CHICAGO—Liberty Mutual Group should not be allowed to “torpedo” a proposed settlement by American International Group Inc. over the underreporting of workers compensation premiums, AIG has told a Chicago federal judge.

The proposed $450 million global settlement is fair and sufficient to make commercial insurers who suffered because of New York-based AIG’s underreporting of comp claims whole, seven commercial insurers also told the judge in a court filing Friday.

The settlement amount is reasonable given the strength of the case against AIG and the “long protracted road” the case otherwise would face, AIG said in papers it filed Friday in the case.

“Through rhetoric, innuendo and downright false accusations of impropriety, the Liberty objectors…attempt to torpedo a proposed global settlement of this massive dispute that is the result of countless hours of good-faith, arms-length negotiations over the past three years,” AIG said in its filing.

Filings support settlement

The filings support the proposed settlement that seeks to end a dispute that began in 2007 when the National Workers Compensation Reinsurance Pool operated by Boca Raton, Fla.-based NCCI Holdings Inc. sued AIG.

Units of Boston-based Liberty Mutual eventually replaced the pool as lead plaintiffs in the suit. Liberty Mutual has argued that other insurers were excluded from a 2006 settlement between then-New York Attorney General Eliot Spitzer and AIG.

In that settlement, AIG agreed to pay all states a total of $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 commercial insurers also have argued that they 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.

Dispute over agreement

But in January, AIG said it had reached an agreement with seven of its competitors in which it would pay a class of property/casualty insurers $450 million to resolve the matter.

In April, Liberty Mutual challenged the proposed settlement. It said AIG underreported premiums by $6.1 billion, compared with the $2.1 billion figure used as the basis for the proposed settlement.

But on Friday, the seven insurers said the proposed $450 million settlement is fair and in the best financial interests of all insurers.

The seven insurers supporting the settlement are ACE INA Holdings Inc., Auto-Owners Insurance Co., Companion Property & Casualty Insurance Co. Inc., FirstComp Insurance Co., Hartford Financial Services Group Inc., Technology Insurance Co. Inc. and Travelers Indemnity Co.

U.S. District Court Judge Robert Gettleman is to hold a hearing later this month in the case.