Nine states have reached a $12.5 million settlement with American International Group over charges resulting from a 2004 investigation that found AIG, with the help of brokers, rigged bids and fixed prices on commercial insurance, officials said.

The states involved in the agreement are Florida, Hawaii, Maryland, Massachusetts, Michigan, Oregon, Pennsylvania, Texas and West Virginia. The District of Columbia is also part of the agreement.

In Florida, the announcement was made by Attorney General Bill McCollum, Chief Financial Officer Alex Sink and Insurance Commissioner Kevin McCarty.

Their statement said AIG had used a "pay-to-play" tactic with Marsh Inc. and other insurance brokers.

AIG actions, they said "purportedly caused Florida public entities and private organizations to pay higher premiums," and Florida's $2,983,192 piece of the settlement will fund a reimbursement pool for affected policyholders as well as repaying the state agencies' investigative costs.

"We will continue to hold insurance companies accountable for the manner in which they treat their customers," said Mr. McCollum. "I am pleased that we have been able to reach resolution for the affected policyholders in this set of circumstances, and I look forward to continuing this accountability for our state in the insurance industry."

AIG's activities, including paying brokers' contingency fees that investigators said amounted to kickbacks to secure business that was steered the company's way, first came under scrutiny in 2004 by then New York State Attorney General Eliot Spitzer. AIG reached a settlement with New York in 2006.

Authorities said AIG insurance subsidiaries allegedly conspired with Marsh and other brokers by submitting fake bids to create the illusion of a competitive bidding process.

Investigators determined that despite the appearance of a fair bidding process, the broker had already decided which insurer would receive a particular policyholder's business.

As part of the scheme, AIG paid the brokers "contingent commissions" which were not disclosed to policyholders and in return received other lucrative business. Florida officials said.

CFO Sink said, "It's wrong that governments and businesses paid inflated insurance rates because they were led to believe there was competition when there wasn't." Her Department of Financial Services served a lead role in the multi-state investigation along with the Attorney General's Office and the Office of Insurance Regulation.

"Full disclosure in all insurance transactions is a must, and Florida consumers deserve nothing less," said Commissioner McCarty. "This settlement further demonstrates the progress Florida is making toward establishing a national standard for transparency in insurance transactions."

The consent decree and final judgment of the settlement is pending approval in Leon County Circuit Court.

Under the agreement, there will be comprehensive injunctive relief, including enhanced disclosure to consumers of the compensation AIG pays to insurance brokers.

AIG will also be required to abide by those reforms and to fully disclose the nature and range of payments made to insurance brokers on specific lines of coverage in the prior year.

Prior to the latest settlement, AIG provided reimbursement to a nationwide group of policyholders and adopted significant business reforms that govern its bidding and underwriting practices.

Florida officials said the agreement was the fourth they had reached with insurance carriers that were involved with Marsh's "pay-to-play" tactics." They said AIG has cooperated with the multi-state task force and will provide assistance to the states as they continue their investigation of insurance brokers and other insurers.

AIG said that, under the settlement agreements, the company denies the allegations and does not admit liability. But, to avoid expense and the uncertainty of protracted litigation, the company said it agreed to the settlements.

The agreement with the Texas Attorney General also settles allegations of anticompetitive conduct relating to AIG's relationship with Allied World Assurance Company, and includes an additional settlement payment of $500,000.

Chris Winans, a spokesperson for AIG said the insurer hopes the settlement will be the end of litigation by government officials concerning past commercial insurance dealings.

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