Manulife Financial Corp. (MFC.TO) and other Canadian life insurers won a legal battle against hedge funds that contended the insurers should be compelled to take unlimited deposits into high-yielding investment policies.

A Saskatchewan judge dismissed claims by Mosten Investment LP and other funds that there should be no caps on investments in life insurance policies from the late 1990s with guaranteed rates of at least 4 per cent. Short-seller Carson Block, who runs investment firm Muddy Waters, said last October that he was shorting Manulife over the lawsuit, saying it could lead to billions in losses for Canada’s biggest life insurer. Bank of Montreal and Industrial Alliance Insurance and Financial Services Inc. faced similar legal challenges.

“This important ruling unequivocally supports what insurers, their customers and regulators already know to be true: the purpose of an insurance policy is to protect the lives of the insured and their families,” the Canadian Life and Health Insurance Association said Monday in a statement. “Insurance policies are not intended to offer an unlimited investment opportunity completely unrelated to insurance coverage.”

Manulife rose 2.7 per cent to $23.23 at 9:46 a.m. in Toronto trading.

Justice Brian J. Scherman said in the decision that the policy in question “does not provide for unlimited standalone investment opportunities within the carrier fund.” Manulife has long said it expected to win the case, with Chief Executive Officer Roy Gori calling Mosten’s claims “commercially absurd” in November.

‘Legally Unfounded’

The ruling is “consistent with our position that this case was legally unfounded,” Manulife said Monday in a statement. “We were always confident we would ultimately prevail in this matter and that it would not have any material impact on the company’s business.”

Mosten said it’s reviewing the decision.

“In our initial review we have noted a number of areas in the decision that are inconsistent with both how the contracts are written and that consequently are then internally inconsistent with the analysis and how the contracts work in practice,” the firm said in an emailed statement. “We remain comfortable with our view that the plain reading of the contracts supports our interpretation of the contract terms.”

RBC Capital Markets analyst Darko Mihelic said in a note to clients that it’s unclear whether the issue has been fully resolved, and that appeals could still be pursued in the case.