Monday, August 31, 2009

AIG Workers Comp Fraud Case To Enter Next Stage


Attorneys will be in federal court in Chicago on Monday to discuss management of a prospective class-action for more than 500 insurers, which accuses American International Group of civil racketeering and fraud.

The case--so complex that a judge said it may take an actuarial expert to unsnarl it--stems from the revelation in 2005 that AIG “for several decades” filed fraudulent reports to avoid the financial impact of taking on its proportionate share of the National Workers’ Compensation Reinsurance Pool (NWCRP).

According to the suit brought by Safeco Insurance Company of America and Ohio Casualty Insurance Company, as a result of AIG’s fraud, they and other insurers participating in the assigned risk pool lost hundreds of millions because of the additional liabilities they had to take on.

The Safeco suit alleges that AIG, despite admitting past illegal activity, has currently engaged in “efforts to substitute new false statements…in furtherance of the AIG defendants’ fraudulent schemes.”

AIG for its part has countersued, claiming other insurers have engaged in false reporting to the pool. The company’s lawyer said he will file a motion contesting any decision to give the suit class-action status.

U.S. District Court Judge Robert W. Gettleman had put a stay on the Safeco action while he dealt with a previous suit by the National Council on Compensation Insurance, Inc. on behalf of insurers in the pool.

He removed the stay on Aug. 20 when he ruled that NCCI lacked standing to bring a case because the insurers in the pool had not given NCCI legal title to their claims against AIG.

His ruling recounted the history of the case, which was sparked by a New York State investigation finding “several decades” of AIG false reporting of its workers’ comp premiums that are the basis for setting a company’s proportionate share of the NWCRP.

AIG reached a $1.6 billion settlement with New York and federal authorities in 2006. Part of that amount involved $42 million to various states and $301 million that was to go to “those victimized,” but according to Safeco, AIG has “yet to make a full and complete restitution for the financial injury caused to the class.”

Judge Gettleman, who is due to meet with the lawyers for Safeco and AIG Monday to set a schedule for arguments, mentioned to the attorneys last week the possibility of having an expert oversee matters.

According to the transcript, the judge commented that “AIG has conceded that it did engage in this conduct. The other issue seems to be whether the other folks [insurers] engaged in this conduct as well. There is a lot of wiggle room there.”

He added that “somewhere down the line, my guess is if we uphold the notion of similar conduct, there would be a Special Master appointed or something like that to sort this all out, some actuary type, something like that, if we could find one without a conflict, which might not be easy.”

Gary Elden, an attorney for Safeco, told the judge that he intends to file a motion amending the company’s complaint, which in addition to AIG companies lists as defendants Thomas R. Tizzo (retired AIG president), Richard L. Thomas (an AIG senior vice president) and Joseph Smetlana (former president and chair of AIG Risk Management), who is called the creator of the false reporting scheme.

Maurice R. Greenberg, AIG’s former CEO and chair--who the complaint says was part of management that directed the false reporting--is not listed as a defendant.

“What I’m saying is that there may not be a class-action case, and therefore nothing needs to be discovered,” Stephen Novack, the attorney representing AIG, said after the judge noted that Safeco would be filing for class certification.

“Well, that hasn’t yet been decided,” the judge responded.

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