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AIG workers compensation settlement disputed by Liberty Mutual units

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CHICAGO—Subsidiaries of Boston-based Liberty Mutual Group Inc. have asked a federal judge to reverse a $450 million settlement paid by American International Group Inc. for its alleged underreporting of workers compensation premiums.

In a June 12 filing in the 7th U.S. Circuit Court of Appeals, Safeco Insurance Co. and Ohio Casualty Insurance Co. say the court erred in approving the settlement from New York-based AIG because they believe it was the "result of collusion and an improper reverse auction" between AIG and insurers that AIG had accused of premium underreporting.

In particular, the brief claims the settlement unfairly benefited ACE INA Holdings Inc., The Hartford Financial Services Group Inc., The Travelers Indemnity Co. and Companion Property & Casualty Insurance Co.

"AIG benefited by saving at least $100 million in its settlement payment," the filing reads. "Defendant-intervenors benefited by extinguishing any possible liability for AIG's claims, avoiding public disclosure of the extent of their misconduct, and ensuring they would not have to reimburse millions in pool-advanced legal fees."

In a June 15 filing, those companies and other insurers said they plan to file briefs in opposition to the claims from Safeco and Ohio Casualty.

Insurers in the AIG class action lawsuit had alleged that they paid states more than their fair share of residual market assessments because AIG was assigned an improperly small share of high-risk workers comp policies. The settlement was paid by AIG to 1,300 other commercial insurers.

Liberty Mutual said previously that it planned to appeal the settlement after U.S. District Court Judge Robert Gettleman approved the payment earlier this year.