AIG Faces Suit for Allegedly Underreporting WC Premiums

Wednesday, April 15, 2009 | 1

By Eugene F. Keefe

 
Synopsis: AIG gets whacked with multibillion-dollar lawsuit for undervaluing premiums paid in state workers' compensation pools.
 
Editors comment: Having already ponied up more than $170 billion to support AIG, will U.S. taxpayers have to pay for more of AIG's tomfoolery? In the last week, we noted the following claim hit the web:
 
SAFECO INSURANCE COMPANY OF AMERICA and OHIO CASUALTY INSURANCE COMPANY, individually, and on behalf of a class consisting of members of the National Workers' Compensation Reinsurance Pool vs. AMERICAN INTERNATIONAL GROUP INC., AIG CASUALTY COMPANY F/K/A BIRMINGHAM FIRE INSURANCE COMPANY OF PENNSYLVANIA, AIU INSURANCE COMPANY, AMERICAN HOME ASSURANCE COMPANY, AMERICAN INTERNATIONAL PACIFIC INSURANCE COMPANY F/K/A AMERICAN FIDELITY COMPANY, AMERICAN INTERNATIONAL SOUTH INSURANCE COMPANY F/K/A AMERICAN GLOBAL INSURANCE COMPANY, AMERICAN INTERNATIONAL SPECIALTY LINES INSURANCE COMPANY F/K/A ALASKA INSURANCE COMPANY, COMMERCE AND INDUSTRY INSURANCE COMPANY INC., GRANITE STATE INSURANCE COMPANY, ILLINOIS NATIONAL INSURANCE COMPANY, INSURANCE COMPANY OF THE STATE OF PENNSYLVANIA, NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, NEW HAMPSHIRE INDEMNITY COMPANY, NEW HAMPSHIRE INSURANCE COMPANY, THOMAS R. TIZZIO, JOSEPH C. SMETANA, and RICHARD L. THOMAS
 
This action allegedly arises out of the AIG defendants' long-term fraudulent underreporting of workers' compensation premium and evasion of related financial obligations to plaintiffs and the class. Plaintiffs brought this action individually and on behalf of all members of the National Workers Compensation Reinsurance Pool (NWCRP), other than AIG and the AIG companies, in their capacity as representative class members of the NWCRP.
 
The NWCRP was established in 1970 based on a concept that insurance companies writing workers' compensation insurance should be able to participate in an arrangement that equitably apportions the premium, losses and expenses arising from the residual, or assigned risk, workers' compensation insurance market.

In general terms, the residual market is comprised of employers who have been unable to get an insurer to voluntarily provide workers' compensation coverage, and coverage is assigned to a specific insurer who must provide coverage under rates and terms specified by law. Generally, the residual market system operates pursuant to a variety of state laws, regulations and contracts aimed at making workers' compensation insurance available to all employers and, using reinsurance and related mechanisms, provides an equitable premium-based apportioning of the losses associated with residual market workers' compensation policies.

This system is predicated on insurance companies acting honorably and truthfully in their disclosure of annual workers' compensation premium and other financial reporting. The NWCRP Class has filed the instant action to recover its damages from the AIG officers and to ensure that the members of the NWCRP have a means of recovering their damages resulting from AIGs underreporting from all of the AIG defendants should NCCI be found to lack standing or the issue of NCCIs standing remain subject to challenge by AIG.
 
In 2005, in the midst of federal and state investigations and ensuing enforcement action taken against AIG and the AIG companies for false financial reporting, bid-rigging and other unlawful conduct, it was disclosed the AIG defendants had engaged in a series of longstanding false premium reporting practices with the purpose and effect of evading state insurance taxes and residual market obligations.

The revelations from this investigation confirmed AIGs senior management, directed or caused wholly-owned and controlled AIG affiliates, to submit false and falsely certified financial statements and reports that deliberately underreported workers' compensation premium information.

These disclosures revealed AIG and the AIG companies had been intentionally issuing false statements and reports for decades in order to increase earnings and obtain other valuable benefits by understating the true amount of the workers' compensation premium written by the AIG affiliated companies. This false reporting activity rendered past and current public and other financial reporting for AIG and the AIG companies inaccurate and misleading.
 
Please note the above allegations are taken from the complaint filed in Federal Court in  Chicago . We have no idea if there is any accuracy or veracity to the allegations and it will all be subject to proof.
 

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 Eugene F. Keefe is a partner in the Chicago law firm of Keefe, Campbell & Associates.
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