AIG Accused of $1 Billion Fraud by Comp Reinsurers

NU Online News Service

The National Workers' Compensation Reinsurance Pool (NWCRP) in Chicago filed a federal lawsuit today accusing American International Group of defrauding hundreds of rival workers' compensation insurance carriers of possibly $1 billion by ducking its required share of the high-risk comp market.

AIG meanwhile filed its own lawsuit in New York state court seeking a declaration that the charges at issue were disposed of when it arranged a $301 million settlement with the New York Attorney General's Office in January 2006.

The NWCRP suit, filed in U.S. District Court for the Northern District of Illinois in Chicago, also names 13 of AIG's operating companies. It was brought by the National Council on Compensation Insurance Inc., acting as attorney-in-fact for participating NWCRP companies.

Their action charges that AIG had falsely reported its workers' comp premiums as part of "a corporate effort to evade its share of losses and liabilities" in the residual market pool for high-risk businesses.

An insurer who underreports the amount of comp insurance they write in the voluntary market cuts the number of risks they must take on from the residual market, leaving a larger burden for its competitors for residual market business, as well as state taxes.

NWRCP said in a statement that, based upon available information, it estimates damages from AIG's alleged fraud of approximately $1 billion, but it is seeking "to uncover the full extent of the misconduct."

Its lawsuit is filed on behalf of approximately 600 insurance companies from 40 states that are NWCRP participants.

It was explained that NWCRP participating companies provide reinsurance for a large portion of the high-risk workers' comp policies issued to employers that cannot find coverage in the regular, or voluntary, insurance market.

The NWCRP acknowledged that its action followed related investigations and enforcement actions by federal authorities and then New York State Attorney General Eliot Spitzer, concerning AIG underreporting.

The NWCRP said it was not allowed to participate in the process that led to the establishment of the $301 million settlement fund, which it said is a remedy that "in effect requires state authorities and other claimants to compete for the inadequate settlements funds available."

It said it is seeking "to uncover the full extent of the AIG companies' wrongdoing and obtain full and fair restitution, as part of the NWCRP's due diligence for its participating companies."

Rowe Snider, lead counsel for the NWCRP Board of Governors, said his board "has tried to work with AIG for more than a year in extensive good-faith efforts to resolve this matter.

"Unfortunately, AIG has not been willing to make a complete or meaningful disclosure of the full extent of its false premium reporting, or to provide full documentation and access to key witnesses necessary to allow us to quantify what would constitute full and fair restitution to the companies that were victims of this fraud," he added.

AIG would not comment while the matter is in litigation, but in its filings with the New York Supreme Court--a county level jurisdiction--it argued that the settlement with New York created "a specific mechanism for the NWCRP to recover for losses it may have sustained as a result of the underreporting."

The papers also said several states had expressed interest in taking part in the settlement, but could not obtain NWCRP permission.

AIG's filing said it believes the amount it owes the NWCRP "is significantly less" than the $301 million it has already deposited in a fund to dispose of claims.