CHICAGO--American International Group Inc. can proceed with its retaliatory lawsuit alleging fraud against NCCI Holdings Inc. pool members, a federal judge ruled.

The litigation stems from a lawsuit filed by Boca Raton, Fla.-based NCCI in 2007 after New York-based AIG agreed to pay states $300 million to settle allegations it under-reported workers compensation premiums over several decades to underpay states' residual market assessments.

The $300 million payment was part of a $1.64 billion settlement AIG reached in 2006 with then-New York Attorney General Eliot Spitzer over broader civil fraud charges.

NCCI claimed it was excluded from New York's settlement process and that the $300 million was inadequate to reimburse members of the residual reinsurance pool it administers. NCCI claimed that, because AIG did not contribute its appropriate share, other pool members were charged too much.

NCCI's lawsuit on behalf of the pool, which represents hundreds of commercial insurer participants including major competitors of AIG, claims more than $1 billion in damages. It cites violations of the Racketeer Influenced and Corrupt Organizations Act and other allegations.

In response to NCCI's lawsuit, AIG countered with its own complaint alleging that pool members also underpaid residual market assessments to states. Last Monday, District Court Judge Robert W. Gettleman in Chicago ruled that AIG can pursue fraud charges against some of the pool insurers, court records show.

The judge also rejected RICO claims made by AIG. But the judge stayed the case until it rules on a pending AIG motion to dismiss.

Both sides claimed a victory.

A spokesman for the pool said that among other things it is pleased the judge struck down AIG's RICO claims. He also said the pool will continue to pursue the case until it prevails.

"We are pleased that the Court has upheld AIG's most significant claims, which seek a fair apportionment of other insurance carriers' obligations," countered Michael B. Carlinsky, an attorney representing AIG and a partner at Quinn Emanuel Urquhart Oliver & Hedges L.L.P. in New York.

"AIG did the right thing years ago by settling with the New York Attorney General, but some of AIG's competitors are trying to evade any accountability for their own conduct."