Liberty Mutual Continues Fight with AIG As Other Insurers Settle

By | January 10, 2011

American International Group has negotiated a $450 million settlement with seven of its competitors in the protracted litigation over its questionable reporting of workers’ compensation premiums.

But the long-running saga over under-reported premiums may not be over for AIG because the key party representing the class of insurers in the legal action — Liberty Mutual and its affiliates Safeco and Ohio Casualty— is balking at going along and wants to continue with litigation against AIG on its own.

The settlement with seven workers’ compensation writers comes on the heels of AIG agreeing to pay $146.5 million in fines and additional taxes to state insurance regulators over similar charges of under-reporting of premiums.

The under-reporting shortchanged states on taxes and companies that support residual markets on fees that are assessed based on premiums.

The seven insurers wanting to accept the $450 million agreement are ACE INA Holdings, Auto-Owners Insurance Co., Companion Property & Casualty Insurance Co., FirstComp Insurance Co., The Hartford Financial Services group, Technology Insurance Co. and Travelers Indemnity Co.

These insurers have asked Judge Robert Gettleman in U.S. District Court for Northern Illinois to let them accept the agreement for themselves and on behalf of the class of more than 500 other insurers affected, even though Liberty Mutual’s Safeco and Ohio Casualty, the carriers that have taken the lead representing the class, wish to go on.

State regulators, the examiners they appointed for this case, and insurers representing the majority of the board of the National Workers Compensation Reinsurance Pool all support the settlement, AIG said in court papers.

Complaints about AIG under-reporting its workers’ compensation premiums in the 1980s and 1990s go back years.

In 2006, in a case led by New York officials, AIG agreed to pay states $343 million for under-reporting premiums.

In 2007, the industry’s National Workers Compensation Reinsurance Pool and its administrator, the National Council on Compensation Insurance, sued AIG claiming it was due assessments lost because of under-reported premiums. But Judge Gettleman ruled that the pool itself did not have standing to bring the suit, leaving it up to insurers themselves to sue.

In response, AIG has alleged that three of its competitors in the suit — ACE, Hartford and Travelers — are themselves guilty of having under-reported in the past.

The seven insurers told the court last week that Safeco and Ohio Casualty should be allowed to pursue litigation on their own but that they and the other hundreds of insurance companies “should not be compelled to have their claims pursued through years of additional litigation when a fair compromise has been reached.”

In the court papers asking Gettleman to approve the deal, AIG and the seven insurers said that Safeco and Ohio Casualty Insurance “have done a fine job of prosecuting this lawsuit, and they would be fully qualified to continue the battle through verdict, judgment, and appeal. It is time, however, for this fight to end.”

But Safeco and Ohio Casualty maintain that the settlement is premature because it would end the litigation before the full extent of AIG’s wrongdoing has been revealed.

“The ‘settlement’ proposed by the seven intervenors and AIG is an act of self-interest and is detrimental to the 600-member class because it fails to consider previously undisclosed documented evidence of under-reporting that extends the scope and duration of the class’ claim,” their attorney, Gary M. Elden of the Chicago firm, Grippo & Elden, said in a statement to Insurance Journal.

He said the current discovery process, expected to take another 90 days, should be allowed to continue so that “AIG is held to account for the true extent of its under-reporting.”

Safeco and Ohio Casualty remain in the best position to represent the class of insurers in the matter, according Elden.

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