$450M Settlement Approved in AIG Compensation Class Action

This is a settlement for the American International Group lawsuit.

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Chicago, IL: American International Group Inc. has received final approval from a federal judge to pay a $450 million class-action settlement to a group of other insurers related to its alleged underreporting of workers compensation premiums.

U.S. District Judge Robert W. Gettleman issued a three-page order approving the settlement. "Finding that the settlement is fair, reasonable, and adequate, the court grants final approval of the settlement," the judge said in the order.

AIG and seven insurers supported the settlement. Those insurers 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. Liberty Mutual Group's two subsidiaries, Ohio Casualty and Safeco, had opposed the settlement.

The legal dispute centers on allegations that AIG intentionally underestimated its workers' comp premiums to avoid premium taxes and substantial residual market charges before 1996. In some states, from the mid-1980s to the mid-1990s, the residual market losses were greater than the residual market and voluntary market premium combined, so the more voluntary premium a company wrote, the more it had to pay out to cover its share of the residual market losses. That gave companies an incentive to under-report workers' comp claims, according to court papers.

The settlement is based on the assumption that AIG under-reported its workers' comp premiums before 1996 by $2.1 billion, the same amount that state regulators used to calculate a settlement in 2010. Liberty Mutual has maintained that $2.1 billion estimate is too low. "Liberty Mutual is disappointed -- but not surprised -- with the judge's order approving the settlement. Liberty Mutual will review the judge's final written order, and anticipates an appeal," said Richard Angevine, a spokesman for Liberty Mutual, in an email.

In August, the U.S. Court of Appeals for the Seventh Circuit denied Liberty Mutual's request to appeal the proposed $450 million settlement while the case is still ongoing. Liberty Mutual could still file an appeal down the road, and can still drop out of the settlement class to pursue a case against AIG on its own.

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