CHICAGO (CN) – A federal judge approved a $450 million settlement between AIG and scores of insurance firms harmed by its underreporting of premiums, over objections by some class plaintiffs.
According to judgments dating back to 2009, American International Group (AIG) spent decades underreporting billions of dollars in workers compensation premiums. This enabled the multibillion-dollar insurance giant to reduce its share of the residual workers compensation market.
The overall effect was to increase the market costs of the other members of the National Workers Compensation Reimbursement Pool, who filed suit to stop the practice.
In January 2008, the National Association of Insurance Commissioners (NAIC) became involved in the proceedings, examining AIG’s conduct from 1985 on.
After years of negotiations, the association arrived at a final settlement figure of $450 million to be allocated to members of the pool. AIG also agreed to pay $100 million in penalties plus approximately $47 million in back taxes and assessments, and to reform its workers compensation reporting.
As part of the settlement, recipients of the payouts and AIG agreed to sign mutual releases preventing one another from making any further claims regarding this matter post-settlement.
However, two original class plaintiffs against AIG – Safeco Insurance Company and Ohio Casualty Insurance Company – strongly objected to the proposed settlement and sought new class certification.
The two argued that the releases pool members labored under were a conflict of interest, because the releases did not benefit certain insurance companies who AIG itself accused of underreporting premiums.
In response, the other plaintiffs requested that they be certified as a class and that the court grant preliminary approval of the settlement.
In last week’s opinion, U.S. District Judge Robert Gettleman sided against Ohio Casualty and Safeco.
The alleged under reporters “did not act improperly in negotiating global, mutual releases of all underreporting claims.” Rather, the releases benefited all members of the pool.
“Moreover, no legal authority supports the position that a putative class representative who is dismissing its counterclaims is conflicted,” the court continued.
Safeco and Ohio Casualty also claimed that certain pool members low-balled the settlement figure in order to convince AIG to release its claims against them.
The judge threw out these claims, holding that “the negotiations leading up to the proposed settlement do not demonstrate collusion, a reverse auction, self-dealing, or any of the other faults” alleged by Safeco and Ohio Casualty.
Gettleman approved the settlement figure as well.
“Extensive discovery has undisputedly been completed, and the court has been presented with volumes of argument, declarations, and exhibits,” he noted.”It is clear that if litigation proceeds, resolution will take years,” Gettleman wrote.
“Given the complex nature of the claims, legal fees are astronomical, and recovery is far from certain. No more detail is required for the court to find at this stage that, compared to the strength of the case, the settlement figure is fair, adequate, and reasonable,” he concluded.