Lawyers representing Cranston philanthropist Joseph A. Caramadre and his associates in U.S. District Court Monday accused two insurance companies of asking the court to rewrite contracts and state law in an effort to avoid paying money owed to investors.

Western Reserve Life Assurance Co. of Ohio and Transamerica Life Insurance Co. have challenged Caramadre in lawsuits that accuse him and his associates of defrauding the companies by deliberately failing to disclose that their investors were purchasing variable annuities in the names of terminally ill people with no relationship to the investors. The suits cast Caramadre, owner of Estate Planning Resources, as the mastermind of a multimillion-dollar scheme to rip off insurers by preying on the ill.

According to court records, Caramadre recruited terminally ill people through fliers circulated at hospices and churches that offered financial assistance. In exchange, he would pay people who agreed to participate in his investment arrangement a few thousand dollars to have variable annuities purchased in their names. Investors would put up to $1 million into the contracts, which guaranteed a full return on their investment, plus interest, when the ill person died, often months later.

Robert G. Flanders Jr., Caramadre’s lawyer, acknowledged, in asking the court to dismiss the lawsuits, that the parties entered into the variable annuity contracts with the expectation that the terminally ill people had a limited lifespan. Variable annuities, sold by the insurers, were attractive because the owners could switch their investments tax-free and because they represented a no-lose proposition, he said.

The insurance companies countered that Rhode Island law required Caramadre and his associates to disclose the health and life expectancy of the sick person and his or her relationship with its owner. The companies are seeking to be released from 4 of the 14 contracts in question, as well as unspecified damages.

Judge William E. Smith zeroed in on that issue. Isn’t the key issue whether the contracts were variable annuities, life insurance or a hybrid, he asked. He noted, in particular, that the annuities were purchased with the express purpose of cashing in on the death benefit. “Just because they say they are one thing that doesn’t mean that’s what they are,” Smith said.

Flanders said the issue was clear. The products were annuities, not life insurance and thus didn’t fall under the law. Plus, he said, the applications did not require such disclosures. “A death benefit doesn’t mean life insurance,” Flanders said. If state lawmakers wanted to restrict variable annuities as they had life insurance, they would have done so, he said. “All of these investors played by the rules the insurance companies set.”

Anthony M Traini, a lawyer for Edward L. Maggiacomo Jr., one of the brokers being sued, suggested the question of state law could be posed to the Rhode Island Supreme Court. Other defendants include Harrison Condit, Edward Hanrahan, Raymour Radhakrishnan, several investors and national brokerage companies.

Brooks Magratten, lawyer for the insurers, described the terminally ill as uneducated, blue-collar people in desperate need of money. Some, he said, did not know annuities were being purchased in their names in a scheme that was “wrong, unethical, illegal and massive in scale.”

Smith observed that Magratten didn’t represent the sick people and appeared to “be cloaking himself” in the public sentiment the case arouses. “But that is not really the issue.”

Smith questioned the companies’ arguments that the contracts did not abide by state law. “This product can’t be a legal product under state law, if what you say is true.” Isn’t it the insurance company’s duty to make sure that there is a relationship between the person whose life is being insured and the beneficiary, he asked.

“You express all this outrage, but all you had to do is ask one or two questions” about the health and life expectancy of the parties, Smith said.

Smith compared the case with the sub-prime mortgage market collapse. “Your client didn’t understand the product it created,” Smith said to Magratten. Smith said he would issue a decision as soon as possible.