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C.V. Starr sues AIG for past profits

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The bitter legal battle between American International Group Inc. and former affiliate C.V. Starr & Co. took another turn last week, when C.V. Starr sued AIG seeking to potentially recover profits AIG realized through its previous business relationship with managing general agency units of C.V. Starr.

The lawsuit was filed in Delaware Chancery Court as a cross-claim to a 2002 shareholder derivative suit brought by the Teachers' Retirement System of Louisiana against both AIG and Starr.

The retirement system contends that C.V. Starr and certain AIG officials--including ex-AIG Chairman Maurice R. Greenberg, who now heads Starr--improperly benefited from millions of dollars in commissions paid from 2000 to 2005 to entities controlled by Mr. Greenberg through New York-based C.V. Starr.

In January 2006, the retirement system agreed to drop 15 current and former AIG directors and officers from the derivative suit, though the action continued against Mr. Greenberg, former AIG Chief Financial Officer Howard I. Smith, former AIG director Edward E. Matthews and Starr itself.

Starr MGAs produced business for AIG for more than 30 years. The companies separated following Mr. Greenberg's departure from New York-based AIG in 2005.

Earlier this month, Delaware Vice Chancellor Leo E. Stine ruled that Starr could seek contributions from AIG if the retirement system's lawsuit prevailed against Starr.

In its complaint filed last week, Starr argued that if it is found liable to the retirement system, it should recover "restitution, unjust enrichment, an offset, a setoff and/or some other form of adjustment" from AIG.

Starr argued that its subsidiaries generated more than $5 billion in premiums from 2000 to 2005 for AIG, which produced investment income and profit for the insurer. Starr therefore is seeking "hundreds of millions of dollars in profits" that AIG realized from their relationship during those years, the lawsuit contends.

Starr also cited reports from a Special Litigation Committee in its assertion that AIG benefited from their relationship. AIG's board established the committee to help determine how to proceed with the retirement system suit.

One committee finding cited in Starr's complaint described how the typical managing general agency relationship benefits the insurer. It pointed out, for example, that MGAs provide expertise and pay fixed overhead costs. Insurers can forgo such expenses, and they can terminate their MGA contracts and move on without incurring those costs.

AIG refused to comment on the Starr suit.