TORONTO -- Manulife Financial Corp. has won its legal fight in a Saskatchewan court with hedge fund Mosten Investment LP, which had argued that its universal life insurance policy with the Canadian insurer allowed for unlimited deposits and a guaranteed return.

Prominent short-seller Muddy Waters had warned last fall that if the judge ruled in favour of Mosten, the hedge fund would have been able to sell an unlimited amount of partnership interests backed by Manulife and "financially cripple" the insurer.

Saskatchewan Court of Queen's Bench Judge B.J. Scherman concluded in his decision released last week that "the policy does not provide for unlimited stand-alone investment opportunities within the carrier fund."

Manulife said on Monday that it was "pleased with the ruling."

"This is consistent with our position that this case was legally unfounded and commercially absurd, and that consumers purchasing universal life policies, and the insurers issuing these policies, never intended to have the policies function as deposit or securities contracts," the insurer said in a statement.

Shares of Manulife were up approximately three per cent in Toronto to $23.32 in afternoon trading on Monday.

In October 2018, Muddy Waters' head of research Carson Block took aim at Manulife in a report warning that the impending ruling in the Mosten case had the potential to "significantly damage" the insurer. In the report announcing its short position in the company, Block warned that a ruling in Mosten's favour could lead to "billions of dollars of losses."

Short-selling is a trading technique that can produce a profit if a stock's market value falls below a predetermined price.

Mosten had argued in court that under the terms of the universal life insurance policy with Manulife's life insurance subsidiary, it could deposit an unlimited amount of money and receive an annualized guaranteed return of at least four per cent with one-month liquidity.

Manulife had argued that this is counter to the purpose of life insurance and associated regulation.

Industrial Alliance Insurance and Financial Services Inc., also known as iA Financial Group, and BMO Life insurance also faced litigation involving similar claims.

iA Financial Group said Monday that the Saskatchewan court "dismissed, in its entirety, the application commenced by Ituna Investment LP" against it.

The hedge fund was seeking to make unlimited deposits into a universal life insurance contract that it purchased from a policyholder, iA Financial Group added in its statement, but the judge "found that Ituna's position was inconsistent with the language and the purpose of the contract."

iA Financial Group also said it was "analyzing the full details of the decision" and will provide further comments if necessary.

Shares of the Quebec-based insurer were up more than one per cent to $51.24 in afternoon trading on Monday.

BMO was not immediately available for comment.

The Canadian Life and Health Insurance Association said Monday it had intervened in the cases against Manulife, iA and BMO and the association "welcomed" the Saskatchewan court ruling.

"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," said CLHIA president and chief executive Stephen Frank in a statement.

"Insurance policies are not intended to offer an unlimited investment opportunity completely unrelated to insurance coverage."