American International Group (AIG) and Coventry First, a leader in the life settlement market, are trading strong charges in competing lawsuits dealing with the appropriate interpretation of a 2006 deal where an AIG affiliate hired Coventry to help it acquire life policies in the then-booming life settlement market. The suits also expose for the first time the intricacies and complexities of the life settlement business and how it has morphed into different businesses as the boom became a bust.
The countering suits do this by exposing that AIG has expanded its settlement business by issuing lender protection insurance coverage (LPIC), which insures lenders who issued loans to finance the purchase of life insurance policies, which, Coventry First alleges, violates its contract with AIG. The lawsuit reveals that the dispute has been going on since 2010, and heated up in March 2013.
For example, in its counter-suit, Coventry First alleges that by issuing LPIC, the Lexington insurance unit of AIG “has as an unlicensed life settlement provider,” citing New York and Florida law.
Friday, AIG filed a lawsuit in Federal District Court in Manhattan alleging its Lavastone Capital LLC was defrauded by Coventry, people associated with Coventry, including its president, Alan Buerger and related businesses, by purchasing life policies for AIG at low prices, then selling the policies to AIG at inflated prices.
AIG alleged in the lawsuit that Coventry “engaged in an illegal and sophisticated scheme” that ultimately defrauded AIG out of more than $150 million. “The alleged scheme involved Coventry use of AIG confidential pricing information to secretly mark up the purchase price of life policy investments,” the suit alleged.
The suit makes breach of contract, breach of fiduciary duty and other common law claims against Coventry, and also seeks triple damages through a Racketeer Influenced and Corrupt Organizations Act (RICO) claim.
The suit seeks more than $1.5 billion in compensatory, statutory and punitive damages.
Coventry immediately responded with a competing lawsuit in New York state Supreme Court in Manhattan, charging that AIG’s lawsuit “is an attempt to negotiate through litigation” and escape payments to Coventry the firm estimates are worth $700 million. The lawsuit alleges that Lavastone was formerly known as AIG Life Settlements LLC, and the company was formed to acquire life settlements for the various AIG insurance affiliates.