the policies at the time they were issued.” The order continues, “Indeed, the allegations could refer to any person or entity” and “contains no specific factual allegations of intent.”

The court order also notes that “the mere fact that a life settlement company purchased a policy from Paulson after the expiration of the contestability period does not establish that the company intended to purchase the policy when it was issued.”

Sun Life declined comment on the case citing the fact that the matter is still in litigation.

Thomas Brever, the attorney for Paulson, said the order does not end the suit and his client awaits Sun Life’s decision on how to proceed with the case. “If they proceed with the claims, then it has to prove damages,” he said. The policies have been in place 4-5 years and the longer his client survives, the more likely it will be that the policies become profitable, he added.

Life companies build in certain lapse rate assumptions into their life insurance contracts, Brever says, and “in proving damages Sun Life will have to explain those lapse rates to the world.”

When asked about press reports that his client had a number of policies with other companies in addition to Sun Life, Brever said he is not sure how many contracts are in force.

He added that Paulson had a need for insurance both because he had commercial real estate interests valued at $40 million-$50 million and has a large family including a spouse, 5 children and between 20-30 grandchildren.

Policies were lapsed, he says, when cheaper replacement coverage was found. Some policies were surrendered and others were settled, Brever added.

Michael Freedman, senior vice president-government affairs with Coventry, said “the court got it right” in affirming that in order to prove the existence of a STOLI transaction, there needs to be evidence of a preconceived agreement by a 3rd party at the contract’s inception.