AIG vs. Coventry First: Competing lawsuits on life settlements

It alleges that Lavastone's "new business team now refuses to honor its obligations." These include buying life settlement policies exclusively through Coventry First. The Coventry suit alleges that Lavastone is doing so through a program unrelated to Coventry First under which one of its affiliates wrote LPIC, which insured lenders who issued loans to finance the purchase of life insurance policies.

The suit alleges that if a borrower defaulted on such a loan, Lavastone's affiliates made payment and acquired beneficial ownership of the life insurance policy. Coventry said this violated its deal with Lavastone, and, as a result, Coventry First has been damaged to the tune of $100 million.

In a statement, Coventry officials said the AIG lawsuit is "is an effort to rewrite long-standing agreements that it now finds onerous." The statement explained that AIG "has concocted" the allegations "to escape contractual provisions that limit its ability to resell policies in the tertiary (life settlement) market."

In its suit, AIG said it contracted with Coventry the responsibility of finding "attractive" life settlements for Lavastone to purchase from policyholders on the open market, and paid Coventry more than $1 billion in fees to do so.

The suit alleges that, in return, Coventry was obligated to convey to Lavastone at exactly the same cost Coventry paid for the life policies that it procured for Lavastone. "Instead of fulfilling that obligation, Coventry formed an illegal enterprise with its co-conspirators, including the other defendants here, in which they abused Lavastone's confidences" by buying life policies at prices below what it knew in confidence Lavastone would pay to purchase them, "laundered" the life policies' titles and purchase prices through affiliated shell companies, and then induced Lavastone to purchase those policies at inflated prices, marked up "to approach or reach Lavastone's ceiling, unbeknownst to Lavastone."

In response to Coventry's counter-suit, AIG issued a statement saying that Coventry First's claim that Lavastone is making "retaliatory allegations of wrongdoing" are "baseless." The AIG statement said that its suit "charges a classic racketeering enterprise run by the Buerger family, and seeks to hold the Coventry defendants responsible for a 'shill bidding' scheme to secretly siphon hundreds of millions from AIG by manipulating the price of life insurance policies purchased by AIG."

AIG also said that Coventry's responding lawsuit "is a baseless attempt to distract attention from the fraudulent and illegal scheme that AIG alleged in its complaint. We firmly believe Coventry's claims are meritless, and we intend to fight them vigorously," the statement said.