States Collecting on $146 Million AIG Workers’ Comp Settlement

By Michael Adams | June 5, 2012
searching America

State regulators around the county are finally collecting their share of a multimillion dollar settlement reached with American International Group (AIG) in 2010 based on the company’s misreporting of workers’ compensation premiums for the years 1985 to 1996.

In December 2010, AIG agreed to pay state regulators a total of $100 million in fines and another $46.4 million in premium taxes and assessments after a multistate probe begun in 2008 found the insurer hid at least $2.12 billion in workers’ compensation premium by attributing it to other lines of insurance and thereby lowering its assessments and taxes.

“AIG systematically underreported workers’ compensation insurance premium by putting this premium into the general liability or commercial automobile liability categories,” said Florida Insurance Commissioner Kevin McCarty, representing the states as president of the National Association of Insurance Commissioners (NAIC). “The practical effect of this misreporting was to report premium in lines of business with lower residual market obligations or premium tax rates and assessments.”

Florida was one of the lead states conducting the examination along with Delaware, Indiana, Massachusetts, Minnesota, New York, Pennsylvania and Rhode Island. All states and the District of Columbia participated. The probe built on previous examinations by New York’s attorney general in 2006 and officials in Indiana, Minnesota and Rhode Island.

Florida’s share of the settlement will be $5.6 million in fines and penalties with an additional $8.7 million split being split among several state agencies. The agencies included the state’s Division of Workers’ Compensation and the Florida Workers’ Compensation Insurance Fund.

Pennsylvania Insurance Commissioner Michael Consedine said that his state will collect more than $16.8 million including $8.6 million in fines, $4.6 million in premium taxes and assessments, and $3.6 million to the Workers’ Compensation Security Fund.

California is slated to receive $15.6 million in fines and penalties alone; Texas, $12.8 million; Illinois, $3.7 million; Massachusetts, $3.4 million; New Jersey, $3.3 million; and Michigan, $3.2 million.

A federal judge approved the settlement with the states in December 2010. But before the settlement could take effect, AIG had to resolve several other outstanding conditions. One was a $450 million settlement with some of AIG’s competitors over residual market levies that was reached in February. Another one called for AIG to pay out $25 million to several insurance guaranty association around the country; this settlement took effect May 30.

In February of this year, a federal judge formally approved the $450 million class-action settlement with several of AIG’s rivals hurt by its underreporting. The companies charged AIG’s underreporting of premium forced them to pay higher than required assessments to fund different residual markets around the country. Hartford Financial Services Group, Travelers Indemnity, Technology Insurance, ACE Ina Holdings, Auto-Owners Insurance Co., Companion Property & Casualty Insurance Co., and Firstcomp Insurance Co. were among the companies in that suit.

Liberty Mutual was also a party to that class action but it has expressed disappointment with the $450 million settlement amount and filed an appeal  to fight for more. The $450 million is based on the court’s calculation that AIG underreported $2.1 billion in premiums, but Liberty Mutual claims AIG should be held accountable for underreporting more than $6 billion in business.

 

“Liberty Mutual remains committed to making sure that AIG is held accountable for knowingly under reporting workers compensation premiums to various insurance pools for more than two decades.  The settlement was negotiated by conflicted parties and is unfair because it based $2.1 billion in under reported premium, far less than the $6 billion in actual amount uncovered in the litigation,” Rich Angevine, spokesperson  for Liberty Mutual, told Insurance Journal.
 

 

 

 

 

 

 

 

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Latest Comments

  • June 12, 2012 at 5:50 pm
    Agent says:
    Every so often I see an article about them seeking to acquire an operation for expansion. Hello AIG! You owe us $80Billion. How are you able to acquire another operation if... read more
  • June 12, 2012 at 4:07 pm
    Ins. Lady says:
    And think of AIG's employees who have lost their jobs because of AIG's shennigans including sending more and more job to Manila and other countries. Try to explain why they l... read more
  • June 6, 2012 at 2:33 pm
    Agent says:
    Well Guy, AIG has given the insurance industry a bad name for many years. They were so big they thought they were invincible and thought they could do whatever they wanted. ... read more
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