NU Online News Service, April 29, 12:32 p.m.EDT

Liberty MutualGroup has filed court papers to oppose a proposed $450 millionsettlement American International Group Inc. made with sevencompanies to end a pending class-action federal civil lawsuit overalleged underreporting of workers' compensation premiums.

Liberty Mutual's Ohio Casualty and Safeco subsidiaries filed amotion to stop the settlement with the so-called "intervenors" andstop an application to represent the class.

AIG announced at the start of the year that it agreed to pay a group of companies involved inthe lawsuit against it—ACE, Auto Owners, Companion, FirstComp,Hartford, Technology and Travelers—$450 million to settle a lawsuitfiled by the Liberty Mutual units in April 2009 on behalf of a poolof insurers alleging that AIG underreported workers' compensationpremiums over at least a 20-year period.

The group of seven insurers filed to become intervenors in thecase, since Liberty Mutual Group filed it, in order to settle. Thejudge granted their request.

However, Liberty Mutual remains steadfast in its assertion thatthe settlement comes nowhere near the true extent of AIG'sunderreporting.

According to court documents, Liberty Mutual says: "With thecomplicity of the conflicted intervenors, AIG excluded [LibertyMutual Group] and their counsel from settlement negotiations. Itdid so knowing it could not hope to obtain a deal as advantageousas the proposed settlement agreement by negotiating with partiesand counsel who had developed admissible evidence concerning thetrue extent of AIG's underreporting, and who were willing tolitigate in order to assure that the class obtained faircompensation for the injuries AIG inflicted on them."

Liberty Mutual says the settlement is based on AIG'sunderreporting of about $2.1 billion; however, the current knownextent of AIG's underreporting is more than $6 billion, allegesLiberty Mutual.

The alleged underreporting of workers' comp premiums to residualinsurer National Workers' Compensation Reinsurance Pool (NWCRP) wasin violation of law, defrauded the states and shifted costs toother member insurer in the pool, says insurers.

According to an e-mail statement from AIG, Liberty Mutual'sattempt to stop the settlement "is the latest in a long line ofdesperate attempts to derail a settlement supported by the 50 stateinsurance departments and the other insurance companies in thelitigation."

AIG previously agreed to settle allegations ofunderreporting with all states and the District of Columbia forclose to $150 million.

Yet not all regulators thought the settlement was necessarilyfair. Louisiana Insurance Commissioner Jim Donelon says he agreedto sign off on the deal to "put the matter behind us" although he"is convinced that the amount of underreporting by AIG wassubstantially more than the amount that it concedes in thesettlement."

The case history goes back to 2007, when the National Council onCompensation Insurance (NCCI) originally filed the suit on behalfof the pool, but the case was dismissed because NCCI lackedjurisdiction. Then Liberty Mutual took up the case and filedanother lawsuit similarly alleging that AIG underreported workers'comp premiums to NWCRP. AIG also filed a lawsuit, alleging the sameagainst many within the group of insurers suing them. AIG intendsto continue the lawsuit against Liberty Mutual's companies.

AIG will release its claims against the intervenors, accordingto court documents. Four of the seven intervenors are defendants inthe AIG lawsuit and, "unlike the vast majority of the classmembers, benefit substantially from this very costly release," saysLiberty Mutual's motion. 

Liberty Mutual was within a week away of knowing if it achievedclass-action status in its case, but then the proposed settlementand "intervention" was filed.