CHICAGO—Court papers filed in preparation for a federal court hearing next week disclose insurers' private attempts to settle closely followed litigation involving the nation's largest workers compensation underwriters.

Documentation filed June 3 by seven insurers includes details of an April 2010 settlement offer in which Liberty Mutual Group Inc. proposed that American International Group Inc. pay $965 million to all insurers harmed by decades of AIG underreporting workers compensation premiums.

In that proposal, Liberty Mutual, with the approval of the National Workers Compensation Reinsurance Pool, proposed that AIG pay $810 million to NWCRP plus another $155 million to Liberty Mutual.

“AIG did not immediately respond to this proposal,” according to court documents filed by seven insurers backing AIG's proposed $450 million settlement and opposing Liberty Mutual's efforts to scuttle the $450 million deal.

Then, in a May 2010 meeting involving Liberty Mutual CEO Edmund Kelly and AIG President and CEO Robert Benmosche, Liberty Mutual again offered to settle the litigation, this time in exchange for AIG paying $500 million to a class of insurers and another $100 million to Liberty Mutual, the seven insurers allege.

The seven also say that in a September 2010 meeting, Liberty Mutual General Counsel Sean McSweeney answered another insurer's question by stating that AIG's $450 million offer was a reasonable settlement amount for the class and that Liberty Mutual would support it if AIG agreed to pay Liberty an additional amount for its “nonclass claims.”

The seven insurers claim such statements show that $450 million is a fair amount to compensate all underwriters for losses they suffered from AIG's premium underreporting.

Liberty Mutual “denies the allegation and looks forward to responding appropriately in the coming weeks,” the insurer said last week in an emailed statement.

By the end of 2010, NWCRP participants “became convinced that AIG could not, in fact, be induced to increase its offer beyond $450 million,” the seven insurers state. Even an attempt to convince AIG to raise its offer by $3 million to cover settlement expenses was rejected, the documents state.