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A pivotal court ruling that dismissed three lawsuits against Canadian life insurers has been formally appealed, extending a battle between the companies and three investment funds over the fine print of decades-old contracts.

In March, a Saskatchewan judge ruled in favour of Manulife Financial Corp., Industrial Alliance Insurance and Financial Services Inc. and Bank of Montreal by ruling against three investment funds that had sued the insurers. The funds argued they were allowed to invest unlimited amounts of money in accounts associated with life-insurance contracts that had been issued by the insurers, and that they were able to earn guaranteed returns over the lifetime of the policies.

This week the funds appealed all three cases, arguing that the core argument made by Justice Brian Scherman of the Court of Queen’s Bench for Saskatchewan when dismissing the lawsuits is incorrect. Justice Scherman ruled that the contracts were designed to be used for insurance purposes only, and that “in the some 30 years since universal life insurance policies have been sold, there is no judicial record of these policies being used in the manner proposed” by the investment funds.

In its appeal of the ruling that related to Manulife, Mosten Investment LP argued “the learned Chambers Judge erred in law in his interpretation of the contract."

After the original ruling, Manulife argued the policies were never intended to be used as deposit or securities contracts, calling the case “legally unfounded and commercially absurd."

On Wednesday, Manulife said in a statement that it intends to “vigorously contest Mosten’s appeal and will also seek to recover costs related to the lawsuit,” adding that “the Saskatchewan Court issued a clear and comprehensive 181-page ruling in Manulife’s favour. We remain highly confident that we will continue to prevail in this matter, and that it will not have any material impact on our business.”

Justice Scherman’s original ruling was also a blow to well-known U.S. short-seller Muddy Waters LLC, which went public with a bet against Manulife in October, arguing that the lawsuits could put the insurer at “risk of significant financial damage.” Muddy Waters was not a party to the lawsuits.

The day after the court ruling, Manulife’s shares for the first time closed higher than the level they were trading at before Muddy Waters released its report in October. They have climbed much higher since, and are now up nearly 10 per cent since the ruling came out.

The life insurers have 15 days to respond to the appeals that have been filed in Saskatchewan.

Universal life contracts were popular in the 1990s and offered policy-holders a payout upon death, as well as investment returns throughout the life of the contract. The money manager pursuing the lawsuits argued the insurance products could be used as investment accounts that accept unlimited deposits – something that would allow them to earn attractive, almost guaranteed returns.

When dismissing the lawsuits, Justice Scherman sided with the insurers, saying the contracts were designed solely for insurance purposes. “It is my opinion that no insured [person] should reasonably conclude that the interpretation proposed by Mosten is consistent with the general economic purpose of life insurance," he wrote in the Manulife ruling.

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