AIG 2006 Annual Report Download - page 194

American International Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements Continued
that the defendants violated the Sherman Antitrust Act, RICO, the
12. Commitments, Contingencies and
antitrust laws of 48 states and the District of Columbia, and are
Guarantees
liable under common law breach of fiduciary duty and unjust
Continued
enrichment theories. Plaintiffs seek treble damages plus interest
Under the terms of a stipulation approved by the Court on and attorneys’ fees as a result of the alleged RICO and Sherman
February 16, 2006, the claims against the outside independent Act violations.
directors were dismissed with prejudice, while the claims against The plaintiffs in the Employee Benefits Complaint are nine
the other directors were dismissed without prejudice. On Octo- individual employees and corporate and municipal employers
ber 31, 2005, Messrs. Greenberg, Matthews and Smith, SICO and alleging claims on behalf of two separate nationwide purported
Starr filed motions to dismiss the amended complaint. In an classes: an employee class and an employer class that acquired
opinion dated June 21, 2006, the Court denied defendants’ insurance products from the defendants from August 26, 1994 to
motion to dismiss, except with respect to plaintiff’s challenge to the date of any class certification. The Employee Benefits
payments made to Starr before January 1, 2000. On July 21, Complaint names AIG, as well as eleven brokers and five other
2006, plaintiff filed its second amended complaint, which alleges insurers, as defendants. The activities alleged in the Employee
that, between January 1, 2000 and May 31, 2005, individual Benefits Complaint, with certain exceptions, track the allegations
defendants breached their duty of loyalty by causing AIG to enter of contingent commissions, bid-rigging and tying made in the
into contracts with Starr and SICO and breached their fiduciary Commercial Complaint.
duties by usurping AIG’s corporate opportunity. Starr is charged On October 3, 2006, Judge Hochberg of the District of New
with aiding and abetting breaches of fiduciary duty and unjust Jersey reserved in part and denied in part motions filed by the
enrichment for its acceptance of the fees. SICO is no longer insurer defendants and broker defendants to dismiss the multi-
named as a defendant. Discovery is currently ongoing. district litigation. The Court also ordered the plaintiffs in both
Policyholder Actions. After the NYAG filed its complaint against actions to file supplemental statements of par ticularity to elabo-
insurance broker Marsh, policyholders brought multiple federal rate on the allegations in their complaints. Plaintiffs filed their
antitrust and Racketeer Influenced and Corrupt Organizations Act supplemental statements on October 25, 2006, and the AIG
(RICO) class actions in jurisdictions across the nation against defendants, along with other insurer and broker defendants in the
insurers and brokers, including AIG and a number of its subsidiar- two consolidated actions, filed renewed motions to dismiss on
ies, alleging that the insurers and brokers engaged in a broad November 30, 2006. Briefing has been completed on the renewed
conspiracy to allocate customers, steer business, and rig bids. motions to dismiss, as well as plaintiffs’ motion for class
These actions, including 18 complaints filed in different federal certification in both cases. On February 16, 2007, Chief Judge
courts naming AIG or an AIG subsidiary as a defendant, were Brown of the District of New Jersey transferred the multi-district
consolidated by the judicial panel on multi-district litigation and litigation to himself. Oral argument on the renewed motions to
transferred to the United States District Court for the District of dismiss has been scheduled before Chief Judge Brown on
New Jersey for coordinated pretrial proceedings. The consolidated March 1, 2007. Fact discovery in the multi-district litigation
actions have proceeded in that court in two parallel actions, In re proceeding is ongoing.
Insurance Brokerage Antitrust Litigation (the Commercial Com- A number of complaints making allegations similar to those in
plaint) and In re Employee Benefit Insurance Brokerage Antitrust the Commercial Complaint have been filed against AIG and other
Litigation (the Employee Benefits Complaint, and together with the defendants in state and federal courts around the country. The
Commercial Complaint, the multi-district litigation). defendants have thus far been successful in having the federal
The plaintiffs in the Commercial Complaint are nineteen actions transferred to the District of New Jersey and consolidated
corporations, individuals and public entities that contracted with into the multi-district litigation. The AIG defendants have also
the broker defendants for the provision of insurance brokerage sought to have state court actions making similar allegations
services for a variety of insurance needs. The broker defendants stayed pending resolution of the multi-district litigation proceeding.
are alleged to have placed insurance coverage on the plaintiffs’ In one state court action pending in Florida, the trial court recently
behalf with a number of insurance companies named as defend- decided not to grant an additional stay, but instead to allow the
ants, including AIG subsidiaries. The Commercial Complaint also case to proceed.
named ten brokers and fourteen other insurers (one of which has Litigation Relating to 21st Century. Shortly after the announce-
since settled) as defendants. The Commercial Complaint alleges ment in late January 2007 of AIG’s offer to acquire the
that defendants engaged in a widespread conspiracy to allocate outstanding shares of 21st Century not already owned by AIG and
customers through ‘‘bid-rigging’’ and ‘‘steering’’ practices. The its subsidiaries, two related class actions were filed in the
Commercial Complaint also alleges that the insurer defendants Superior Court of California, Los Angeles County, against AIG,
permitted brokers to place business with AIG subsidiaries through 21st Century, and the individual members of 21st Century’s
wholesale intermediaries affiliated with or owned by those same Board of Directors, two of whom are current executive officers of
brokers rather than placing the business with AIG subsidiaries AIG. The actions were filed purportedly on behalf of the minority
directly. Finally, the Commercial Complaint alleges that the insurer shareholders of 21st Century and assert breaches of fiduciary
defendants entered into agreements with broker defendants that duty in connection with the AIG proposal. The complaints allege
tied insurance placements to reinsurance placements in order to that the proposed per share price is unfair and seek preliminary
provide additional compensation to each broker. Plaintiffs assert
144 AIG 2006 Form 10-K