No suit for you: Judge throws out $1B case against AIG

Insurer is cleared of claims that it caused fraudulent underpayments of workers’ comp

Aug 24, 2009 @ 10:28 am

By Darla Mercado

A federal judge in Chicago last week threw out a $1 billion lawsuit that accused AIG of committing fraud against insurance carriers in a workers’ compensation pool.

In 2007, the National Council on Compensation Insurance Inc. sued New York-based American International Group Inc. and a slate of its affiliates on the behalf of hundreds of insurers that participate in the National Workers Compensation Reinsurance Pool.

The Boca Raton, Fla.-based NCCI, a provider of workers’ compensation data, is the administrator of the workers compensation pool.

The suit was filed in the U.S. District Court for the Northern District of Illinois, Eastern Division.

In most states, carriers that sell workers’ compensation are required to contribute money to a pool for employees who are unable to be insured on the open market. The amount of money participating carriers pay into the pool is based on their premium data, so if a company underreports its premiums, it pays less money.

In his opinion, U.S. District Judge Robert Gettleman cited a New York state investigation in 2005 that revealed that AIG had falsely reported its workers compensation premiums to the NCCI over several decades. That finding led to the carrier releasing a report stating that it had unreported premiums by $300 million to $400 million annually, giving the insurer $60 million to $80 million each year in unlawful benefits, according to the judge’s opinion.

A year later, AIG settled with enforcement authorities, including a $1.6 billion settlement with federal and New York authorities.

The NCCI, asserting that those payments didn’t provide full restitution, filed suit against AIG in 2007, asserting that the participating carriers in the pool had been harmed because of AIG’s alleged underreported premiums

The judge found that the NCCI doesn’t have standing to sue AIG for injuries that only the participating carriers in the pool allegedly suffered.

However, he did note that the participating companies do have standing to bring claims against AIG.

The judge noted that such a case — Safeco Insurance Company of America v. AIG — which was filed individually and on the behalf of fund participants, will be examined by the court for viability as a class-action suit in due course. Safeco Insurance is based in Seattle.

“AIG is pleased with the decision dismissing the complaint filed by NCCI on behalf of the participating companies of the NWCRP, and believes that the court’s opinion speaks for itself,” AIG spokeswoman Christina Pretto wrote in an e-mail.

The carrier also plans to fight for dismissal of the class-action suit when the time is right. “AIG believes that the class-action complaint filed by certain NWCRP participating companies is deficient for several reasons, and AIG intends to seek dismissal of that case at the appropriate time,” Ms. Pretto wrote.

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