Liberty Mutual Group has filed an appeal of the $450 million class-action settlement with American International Group Inc. and a group of workers' compensation writers. The settlement would resolve AIG's alleged under-reporting of workers' comp premiums.
In March, U.S. District Judge Robert W. Gettleman issued a 39-page order approving the settlement, which he had initially approved in December. Liberty Mutual said at the time it would continue to fight the settlement.
AIG and seven insurers supported the settlement. Those insurers are Ace Ina Holdings Inc., Auto-Owners Insurance Co., Companion Property & Casualty Insurance Co., Firstcomp Insurance Co., Hartford Financial Services Group Inc., Technology Insurance Co. and Travelers Indemnity Co.
Liberty Mutual Group and two subsidiaries, Ohio Casualty and Safeco, had opposed the settlement. According to court papers filed earlier this month,
Liberty Mutual's companies argue the court should not have certified the class settlement because the companies involved had conflicts of interest.
Those companies had been being countersued by AIG, but AIG offered to drop the case if they agreed to the settlement.
Ace, Hartford, Travelers and Companion "had different goals in settlement than a majority of the class," according to court papers. "While class members were interested in maximizing recovery from AIG, [Ace, Hartford, Travelers and Companion] had a conflicting interest to avoid their own liability to AIG and the class at no cost to themselves," Safeco said in its appeal.
Also, the settlement itself is inadequate, the Liberty Mutual companies said.
"The settlement was based on $2.1 billion in under-reported premiums, far less than the $6 billion in actual amount uncovered in the litigation," Rich Angevine, a spokesman for Liberty Mutual, said in an email.
Liberty Mutual "remains committed to ensuring that AIG is held to fully account for knowingly under-reporting workers' compensation premiums for more than two decades to various insurance pools," he said.
Jim Ankner, a spokesman for AIG, said in an email it's "unfortunate that Liberty Mutual continues to be the only party trying to derail a settlement that has been approved as fair and reasonable by a federal court, and is supported by over 500 insurance company class members and the insurance regulators of every state."
The legal dispute centers on allegations that AIG intentionally underestimated its workers' comp premiums to avoid premium taxes and substantial residual market charges before 1996. In some states, from the mid-1980s to the mid-1990s, the residual market losses were greater than the residual market and voluntary market premium combined, so the more voluntary premium a company wrote, the more it had to pay out to cover its share of the residual market losses. That gave companies an incentive to under-report workers' comp claims, according to court papers (Best's News Service, Aug. 23, 2011).
The settlement is based on the assumption that AIG under-reported its workers' comp premiums before 1996 by $2.1 billion, the same amount that state regulators used to calculate a settlement in 2010. Liberty Mutual has maintained that $2.1 billion estimate is too low.
The case was originally filed in the U.S. District Court for the Northern District of Illinois Eastern Division, and the appeal is now before the U.S. Court of Appeals for the Seventh Circuit.
Liberty Mutual Insurance Cos. and members of AIG currently have a Best's Financial Strength Rating of A (Excellent). Shares of AIG were trading at $32.07 on the afternoon of June 29, up 3.99% from the previous close.