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 thecourt's ruling and is “optimistic that the proposed settlement willsoon receive final approval as a fair and appropriate resolution ofthis litigation.”

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

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 choose to opt out of the settlement, AIGcan withdraw its settlement offer.

AIG announced at the start of the year that it agreed to pay agroup of companies—ACE, Auto Owners, Companion, FirstComp,Hartford, Technology and Travelers—$450 million to settle a lawsuitfiled by Liberty Mutual's Ohio Casualty and Safeco subsidiaries inApril 2009 on behalf of a pool of insurers alleging that AIGunderreported workers' comp premiums over at least a 20-yearperiod.

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 toits court filings, remains steadfast in its opinion that thesettlement comes nowhere near the true extent of AIG'sunderreporting. Liberty Mutual says the settlement is based onAIG's underreporting of about $2.1 billion; however, the currentknown extent of AIG's underreporting 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' comppremiums to residual insurer National Workers' CompensationReinsurance pool, which allegedly skewed tax obligations to thepool.

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.