The parties agreed to release each other from all claims, including any claims by Greenberg and Smith against AIG for indemnification of future legal fees and expenses or settlement costs.
They also agreed to submit to an independent third party Greenberg's and Smith's claims for past legal fees and expenses, up to $150 million, to decide how much of that money AIG is required to pay.
"The resolution of these long-running disputes will remove a significant distraction and expense and allow AIG to better focus its efforts on paying back taxpayers and restoring the value of our franchise for the benefit of all our stakeholders," Robert Benmosche, AIG's chief executive, said in a statement.
Greenberg said he's looking forward to helping AIG "preserve and restore as much value as possible for all of AIG's stakeholders."
The agreement also covers C.V. Starr & Co. and Starr International Company Inc., private companies headed by Greenberg that were previously affiliated with AIG.
The legal scuffles began after Greenberg was ousted by AIG's board in the wake of a 2005 accounting scandal in which the insurer falsely inflated its reserves, making it look financially stronger than it actually was. Read about Greenberg's departure.
Three years later, AIG almost collapsed under the weight of derivative-based guarantees it sold on complex mortgage-related securities. The company was bailed out by the government, which committed more than $150 billion to the effort. AIG is now roughly 80% owned by taxpayers.