BOSTON—A claimant can pursue a lawsuit against American International Group Inc. on grounds it maliciously prosecuted him by using criminal processes to gain leverage in his workers compensation case, the Massachusetts Supreme court has ruled.

The plaintiff in Jesse Maxwell vs. AIG Domestic Claims Inc. also alleges that he suffered injury when the AIG claims unit referred his workers comp claim to an insurance fraud bureau, which passed it on to prosecutors.

Mr. Maxwell’s legal proceedings include a related workers compensation case stemming from an October 2002 injury. The AIG unit denied the claim because he failed to provide medical documentation, court records state.

Mr. Maxwell, who appealed the AIG unit’s rejection of his workers comp claim, alleges he became homeless and lived in shelters since he had no comp benefits and was unable to work.

As a condition of living at a YMCA, Mr. Maxwell participated in a community service training program for “disabled and challenged individuals,” court records state. The organization placed Mr. Maxwell in a commercial cleaning training program, where he performed limited janitorial work while receiving a stipend.

The organization “did not consider Maxwell to be an employee, did not consider his stipend to be wages or earnings, and did not believe that his participation in the training program indicated that he was capable of working in the open market,” according to the court documents.

Investigator videotape

Court records also indicate that during a medical exam, Mr. Maxwell signed a statement that he was not working. After the exam, however, an investigator followed him to a site where the community service organization had assigned him. The investigator videotaped him performing janitorial work and reported to the AIG unit that that Mr. Maxwell was employed.

Thus the AIG unit had reason to believe Mr. Maxwell was working and its investigation concluded he worked for a temp agency, court records state. It opened a fraud investigation the same day an administrative judge ordered the claims unit to pay Mr. Maxwell workers comp benefits.

The AIG unit filed a fraud report that eventually led the Suffolk County district attorney to file fraud charges.

An AIG claims examiner also knew that Mr. Maxwell was on probation for a drug charge and allegedly contacted his probation officer and prosecutors seeking to have him incarcerated, which would preclude paying him workers comp benefits, Mr. Maxwell alleges in his suit.

A series of legal proceedings ensued including the civil lawsuit Mr. Maxwell filed 2005 alleging malicious conduct on the part of the AIG unit.

The AIG unit, however, argued that workers comp’s exclusive remedy and a statutory requirement to report fraud provided the company with immunity in its efforts to have the suit dismissed. But a trial court and an appeals court ruled summary judgment was not appropriate.

Qualified immunity at issue

On appeal, the sole issue before Massachusetts Supreme Court was whether immunity qualified the AIG unit for summary judgment. The high court concluded that while the unit does enjoy qualified immunity, summary judgment is inappropriate because “all of Maxwell's claims rely, at least in part, on conduct falling outside the scope of the immunity.”

The state high court upheld the trial court’s denial of summary judgment and remanded the case.

AIG did not respond to a request for comment.