State regulators around the country are finally collecting their share of a multimillion dollar settlement reached with American International Group (AIG) that was agreed to in 2010. The settlement was based on the company’s misreporting of workers’ compensation premiums for the years 1985 to 1996. In December 2010, AIG agreed to pay state regulators a total of $100 million in fines and another $46.4 million in premium taxes and assessments after a multistate probe begun in 2008 found the insurer hid at least $2.12 billion in workers’ compensation premiums by attributing the money to other lines of insurance and thereby lowering its assessments and taxes. Florida Insurance Commissioner Kevin McCarty, representing the states as president of the National Association of Insurance Commissioners (NAIC), stated:
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.
Florida was one of the lead states conducting the examination along with Delaware, Indiana, Massachusetts, Minnesota, New York, Pennsylvania and Rhode Island. All states and the District of Columbia participated. There had been previous examinations by New York’s Attorney General in 2006 and officials in Indiana, Minnesota and Rhode Island. These examinations helped the Plaintiffs build their case in the latest filing.
Florida’s share of the settlement will be $5.6 million in fines and penalties with an additional $8.7 million being split among several state agencies. The agencies include the state’s Division of Workers’ Compensation and the Florida Workers’ Compensation Insurance Fund. Pennsylvania Insurance Commissioner Michael Consedine said that his state will collect more than $16.8 million including $8.6 million in fines, $4.6 million in premium taxes and assessments, and $3.6 million to the Workers’ Compensation Security Fund. Other states receiving payments include California, which will receive $15.6 million in fines and penalties; Texas will receive $12.8 million; Illinois will get $3.7 million; Massachusetts will get $3.4 million; New Jersey will receive $3.3 million; and Michigan will get $3.2 million.
A federal judge approved the settlement with the states in December 2010. But before the settlement could take effect, AIG had to resolve several other outstanding conditions. One was a $450 million settlement with some of AIG’s competitors over residual market levies. That settlement was reached in February. Another condition called for AIG to pay out $25 million to several insurance guaranty associations around the country. This settlement took effect on May 30th.
In February of this year, a federal judge formally approved the $450 million class-action settlement with several of AIG’s rivals hurt by its underreporting. The companies charged AIG’s underreporting of premium forced them to pay higher than required assessments to fund different residual 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 among the companies in that suit.
While Liberty Mutual was also a party to that class action, it has expressed disappointment with the $450 million settlement amount and filed an appeal, hoping to get more. The $450 million is based on the court’s calculation that AIG underreported $2.1 billion in premiums. But Liberty Mutual claims AIG should be held accountable for underreporting more than $6 billion in business. Rich Angevine, spokesperson for Liberty Mutual, made this statement:
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.
It will be interesting to see if Liberty Mutual will be successful on its appeal. But in any event, it’s good to see the states finally being paid in their settlement, which won’t be affected by Liberty Mutual’s appeal.
Source: Insurance Journal
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