AIG Settles Workers Comp Case with Insurers Except Liberty

In a major development involving long-running workers’ compensation litigation, American International Group Inc. has reached a $450 million settlement with seven of the insurers involved.

However, the settlement does not include units of Boston-based Liberty Mutual Insurance Group, which has sought class-action status and plans to continue pursuing the litigation.

The legal fight began in 2007 when the National Workers Compensation Reinsurance Pool operated by Boca Raton, Florida-based NCCI Holdings Inc. first sued New York-based AIG.

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

Since then, U.S. District Court Judge Robert Gettleman, who has been presiding over the case, dismissed the pool as plaintiff based on AIG’s objection, but the litigation continued. AIG also sued competitors, arguing they underreported workers’ compensation premiums.

Under the proposed settlement dated Jan. 5, AIG will pay $450 million, but that would be decreased by the amount put in escrow under the Spitzer settlement plus any interest earned in the meantime.

The proposed settlement stipulates that the agreement would not be affected even if Liberty Mutual units Safeco Insurance Co. of America and Ohio Casualty Insurance Co. opt out.

Court papers state that “it has become clear” that Safeco and Ohio Casualty “cannot adequately represent the absent class members in settling this matter with AIG on fair and reasonable terms at this time due to very different business judgments about the wisdom of continued litigation as opposed to settlement.”

The insurers “therefore respectfully request that they be permitted to intervene … in order to represent their own interests and to serve as settlement class representatives, in order to effectuate a global settlement of these claims with AIG,” according to court documents.

The attorney for Safeco and Ohio Casualty, Gary Elden of Chicago-based Grippo & Elden, said in a written statement that the settlement agreement is an “act of self-interest” by AIG and the settling insurers “and is detrimental to the 600-member class because it fails to consider previously undisclosed documented evidence of underreporting that extends the scope and duration of the classes’ claim.

“The current discovery process, which will be completed in stages within the next 60 and 150 days, should be allowed to proceed uninterrupted so AIG’s held to account for the true extent of its underreporting,” Elden said in the statement.

“Ohio Casualty and Safeco, class representatives, stepped forward 20 months ago to make certain that AIG adequately addresses the systemic practice of underreporting of workers’ compensation premiums when no one else would, and they remain in the best position to adequately represent the class and prosecute” the litigation, he said.

The seven insurers who agreed to the settlement are ACE INA Holdings Inc., Auto-Owners Insurance Co., Companion Property & Casualty Insurance Co., Firstcomp Insurance Co., Hartford Financial Services Group Inc., Technology Insurance Co. and Travelers Indemnity Co. The insurers’ lawyer declined comment.

An AIG spokesman said: “It is unfortunate that Liberty is refusing to participate in this fair and reasonable settlement. As the seven other settling insurers have recognized in seeking to intervene in the action, Liberty’s preference to continue litigating is not in the best interests of the class members.”

In a separate but related development, AIG in December reached a $100 million settlement with state insurance regulators on the same issue.  

Filed by Judy Greenwald of Business Insurance, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.

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