The Colson litigation now involves a $3 million claim involving viatical settlements by A&O Bonded Assets and related entites. Looks like I picked the wrong week to stop sniffing glue.

In viatical settlements an owner of a life insurance policy sells his future death benfit to an “investor” for a lump sum payment. The “investor” then pays the premiums until the insured dies, and collects the death benefit at death. Unlike the life insurance company, which would just as soon the insured live forever, the “investor” is cheering for death, since it allows him to earn the return on his investment. Needless to say, viatical settments are controversial and are rife for abuse by the “investors”, since many life insurance owners are not financially sophisticated enough to know whether the payout is fair. In addition, viatical settlements arguably defeat the purpose of life insurance, but that is a topic for another day.

Here is A&O’s Motion to Intervene in the Lawyer’s Title case, supporting memorandum and supporting affidavit of Russell Mackert. The affidavit does not describe Mackert’s relationship to A&O, but the results of a Google search indicate that Mackert is a Houston, TX area lawyer. It appears that Mackert is a front man for the real investors: the hedge fund A&O Life Funds. A&O Life either does not want anyone to know much about it, or it has the worst web site designer in the world.

The memo provides a more detailed explanation of the claim than the motion. In 2008 A&O Bonded Life Assets Management LLC and related entities entered into a Escrow Management Services Agreement with Prestige Title. A&O deposited $4.6 million with Prestige Title that Prestige was to use to pay the premiums on the policies. In return for Prestige’s services, A&O paid Prestige $150,000 annually. A&O claims that its $4.6 million was comingled with other Colson entity firms and then sequested as a part of the Lawyers Title case and Wachovia intepleader action. It looks like Prestige paid the premiums for a while and that A&O’s real loss is approximately $3 million.

A&O also claims that Prestige has not been paying the premiums on the policies and that some of the policies will lapse soon unless the premiums are paid. A&O places the value on the policies where a lapse is imminent at $29 million. The total value of the policies at issue is $179 million. Here is a partial list of the policies, which have huge face amounts. Obviously, A&O is not going to let these policies lapse and will cover the premiums if Prestige does not pay. A&O is trying to cut its losses by recovering money in the ongoing litigation. It’s hard to imagine a less sympathetic party in this litigation. A&O’s attorney is former Mississippi Bar President Don Dornan, so at least it has a respected attorney.

In another Colson development I have learned that Colson is suing Tedd Martin, who is his partner in Prestige, in state court. State court pleadings are public record, but are not accessible on-line. I do not know what Colson alleges in the action.