BOSTON–Liberty Mutual Group has filed court papers challenging a settlement between AIG and seven other insurers over alleged underreporting of workers compensation premiums by AIG.

Boston-based Liberty Mutual alleges that New York-based American International Group Inc. underreported premiums by $6.1 billion, compared with the $2.1 billion figure for underreported premiums that was used as the basis for the settlement.

The dispute began in 2007 when the National Workers Compensation Reinsurance Pool operated by Boca Raton, Fla.-based NCCI Holdings Inc. sued AIG.

Spitzer settlement

The pool of property/casualty insurers argued it was excluded from a 2006 settlement between then-New York Attorney General Eliot Spitzer and AIG.

In that settlement AIG agreed to pay states $343 million to settle allegations that it underreported workers comp premiums over several decades to avoid paying its full share of state residual market assessments.

The pool argued that its member companies had to pay states more than their appropriate share of residual market assessments because AIG was assigned an improperly small share of responsibility for high-risk workers comp policies.

Since then, U.S. District Court Judge Robert Gettleman, who has been hearing the case in Chicago, dismissed the pool as a plaintiff. But AIG remained in litigation with several competitors.

Latest pact

In January, AIG announced that it had reached an agreement with seven of its competitors in which it would pay them $450 million to resolve the matter. However, that agreement did not include units of Liberty Mutual, which has sought class action status for the dispute.

Liberty Mutual units Safeco Insurance Co. of America and Ohio Casualty Insurance Co. filed opposition papers on Thursday seeking to stop the settlement.

In a statement, Liberty Mutual called the proposed settlement “detrimental to the class of over 500 insurance companies victimized by AIG's admitted wrongdoing.”

Judge Gettleman is scheduled to hear Liberty Mutual's challenge to the settlement in June, sources said.

The insurers that agreed to the settlement are: ACE INA Holdings Inc., Auto-Owners Insurance Co., Companion Property & Casualty Insurance Co., Firstcomp Insurance Co., Hartford Financial Services Group Inc., Technology Insurance Co. and Travelers Indemnity Co.

AIG said in an emailed statement, "The settlement before the court is fair and reasonable, and Liberty's opposition is the latest in a long line of desperate attempts to derail a settlement supported by the 50 state insurance departments and the other insurance companies in the litigation. We are confident that the settlement will be approved despite Liberty's repeated efforts to prevent the parties from reaching a resolution.”

“Liberty has made this claim to regulators, experts and other insurance companies and been rejected by them all.”