(CN) - A $450 million settlement against AIG received final approval from a federal judge, resolving claims that the insurance giant hurt rivals by fraudulently reporting workers' compensation premiums.
American International Group is a multinational insurance corporation and the 29th largest public company in the world. In a massive class action, more than 20 competitors claimed that AIG and its subsidiaries fraudulently underreported workers' compensation premiums.
All states require employers to provide workers' compensation insurance for their employees. Most employers find insurers that are willing to provide coverage on the "voluntary market," but others must find insurance on the "residual market." Insurers must provide coverage to the residual market in proportion to their sales on the voluntary market.
A nonprofit organization, the National Council on Compensation Insurance, manages insurance companies' compliance with the residual market requirements. It collects premium data from all participating companies, and calculates a company's residual market participation based on the percent of workers' compensation premiums it billed in the total voluntary market.
By allegedly underreporting its workers' compensations premiums, the class said AIG both decreased its residual participation rate and the overall total used to calculate all the rates.
U.S. District Judge Robert Gettleman certified a settlement class in July 2011 and granted preliminary approval to a $450 million settlement fund. But three class members - Liberty Mutual and two subsidiaries, Safeco and Ohio Casualty - objected to the settlement.
Gettleman dismissing the objections last week and entered a final approval of the settlement.
Liberty's objection was "specific to one class member and is contrary to the interests of the rest of the class," the 39-page decision states. Likewise, the subsidiaries' claim that the settlement was a product of collusion, granting preferential treatment to certain plaintiffs, is "baseless," Gettleman wrote.
Nevertheless, he granted Safeco and Ohio Casualty's motion for $14.8 million in attorneys' fees. "Safeco and Ohio zealously litigated this case on behalf of the class," he wrote. "Their work preserved the class's claims against potential statute of limitations defenses. They defeated AIG's motion to dismiss on all but one claim. It would be unfair to allow the class to benefit from Safeco and Ohio's efforts without reimbursing their out-of-pocket fees and expenses in litigating on behalf of the class."
Liberty, however, cannot collect any fees for work it performed after "May 8, 2010, when Liberty attended an unauthorized meeting with AIG in breach of a written agreement."
This meeting "effectively ensured that the class could never extract more than $450 million in settlement," Gettleman wrote. "Nonetheless, without Liberty's prosecution of the claims now advanced by Settlement Class Plaintiffs, those claims would now be time-barred."
The final order granted Liberty $2 million in legal fees, half of what it requested.
AIG also entered into a regulatory settlement agreement with the states, stipulating that it will pay $100 million in penalties and $46.5 million in back taxes. It has also promised to reform how it reports workers' compensation premiums.