March 01, 2006
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
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 policyholder 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.
For more information, please contact:
James A. Riddle
Partner-Thelen LLP
415.369.7302
jriddle@thelenreid.com
Click here for more information about Thelen's Insurance Coverage Services.
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©2006 by Thelen LLP. This Client Alert is published as an information service for clients and friends. Please recognize that the information is general in nature and must not be relied upon as legal advice. The authors listed above or your Thelen contact would be pleased to discuss the information in this article and its application to your specific situation in greater detail. We welcome your comments and suggestions.
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Thelen LLP is a national law firm with more than 440 lawyers located in New York, San Francisco, Washington, D.C., Los Angeles, Silicon Valley and northern New Jersey. The firm provides superior legal services with a focus on complex commercial litigation; corporate and capital markets transactions; project and asset finance; construction; labor and employment; intellectual property; domestic and international tax; employee benefits; government affairs; and real estate. Thelen's client service philosophy emphasizes teamwork, collaboration and communications-values that are critical to a successful attorney-client relationship. Thelen is committed to recruiting, retaining and promoting attorneys and staff who reflect the diversity of its clients and surrounding communities. The firm is the proud recipient of the Defense Research Institute's (DRI) 2004 Commitment to Diversity Award, as well as the California Minority Counsel Program's 2005 Drucilla Stender Ramey Majority-Owned Law Firm Award, which is given annually to the CMCP majority-owned law firm member that has demonstrated the strongest commitment to diversity.
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