NU Online News Service, Jan. 17, 1:35 p.m. EST

A group of insurers that looked to separate themselves from Liberty Mutual subsidiaries in order to accept a $450 million settlement with American International Group Inc. (AIG) was granted what the court terms “intervention.”

The court ruling allows the named insurers to settle a protracted federal civil lawsuit with AIG over alleged underreporting of workers' compensation premiums.

Among the group that had looked to sever themselves from Liberty Mutual subsidiaries Safeco and Ohio Casualty were The Hartford Financial Services Group, Travelers Insurance Group and Ace INA Holdings.

A source close to the matter, however, told NU Online News Service that a high percentage of the pool of insurers that sued AIG are willing to settle, but that they have not yet been named.

Safeco and Ohio Casualty opposed the settlement, calling it “an act of self-interest” among the settling insurers. The Liberty Mutual companies were dealt another blow when a judge in the U.S. District Court in Chicago stayed discovery—a pre-trial exchange of evidence—in Liberty Mutual's attempt to gain class-action status in the case.

“We are pleased that the Court has granted the request by seven other insurance companies to intervene in the litigation to support a fair and reasonable settlement, and has stayed expensive and needless discovery in order to focus on finalizing the agreement,” AIG spokesman Mark Herr said in an e-mail. “We are disappointed that rather than join a settlement endorsed by the insurance regulatory community and many of the largest carriers in the market, Liberty apparently prefers to continue litigating.”

The separated group of insurers looking to settle with AIG will now seek certification of a settlement class.

In documents filed with the court, Safeco and Ohio Casualty stated that although the now separated insurers alleged that Liberty Mutual companies did not want to settle, that “is mistaken.”

The remaining insurers looking to stay in the case “are willing to settle but not on the basis outlined” in the current settlement terms. The group now led by Liberty Mutual said the $450 million settlement is “unfairly low” and terms heavily favor AIG. The interveners have “put a ceiling on the settlement but no floor,” court documents said.

If the settlement goes through, the funds will be put in a fund to be allocated to insurers.

The case history goes back to 2007, when the National Council on Compensation Insurance (NCCI) originally filed the suit on behalf of the pool of insurers, but the case was dismissed because NCCI lacked jurisdiction. Liberty Mutual then took up the case and filed another lawsuit alleging AIG had underreported workers' compensation premiums to residual insurer National Workers' Compensation Reinsurance pool.

AIG countered with a lawsuit of its own, alleging the same against many within the group of insurers suing them.

Late last year, AIG agreed with all 50 states and the District of Columbia to pay close to $150 million—$100 million in fines and $46.5 million in taxes—to settle allegations it underreported workers' comp premiums over a 20-year period, ending all regulatory issues.

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