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AIG to Pay $146 Million Workers’ Compensation Settlement to the States

American International Group (AIG) agreed to pay state regulators $100 million in fines and $46.4 million in premium taxes and assessments. The company is guilty of misreporting workers’ compensation premiums from 1985 to 1996, hiding at least $2.12 billion, by attributing it to other lines of insurance and thereby lowering its assessments and taxes.

“AIG systematically underreported workers’ compensation insurance premium by putting this premium into the general liability or commercial automobile liability categories. The practical effect of this misreporting was to report premium in lines of business with lower residual market obligations or premium tax rates and assessments.” said Kevin McCarthy, president of the National Association of Insurance Commissioners (NAIC).

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All states and the District of Columbia participated in the examination. Florida was one of the lead states conducting the examinations and the probes built on previous inquiries by the attorney general of New York in 2006 as well as officials in Indiana, Minnesota and Rhode Island. Massachusetts is slated to receive $3.4 million in fines and penalties alone.

Before the settlement could take effect, AIG had to reconcile a $450 million class-action settlement with some of AIG’s competitors that suffered losses due to its underreporting. The companies contested that the underreporting of premiums forced them to pay higher than necessary assessments to fund different markets around the country. Hartford Financial Services Group, Travelers Indemnity, Technology Insurance, ACE Ina Holdings, Auto-Owners Insurance Co., Companion Property & Casualty Insurance Co., and Firstcomp Insurance Co. were some of the companies that participated in that lawsuit. Another lawsuit called for AIG to pay out $25 million to several insurance guaranty associations around the country, and this settlement also went into effect before the recent one with the states.

Liberty Mutual was also a party to the lawsuit that settled for $450 million, but has filed an appeal because they are disappointed with the amount and believe that it should b e increased. The court based it’s calculation on the presumption that AIG underreported $2.1 billion in premiums, but Liberty Mutual believes that AIG has underreported more than $6 billion in business, which could dramatically change the settlement amount.

“Liberty Mutual remains committed to making sure that AIG is held accountable for knowingly under reporting workers compensation premiums to various insurance pools for more than two decades. The settlement was negotiated by conflicted parties and is unfair because it based $2.1 billion in under reported premium, far less than the $6 billion in actual amount uncovered in the litigation,” said Rich Angevine, a Liberty Mutual spokesperson.

Pulgini & Norton, LLP attorneys have handled workers’ compensation claims for over 25 years in and around Boston and its surrounding areas. If you or a family member has been injured at work and would like to seek legal assistance, please contact us.

Cited Sources:

States Collecting on $146 Million AIG Workers’ Comp Settlement, Insurance Journal, June 5, 2012

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