| Copyright: | (c) 2011 A.M. Best Company, Inc. |
| Source: | A.M. Best Company, Inc. |
| Wordcount: | 664 |
A proposed $450 million settlement between American International Group and rival workers' compensation insurers is a fair deal that should stand despite Liberty Mutual Group's efforts to "torpedo" it, AIG said in a new court filing.
Without the deal, the long-standing dispute over accusations that AIG underreported workers' comp premiums for years could drag out for a long time to come, AIG argued. AIG attorneys attacked Liberty Mutual Group -- whose subsidiaries Ohio Casualty and Safeco are parties to the dispute -- saying it misrepresented its own role in negotiations. Liberty Mutual has no right to object to the settlement of the federal class-action lawsuit, they argued in the filing in U.S. District Court for the Northern District of Illinois.
"Through rhetoric, innuendo and downright false accusations of impropriety, the Liberty objectors attempt to torpedo a proposed global settlement of this massive dispute that is the result of countless hours of good-faith, arms-length negotiations over the past three years," AIG said.
Seven insurers who have signed on to the settlement also sided with AIG in their own filing. Liberty Mutual should get out of the way, they argued. This group is composed of 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 settlement class plaintiffs are a diverse group ... that are knowledgeable, sophisticated and engaged in the issues in this case," they said, noting they have considered "many competing views on the value of the litigation ... in deciding whether, and for what amount, to settle the class action."
Liberty Mutual sees the proposed settlement as "in AIG's self-interest and the interest of several intervenors, but ... detrimental to the class of over 500 insurance companies victimized by AIG's admitted wrongdoing," Liberty Mutual said in an April statement (BestWire, April 29, 2011). Liberty Mutual argues AIG's underreporting is $6.1 billion, nearly three times the amount the regulators' settlement is based on, according to court papers.
U.S. District Court Judge Robert Gettleman is scheduled to hold a hearing later this month.
The legal dispute is centered on allegations that AIG lowballed its workers' comp premiums to dodge premium taxes and substantial residual market charges. In some states, from the mid-1980s to the mid-1990s, there were years when the residual market losses were greater than the residual market premium and voluntary market premium combined: the more voluntary premium a company wrote, the more it had to pay out to cover its share of the residual market losses. The proposed settlement is based on the assumption that AIG underreported its workers' comp premiums before 1996 by $2.1 billion, the same amount that state regulators used to calculate a settlement late last year (BestWire, April 29, 2011).
In the settlement with state regulators, AIG agreed to pay $100 million in fines, plus $46.5 million in taxes and assessments, to insurance regulators in all 50 states and the District of Columbia for under-reporting its workers' comp premiums before 1996 (BestWire, Dec. 23, 2010).
The state regulators' examination, which lasted just less than three years, followed yet another related settlement agreement between AIG and New York State, under which AIG agreed to pay a total of $1.64 billion to resolve investigations into its workers' comp premium taxes (BestWire, Feb. 9, 2006).
Attempts to reach Liberty Mutual Group for comment were unsuccessful.
Auto-Owners Insurance Group currently has a Best's Financial Strength Rating of A++ (Superior). Ace INA Insurance and Travelers Group currently have Best's Financial Strength Ratings of A+ (Superior). Liberty Mutual Insurance Cos., Hartford Insurance Pool, Companion Property and Casualty Group, Technology Insurance Co. and members of AIG currently have a Best's Financial Strength Rating of A (Excellent). Firstcomp Insurance Co. currently has a Best's Financial Strength Rating of B++ (Good).
Shares of AIG stock were trading at $27.40 on the morning of June 7, up 0.62% from the previous close.
(By Sean P. Carr, Washington Bureau Manager: mailto:sean.carr@ambest.com)
