NU Online News Service, Jan. 7, 12:30 p.m. EST
American International Group Inc. (AIG) has tentatively agreed to pay $450 million to seven named insurance companies in order to settle a protracted federal civil lawsuit over alleged underreporting of workers' compensation premiums.
However, Liberty Mutual subsidiaries Safeco Insurance and Ohio Casualty Insurance, who had filed the lawsuit in April 2009 on behalf of a pool of insurers, are not part of the settlement.
According to a source close to the matter, a high percentage of the pool, including yet-to-be-named companies, are willing to settle. The seven named companies were merely prepared to step in as a new class.
"It is unfortunate that Liberty is refusing to participate in this fair and reasonable settlement," said AIG spokesman Mark Herr in an e-mail. "As the seven other settling insurers have recognized in seeking to intervene in the action, Liberty's preference to continue litigating is not in the best interests of the class members."
Among the named group looking to settle with AIG is The Hartford Financial Services Group, Travelers Insurance Group and Ace INA Holdings.
The insurance companies looking to end the suit said in court documents that they and Liberty Mutual's affiliates have "very different business judgments about the wisdom of continued litigation as opposed to settlement."
Gary Eldon, attorney for Safeco and Ohio Casualty, said the settlement proposal "is an act of self-interest and is detrimental" to the 600-member class involved in the suit. "It fails to consider previously undisclosed documented evidence of underreporting," he added.
Mr. Eldon said the discovery process in the case should be allowed to proceed uninterrupted so that AIG is held accountable for the "true extent of its underreporting."
Filings in U.S. District Court in Chicago indicate the group has asked the court to approve them as "interveners" so that the settlement can move forward.
Liberty Mutual continues to seek class-action status in the case. In October AIG filed documents in an attempt to get a judge to deny Liberty Mutual's request.
The case history goes back to 2007, when the National Council on Compensation Insurance (NCCI) originally filed the suit on behalf of the pool, but the case was dismissed because NCCI lacked jurisdiction. Then Liberty Mutual took up the case and filed another lawsuit similarly alleging that AIG underreported workers' compensation premiums to residual insurer National Workers' Compensation Reinsurance Pool (NWCRP). AIG also filed a lawsuit, alleging the same against many within the group of insurers suing them. AIG intends to continue the lawsuit against Liberty Mutual's companies.
An important note, according to the source, is that the named interveners are a mix of those AIG has accused of underreporting and those that have not been accused by AIG. Therefore, the settlement is not merely a reaction to AIG's countersuit.
AIG ended 2009 by agreeing 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' compensation premiums over a 20-year period, ending all regulatory issues.
The $450 million settlement has the support of regulatory authorities, "whose involvement in settlement negotiations has been a central catalyst in achieving a resolution of these claims," according to court documents.
A hearing is scheduled for Jan. 11 to discuss the pool's application to separate themselves from Safeco and Ohio Casualty in order to settle. If approved, the settlement funds will be put in a fund to be allocated to insurers.
© 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.