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Liberty Mutual, AIG settle workers comp assessment case

Posted On: Mar. 28, 2013 12:00 AM CST

A split U.S. appeals court on Monday laid to rest a long-running dispute pitting Liberty Mutual Holding Co. Inc. against American International Group Inc., though details of a settlement were kept confidential.

The 7th U.S. Circuit Court of Appeals in Chicago, ruling in Safeco Insurance Co. of America vs. American International Group Inc., closes out a class action lawsuit with roots dating back to 2006. That year, then-New York Attorney General Eliot Spitzer accused AIG of underreporting workers comp premiums over several decades to avoid paying its fair share of residual market assessments across the United States.

Insurers eventually sued, alleging 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.

In 2012, U.S. District Court Judge Robert Gettleman in Chicago entered a final order approving a class action lawsuit settlement in which New York-based AIG would pay $450 million to more than 1,300 competing commercial insurers.

Boston-based Liberty Mutual and two of its subsidiaries — Safeco Insurance Co. and Ohio Casualty Insurance Co. — objected to the settlement. Liberty Mutual claimed that the 22% share of the settlement, or $99 million, it would receive was too small an amount, court records show.

But after arguing their appeal to Judge Gettleman's settlement approval. the Liberty Mutual companies asked the appeals court to dismiss their case because they had reached a settlement with AIG.

Because the litigation stemmed from class action litigation, however, the appeals court asked for additional information. On Monday, two of three judges hearing the case concluded that the settlement did not jeopardize the interests of any unrepresented class members.

But Judge Richard A. Posner dissented. He said dismissal of the appeal was premature because the court did not know terms of the settlement reached between AIG and Liberty Mutual.

“So we don't know whether the settlement sells out the interests of the class,” Judge Posner wrote in his dissent. “But it may.”

Liberty Mutual declined to discuss the settlement but said in a statement that it was pleased the matter is finally resolved.

AIG commented that it was "pleased the dispute has been resolved and the settlement is now final."