AIG rivals may gain momentum in $1b lawsuit after state settlement
NEW YORK: American International Group Inc., the company defending itself against a $1 billion workers' compensation lawsuit filed by rival insurers, may have handed its accusers momentum by agreeing to pay $146.5 million to settle a probe by regulators.
"That certainly can't help their position in court," said Edward Priz, president of Riverside, Illinois-based commercial insurance consultant Advanced Insurance Management LLC.
AIG will pay $100 million in fines and $46.5 million in taxes and assessments to resolve the 50-state investigation, the Pennsylvania insurance regulator said yesterday. New Yorkbased AIG was suspected of cheating state-run funds that serve as insurers of last resort against workplace injuries.
AIG, once the world's largest insurer, shortchanged the state pools by underreporting premiums it made selling workers' compensation protection, rivals including Liberty Mutual Holding Co. said in court documents filed in 2009 in U.S. District Court in Chicago. The state insurers of last resort, which cover injuries at employers that pose unattractive risks, are funded by contributions from carriers that offer the coverage. "Accurate company financial data is an essential ingredient of proper insurance regulation," Pennsylvania acting commissioner Robert Pratter said in a statement. "This reflects the seriousness of the violations in this instance over a sustained period of time-primarily prior to 1996 --by AIG's prior senior management."
The agreement, endorsed by eight states including Pennsylvania, is contingent upon approval by at least 35 other regulatory jurisdictions and AIG's settlements with rival insurers, according to the statement. AIG Chief Executive Officer Robert Benmosche has settled legal disputes with investors and former CEO Maurice "Hank" Greenberg to focus on repaying a $182.3 billion U.S. government rescue. AIG filed a complaint last year against Boston-based Liberty Mutual and rivals including Hartford Financial Services Group Inc., saying they cheated the state pools.
"If this settlement becomes final, we will have resolved all remaining regulatory issues related to AIG's workers' compensation premium reporting for our stakeholders," Mark Herr, an AIG spokesman, said in a statement.
AIG has surged 86 percent this year in New York trading after declining 4.5 percent in 2009 and 97 percent in 2008. AIG agreed this month to retire its obligations with the Federal Reserve. -Bloomberg