Insurers seeking end to AIG premium dispute

CHICAGO—A hearing scheduled for next week is to be a turning point in a long-running dispute among the nation's largest workers compensation insurers.

At issue is American International Group Inc.'s proposed $450 million settlement with other insurers concerning allegations that AIG underreported workers comp premiums for decades.

Seven commercial insurers want to accept the settlement and gain court approval to represent other insurers in a class action lawsuit that Liberty Mutual Group Inc. filed against AIG.

But Liberty Mutual says the seven insurers essentially are incapable of representing a class of up to 500 insurers that may have been harmed by AIG's alleged underreporting of its workers comp premiums to the 50 states.

Liberty Mutual also alleges in court documents, filed in April in anticipation of a June 21 hearing before U.S. District Court Judge Robert Gettleman, that the $450 million is inadequate because AIG underreported premiums by $6.1 billion, not the $2.1 billion used as the basis for the proposed settlement.

The seven insurers say, however, that the settlement is fair and will avoid millions of additional dollars in litigation expenses.

To bolster their argument that the settlement amount is within a fair range, court papers filed June 3 by the seven insurers describe several unsuccessful discussions, at least one involving Liberty Mutual CEO Edmund Kelly and AIG President and CEO Robert Benmosche, in attempts to settle the dispute (see related story).

The litigation began in May 2007, when the National Workers Compensation Reinsurance Pool operated by Boca Raton, Fla.-based NCCI Holdings Inc. sued AIG. The pool alleged its members paid states more than their appropriate share of residual market assessments because AIG was assigned an improperly small share of high-risk workers comp policies.

The pool argued it was excluded from a 2006 settlement with then-New York Attorney General Eliot Spitzer in which AIG agreed to pay more than $343 million to the states to settle allegations that it underreported workers comp premiums to avoid paying its fair share of the residual market assessments.

Since then, Judge Gettleman has dismissed the NWCRP as lead plaintiff, but the litigation continued when Liberty Mutual units Safeco Insurance Co. of America and Ohio Casualty Insurance Co. sued in 2009, seeking to replace the NWCRP and seeking class action status in a suit against AIG.

The seven insurers now considered interveners in Liberty Mutual's lawsuit against AIG argue that they, not Liberty Mutual, should represent the class. They are ACE INA Holdings Inc., Auto-Owners Insurance Co., Companion Property & Casualty Insurance Co. Inc., FirstComp Insurance Co., Hartford Financial Services Group Inc., Technology Insurance Co. Inc. and Travelers Indemnity Co.

“ACE, Hartford and Travelers are attempting to hijack the case through a settlement agreement that is only in their interests and AIG's and at the expense of the other 500 members of the settlement class,” Sean McSweeney, Liberty Mutual's deputy general counsel, said in an emailed statement. “As part of the proposed settlement, the class is being asked to subsidize AIG's release of its significant counterclaims against ACE, Hartford and Travelers for underreporting,” he said.

The seven insurers argue that continuing the litigation would mean the NWCRP would “incur scores of millions of dollars in litigation costs.”

The June 21 Chicago hearing in American International Group Inc. vs. ACE INA Holdings Inc. and Safeco Insurance Co. of America vs. American International Group Inc. is expected to be significant because it will affect the judge's decision on whether $450 million is a fair settlement and whether the seven insurers or Liberty Mutual units will represent all insurers, legal sources said.

The litigation before Judge Gettleman also includes a complaint by AIG alleging its competitors also underreported workers comp premiums.