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California Regulator Says AIG Owes $517 Million in Reinsurance

Posted on 07 Jan 2010

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California Insurance Commissioner Steve Poizner says American International Group owes reinsurance of more than $527 million to liquidated workers' compensation insurers following a court ruling.

The U.S. Court of Appeals in San Francisco upheld an award against AIG’s U.S Life Insurance Co, the reinsurer for five California workers’ compensation insurers, according to Bloomberg. The news outlet said in an e-mailed statement, Poizer noted that U.S. Life claimed the insurers did not disclose pertinent information adequacy of reserves for claims payments.

Poizner told Bloomberg “upholding this award means that hundreds of millions of dollars will be available to pay the claims of workers injured on the job through the California Guarantee Association and other guarantee associations.”

According to the decision in the 9th U.S. District Court of Appeals in San Francisco, U.S. Life contractually agreed to reinsure the workers’ compensation risks insured by the five companies between May 1, 1998, and Jan. 1, 2003, with the contract featuring an arbitration provision.

In 2007, a U.S. District Court entered a judgment of $443 million against the AIG subsidiary and with interest, that judgment now totals more than $517 million, Poizner said.

The appeals court ruled that the arbitration panel used in the dispute did not violate the Federal Arbitration Act and that the process used by the panel was “unusual,” but “provided the parties with a fundamentally fair arbitration and that the arbitration award rested on a plausible interpretation of the governing arbitration documents.”

The five insurers, who went into bankruptcy and under liquidation through Poizner’s office were referred to as Superior National Insurance Companies in Liquidation (SNICIL).