Massachusetts Attorney General Martha Coakley announced today that her office has reached a $58.5 million settlement with American International Group over an alleged $26 million contract violation involving workers' compensation coverage for Boston's Big Dig tunnel project.
Ms. Coakley's statement said that as part of AIG's agreement to cover the Big Dig, known formally as the Central Artery / Tunnel (CA/T) Project, the state was required to reimburse AIG for any additional "residual market" loss attributable to the CA/T Project account. Similarly, AIG was required to pass through to the state any residual market surplus attributable to the CA/T Project account, which it failed to do.
AIG said in a statement: "We are pleased to have settled this matter. The amount had previously been fully reserved and reported in earnings."
The attorney general said a review showed that AIG failed to charge the state or pass along surplus monies as agreed in the contract. Today's announced settlement includes $26 million in losses to the state, plus interest, it was explained.
Ms. Coakley said the recovered money, which represents 15 years of unpaid surplus funds, will be returned to the CA/T Project.
According to her office, during the course of an investigation and negotiations, AIG agreed to pay a large portion of the funds immediately to help with the CA/T's financial needs and to pay the remainder of the settlement by May 22.
The trouble-plagued Big Dig began 15 years ago, and the price has soared from $2.6 billion to over $14 billion. Designed to replace the above-ground Central Artery with a series of traffic tunnels, it has been notable for incessant delays, falling debris and cost overruns.
"In a long term, multi-billion dollar project like the Big Dig, it is imperative that we maintain vigilant oversight of the finances to ensure that all parties are performing as agreed," said Ms. Coakley.
"The Attorney General's Office will continue our review of the project's expenses, and we remain committed to ensuring that the Commonwealth is not shortchanged," she promised.
She noted that AIG was the worker's compensation insurance carrier for the entire CA/T project.
The worker's compensation insurance system in Massachusetts includes a "residual market" mechanism for insuring customers who have difficulty obtaining insurance in the open marketplace. This allows high risk employers, such as roofing and construction companies, to obtain insurance from a common pool of funding drawn from all insurers in the marketplace.
Payments for claims on high risk policies taken from that pool and premiums for high risk employers are paid into the pool. When losses are lower than expected and the pool has a surplus, the insurance companies make a profit.
© Arc, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.