American International Group Inc. says a federal judge has given preliminary approval to a $450 million settlement it reached with a handful 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 final approval as a fair and appropriate resolution of this litigation.”

Liberty Mutual, which originally filed the lawsuit against AIG on 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 any comment.”

According to a source close to the matter, the written opinion will be available in several days. In the meantime, the judge has requested another hearing Aug. 5 to work out details of a notice to be sent to all class members. Each company in the class can decide to opt out of the settlement, but the source says all the companies are on board.

Liberty Mutual stands to gain $99 million from the settlement if it decides to join, according to the source. If enough companies from the remaining class choose to opt out of the settlement, AIG can 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 to settle a lawsuit filed by Liberty Mutual's Ohio Casualty and Safeco subsidiaries in April 2009 on behalf of a pool of insurers alleging that AIG underreported workers' comp premiums over at least a 20-year period.

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

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

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' comp premiums to residual insurer National Workers' Compensation Reinsurance pool, which allegedly skewed tax obligations to the 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.

Special Reports /

$450M AIG Workers&rsquo; Comp Settlement Gets Judge&rsquo;s Approval

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$450M AIG Workers’ Comp Settlement Gets Judge’s Approval