Judge Rejects $1 Billion Workers’ Compensation Suit Against AIG

A federal judge has dismissed a lawsuit alleging American International Group Inc. underreported workers’ compensation premiums over several decades in order to underpay residual market assessments.

The National Workers Compensation Reinsurance pool, which ultimately is operated by Boca Raton, Florida-based NCCI Holdings Inc., brought the suit that sought more than $1 billion in damages. Hundreds of insurers, many of them AIG rivals, participate in the pool.

The pool argued that it was excluded from a 2007 settlement in which AIG agreed to pay states more than $300 million to settle allegations that it underreported workers’ comp premiums over several decades.

Residual market assessments are calculated as a percentage of an insurer’s premiums written in a state. The pool alleged that AIG underreported comp premiums to avoid paying its full share to the residual market, which covers hard-to-place risks.

The NCCI suit alleged violations of the Racketeer Influenced and Corrupt Organizations Act, among other allegations.

But on Thursday, August 20, a federal judge in Chicago ruled that both the pool and NCCI lacked standing to sue on behalf of pool members, said Michael Carlinsky, an attorney at Quinn Emanuel Urquhart Oliver & Hedges representing AIG.

The dismissal of the pool’s lawsuit, however, does not end the litigation, according to a pool spokesman. The federal judge in Chicago still is considering the fate of a separate class-action lawsuit brought by the pool members against AIG.

Meanwhile, a counter-complaint that AIG filed in response to the pool suit continues to move forward, Carlinsky said. AIG’s suit alleges that pool members also underpaid residual market assessments to states.

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

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