Friday, March 11, 2016

No. 148: AIG's War against Coventry First and the Buerger Family Ends with a Confidential Peace Treaty

In No. 67 (posted September 16, 2014), I wrote about a lawsuit that Lavastone Capital, an affiliate of American International Group (AIG), filed on September 5, 2014, against Coventry First, an intermediary in the secondary market for life insurance. The complaint consisted of a 151-page text and an 89-page appendix. Among the defendants were Coventry; several affiliates of Coventry; Alan Buerger, chief executive officer of Coventry; and several members of Buerger's family. I expressed the belief that the lawsuit was an effort to destroy Coventry and the Buerger family. (Lavastone v. Coventry, U.S. District Court, Southern District of New York, Case No. 1:14-cv-7139.)

The Trial
In No. 114 (posted August 31, 2015), I reported that a bench (non-jury) trial began on August 27, 2015 before U.S. District Judge Jed S. Rakoff. The 23-day trial ended on October 26.

The Settlement
On February 29, 2016, before Judge Rakoff handed down his decision, AIG and Coventry jointly filed in court a one-sentence "stipulation of dismissal with prejudice" concerning the settlement. The stipulation, on which Judge Rakoff immediately signed off, reads:
IT IS HEREBY STIPULATED AND AGREED, between and among the undersigned parties to this action, pursuant to Federal Rule of Civil Procedure 41(a)(1)(A)(ii), by and through their respective counsel, that this action, and all claims and counterclaims asserted therein, shall be dismissed with prejudice [permanently] pursuant to the terms of the parties' confidential settlement agreement.
The Joint Statement
On the same day, AIG and Coventry issued a three-sentence joint statement entitled "AIG and Coventry First Settle Dispute." It reads:
Lavastone Capital LLC, an affiliate of American International Group, Inc. (NYSE:AIG), and Coventry First LLC today announced that they have entered into an agreement to resolve their disputes. Among the terms of the confidential agreement, Lavastone will be able to transfer Coventry's servicing of AIG's life settlements portfolio to another party, and Lavastone will be able to freely market or sell policies that were originated by Coventry. Lavastone and Coventry are pleased to have achieved a satisfactory resolution of their dispute.
Media Coverage
On the same day, a 577-word article by reporter Leslie Scism appeared online in The Wall Street Journal, but the article did not appear in the print version of the newspaper. The headline reads: "AIG Says It Settled Legal Dispute Over 'Life Settlements'; End of Coventry First Dispute May Pave Way for Insurer to Sell $3.6 Billion Portfolio." The opening sentence reads: "American International Group Inc. said it has resolved a legal dispute with a firm that helped it amass a large investment portfolio of 'life settlements' in the 2000s."

I found nothing about the settlement in The New York Times. However, Reuters carried short articles, and the settlement was mentioned widely in the insurance trade press.

General Observations
The case had not been going well for Coventry. Judge Rakoff had denied Coventry's motion to dismiss the case. He had also dismissed a few of AIG's charges, but had left many to be resolved at trial. He had also ruled against Coventry on AIG's breach-of-contract charge, but had left the amount of damages to be determined at trial.

I expressed the opinion that the case was one of the most important in the history of the secondary market for life insurance. I think Coventry was under intense pressure to reach a settlement, because the amount it stood to lose could have been staggering and could have forced Coventry into bankruptcy. Because of the confidential nature of the agreement, we may never know the financial dimensions of the settlement.

Available Material
I am not offering any additional material. However, persons interested in details of the case may still obtain the complimentary packages offered in Nos. 67 and 114, which are mentioned at the beginning of this post.