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AIG's proposed workers comp settlement with other insurers gets judge's support


CHICAGO—A federal judge indicated Monday that he will grant preliminary approval to American International Group Inc.’s proposed $450 million settlement with other insurers over allegations that it underreported workers compensation premiums for decades, AIG said.

The judge’s statement is a victory for New York-based AIG, which has been locked in litigation with Boston-based Liberty Mutual Group Inc., which opposes the settlement.

“AIG is pleased that the court stated today that it will grant preliminary approval of the proposed settlement,” the New York-based insurer said in a statement. “AIG is optimistic that the proposed settlement will soon receive final approval as a fair and appropriate resolution of this litigation.”

However, Liberty Mutual could appeal Judge Robert Gettleman’s findings. It also could opt out of the settlement, in which case Liberty Mutual would forgo its approximately $99 million share of the settlement, sources said.

That would mean AIG would pay out only about $351 million to hundreds of insurers while its disagreement with Liberty Mutual continues.

Awaiting written ruling

A Liberty Mutual spokesman said the insurer would wait for the judge to issue a written opinion before making comment.

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.

On Monday, the judge also said he would certify seven insurers as class representatives for insurers that have potential claims against AIG for underreporting, sources said. The seven insurers want to accept AIG’s settlement offer.