The fallout from New York's insurance scandals continues forAmerican International Group with a federal lawsuit filed by twoMinnesota workers' compensation programs seeking as much as $150million in damages from the carrier.

Their action alleged the insurer was guilty of civil violationsunder the Racketeer Influenced and Corrupt Organizations Act, underwhich the plaintiff can collect three times the alleged damage.

The suit by the Workers' Compensation Reinsurance Association(WCRA) and Minnesota Workers' Compensation Insurers AssociationInc. (MWCIA), both in St. Paul, Minn., accused AIG of submittingfalse and fraudulent data in order to avoid paying the properpremium over a 22-year period.

The groups filed their complaint in U.S. District Court in St.Paul.

The WCRA was created in 1972 by the state of Minnesota toprovide reinsurance workers' comp and self-insured programs,according to court documents. The insurer pays excess claims abovea pre-established retention limit. The MWCIA, a nonprofitcorporation, collects the data used by WCRA. Any insurer writingworkers' comp in the state is required to be a member of both.

The suit charges that AIG underreported the aggregate premium itcollected in the state in order to avoid paying what it owed inreinsurance premium beginning in 1985.

An AIG attorney, General Counsel Michael Joye, reported thepractice to AIG executives in a memo in 1992 when the insurer wasstill headed by Chairman and Chief Executive Officer MauriceGreenberg.

Despite the report, the practice continued until 2005 when itwas uncovered by then New York Attorney General Eliot Spitzerduring investigations into industry bid-rigging and steering ofinsurance contracts. AIG later entered into an agreement with Mr.Spitzer to reimburse policyholders for fraudulent businesspractices out of a $1.64 billion fund.

According to Randy Holmberg, actuarial vice president for theWCRA, the two organizations would have received $1.2 million out ofthe fund, a small amount of what the fund feels it is owed.

Mr. Holmberg said the organizations calculate they are owed $50million, the combination of premium not paid and investmentearnings. New York's settlement, which was reached without anyinput from either the WCRA or MWCIA, does not come close tosatisfying the loss, he said.

After two years of negotiation with AIG, the WCRA and MWCIAdecided to sue, he said. The stumbling block was the price of thesettlement.

Until Mr. Spitzer's investigation, the WCRA and MWCIA wereunaware of AIG's practice, Mr. Holmberg admitted.

"Mr. Spitzer's investigation unearthed a lot of documents," saidMr. Holmberg. "We had no idea [AIG] was doing this."

The lawsuit does not call for a set amount of money but doesseek triple damages for AIG's practice. Mr. Holmberg pointed outthe lawsuit gives attorneys the opportunity to look more closely atAIG's books, which could result in initial damages above the $50million they were originally negotiating.

With the discovery of AIG's practice the WCRA and MWCIA plan toratchet up their auditing process, Mr. Holmberg said. But for aninsurer the size of AIG, "if someone wants to hide something, it isgoing to be difficult to find." He added the organizations areconfident the numbers being reported to the bureau are valid.

Joe Norton, a spokesman for AIG, said the company does notcomment on ongoing litigation.