NU Online News Service, July 26, 9:46 a.m.EST

American International Group Inc. says a federal judge has givenpreliminary approval to a $450 million settlement it reached with ahandful of companies that alleged AIG cheated a workers'compensation program.

AIG says it is pleased with the court's ruling and is“optimistic that the proposed settlement will soon receive finalapproval as a fair and appropriate resolution of thislitigation.”

Liberty Mutual, which originally filed the lawsuit against AIGon behalf of all the companies and has tried to stop the settlement, says in an emailed statement that it wants“to evaluate the judge's written opinion before offering anycomment.”

According to a source close to the matter, the written opinionwill be available in several days. In the meantime, the judge hasrequested another hearing Aug. 5 to work out details of a notice tobe sent to all class members. Each company in the class can decideto opt out of the settlement, but the source says all the companiesare on board.

Liberty Mutual stands to gain $99 million from the settlement ifit decides to join, according to the source. If enough companiesfrom the remaining class chose to opt out of the settlement, AIGcan withdraw its settlement offer.

AIG announced at the start of the year that it agreed to pay a group of companies—ACE, Auto Owners, Companion,FirstComp, Hartford, Technology and Travelers—$450 million tosettle a lawsuit filed by Liberty Mutual's Ohio Casualty and Safecosubsidiaries in April 2009 on behalf of a pool of insurers allegingthat AIG underreported workers' compensation premiums over at leasta 20-year period.

The group of seven needed to file to become “intervenors” in thecase, since Liberty Mutual was the filer and classrepresentative.

A judge granted their request, but Liberty Mutual, according to itscourt filings, remains steadfast in its opinion that the settlementcomes nowhere near the true extent of AIG's underreporting. LibertyMutual says the settlement is based on AIG's underreporting ofabout $2.1 billion; however, the current known extent of AIG'sunderreporting is more than $6 billion, alleges Liberty Mutual.

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

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

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