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American International Group Inc. (AIG) is now free to proceed with a lawsuit alleging other insurers conspired to underreport workers' compensation premiums, which the company said skewed the market.

"The ruling ensures that AIG's competitors will be held to the same scrutiny as AIG, and that there will be a full inquiry into those companies' own premium underreporting," AIG spokesman Mark Herr said in an e-mail.

AIG is being sued by a group led by Liberty Mutual, which alleges AIG underreported workers' compensation premiums to residual insurer National Workers' Compensation Reinsurance Pool (NWCRP).

The National Council on Compensation Insurance (NCCI) had originally filed the suit in 2007 on behalf of the pool, but the case was dismissed because NCCI lacked jurisdiction.

In his 50-page ruling made public recently, U.S. District Court Judge Robert W. Gettleman of the Northern District of Illinois denied AIG's request to dismiss Liberty Mutual's claims on behalf of the class of insurers. Judge Gettleman also denied AIG's claim for unjust enrichment.

However, AIG's complaint lives on. The lawsuit alleges fraud under the Racketeer Influenced and Corrupt Organizations Act (RICO), conspiracy and breach of fiduciary duty to NWCRP members.

Liberty Mutual, The Hartford Financial Services Group, Travelers Insurance Group, Chubb Group of Insurance Companies and Ace INA Holdings are named as defendants.

Judge Gettleman said AIG has "provided scores of details of overt acts these companies took to further their schemes." This is more than enough to be able to state a claim for civil conspiracy, he added.

"It is reasonable and plausible to presume that the [defendants] used their influence on the [NWCRP board] to cause the invoices to be sent in furtherance of their scheme to defraud AIG and other participating companies and to cover up their own underreporting, all in an effort to minimize their costs and gain competitive advantage over AIG," Judge Gettleman wrote.

The claims from both sides relate to the alleged misreporting of workers' compensation premiums to the NWCRP which, each insurer alleges, threw off the insurers' share to the pool, to which they all contribute.

The "long and tortured procedural history," as Judge Gettleman described it, goes back to a settlement between AIG and the New York Attorney General's Office four years ago. AIG agreed to pay a $1.6 billion settlement that included $42 million to various states for tax evasion and $301 million to workers--all related to alleged underreporting premiums by AIG.

To Liberty Mutual the ruling represents a "step toward an ultimate resolution of the matter," and the company "looks forward to resolving the issue in court," said spokesman Glenn Greenberg.

Companies named as defendants by AIG have until July 30 to answer AIG's allegations and a status hearing is set for Aug. 19.

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