American International Group, Inc. (AIG), one of the world’s largest insurance conglomerates, has settled a variety of charges leveled against it by New York State and Federal Authorities. The widely anticipated settlement brings formal closure to lawsuits brought by the New York Attorney General (NYAG) and the New York Department of Insurance (NYDOI) alleging that AIG engaged in bid-rigging arising out of AIG’s "contingent commission" arrangements and excess steering with the Marsh & McLennan insurance brokerage, and AIG’s improper accounting of its workers’ compensation business. The settlement also resolves government allegations that AIG misstated losses and fabricated business transactions to prop up its stock value.
Filed and settled on the same day, the SEC complaint alleges that AIG deceived investors by misrepresenting several years of earnings, placing emphasis on AIG’s past dealing with General Reinsurance Corp., which AIG admits should not have been accounted for as reinsurance.
AIG admits its wrongdoing and has formally apologized for all its improper conduct, except wrongdoing alleged by the SEC. Apart from the payments due under the settlement, AIG has pledged to reform certain of its business practices, including the practice of paying "contingent commission" to brokers. The company will also be subject to special reinsurance reporting requirements and regulatory monitoring of financial reporting and corporate governance.
AIG is comprised of numerous "members," or subsidiary insurers. The settlement applies to all AIG subsidiaries, including Nation Union Fire Insurance Company and American International Specialty Lines Insurance Company, among others.
Payment to be Split Among Various Parties
- The $1.64 billion AIG is required to pay will be allocated to a number of different parties.
- $375 million will be earmarked for policyholders suffering harm due to AIG’s bid-rigging and excess casualty steering with Marsh & McLennan.
- $344 million will be placed in various state workers’ compensation funds—money AIG owes them resulting from misreported premiums.
- $800 million will be paid to investors misled by AIG’s accounting practices, $100 million of which is a fine that the SEC is donating to the investor fund. The SEC will be proposing a more specific plan to distribute the fund for the benefit of eligible investors.
- Finally, AIG will pay a $100 million fine to the State of New York and a $25 million fine to the Department of Justice.
Eligible Policyholders
Policyholders who purchased or renewed AIG excess casualty policies through Marsh & McLennan during the period from January 1, 2000 through September 30, 2004, are eligible to participate in the settlement. AIG is subject to strict deadlines with respect to the creation of the fund and calculating the amount due to each policyholder under a predetermined formula. Unclaimed funds will be distributed to participating policyholders on a pro rata basis.
Broad Policyholder Waiver
In order to participate in the settlement, policyholders are required to execute broad releases applying to any and all future claims that relate to, among other things, all NYAG allegations resolved by the settlement. Although participation is expected to be high, it may be advisable for some policyholders to opt out and seek relief in alternative forums.
What to Do
If you were an excess casualty policy holder with an AIG-related company between 2000 and 2004, it may be advisable to obtain and review all relevant records in advance of receiving notice of the claims submission period. Parties electing to participate in the settlements will be required to execute broad releases extinguishing their rights to pursue significant claims separately against AIG and related entities. Legal analysis of the scope and merits of separate claims may be necessary before policyholders and investors can make informed decisions whether to participate in the settlement.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.