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AIG Loses Appeal of $500M Workers' Compensation Judgment

Source: Dow Jones

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Posted on 08 Jan 2010

A California appeals court this week ruled against American International Group Inc. (AIG) in a workers' compensation arbitration, holding AIG liable for around $517 million in California workers' compensation reinsurance coverage and interest.

California Insurance Commissioner Steve Poizner said Wednesday that the Circuit Court of Appeals upheld a 2007 arbitration award that called for AIG subsidiary U.S. Life Insurance Co. to pay on its reinsurance coverage for five California workers' compensation insurance companies that were liquidated in 2000.

The ruling is another setback for the troubled insurer, which was bailed out by the U.S. government, and which now must pay back billions in government support.

"We're reviewing the Ninth Circuit's decision and our possible responses to it," AIG spokesman Mark Herr said via email.

AIG had posted a $600 million bond as security against the decision, Poizner said in a press release, and interest will continue to accrue until the judgment is paid. As of Wednesday, the total due was around $517 million.

The original judgment against U.S. Life was in 2007. U.S. Life appealed, arguing that the insurers failed to disclose pertinent information regarding the adequacy of outstanding reserves for payment of claims, and exposing U.S. Life to losses. The Circuit Court ruling upholds the original judgment.


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