AIG 2007 Annual Report Download - page 228

American International Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements Continued
February 5, 2008, following agreement of the parties, the court
12. Commitments, Contingencies and
entered an order staying all proceedings through March 3, 2008.
Guarantees
In addition, a similar lawsuit filed by the Minnesota Workers
Continued
Compensation Reinsurance Association and the Minnesota Work-
Act. On November 28, 2006, the court issued an order certifying ers Compensation Insurers Association is pending. On August 6,
a class of providers and hospitals. In an unrelated action also 2007, AIG moved to dismiss the complaint and that motion is sub
arising under the Act, a Louisiana appellate court ruled that the judice. A purported class action was filed in South Carolina
district court lacked jurisdiction to adjudicate the claims at issue. Federal Court on January 25, 2008 against AIG and certain of its
In response, defendants in Gunderson filed an exception for lack subsidiaries, on behalf of a class of employers that obtained
of subject matter jurisdiction. On January 19, 2007, the court workers compensation insurance from AIG companies and alleg-
denied the motion, holding that it has jurisdiction over the putative edly paid inflated premiums as a result of AIG’s alleged underre-
class claims. The AIG subsidiary has appealed the class certifica- porting of workers compensation premiums. AIG cannot currently
tion and jurisdictional rulings. While the appeal was pending, the estimate whether the amount ultimately required to settle these
AIG subsidiary settled the lawsuit. On January 25, 2008, plaintiffs claims will exceed the funds escrowed or otherwise accrued for
and the AIG subsidiary agreed to resolve the lawsuit on a class- this purpose. AIG has settled litigation that was filed by the
wide basis for approximately $29 million. The court has prelimina- Minnesota Attorney General with respect to claims by the
rily approved the settlement and will hold a final approval hearing Minnesota Department of Revenue and the Minnesota Special
on May 29, 2008. In the event that the settlement is not finally Compensation Fund.
approved, AIG believes that it has meritorious defenses to The National Association of Insurance Commissioners has
plaintiffs’ claims and expects that the ultimate resolution of this formed a Market Analysis Working Group directed by the State of
matter will not have a material adverse effect on AIG’s consoli- Indiana, which has commenced its own investigation into the
dated financial condition or results of operations for any period. underreporting of workers compensation premium. In early 2008,
2006 Regulatory Settlements. In February 2006, AIG reached AIG was informed that the Market Analysis Working Group had
a resolution of claims and matters under investigation with the been disbanded in favor of a multi-state targeted market conduct
United States Department of Justice (DOJ), the Securities and exam focusing on worker’s compensation insurance.
Exchange Commission (SEC), the Office of the New York Attorney The remaining escrowed funds, which amounted to $17 million
General (NYAG) and the New York State Department of Insurance at December 31, 2007, are set aside for settlements for certain
(DOI). AIG recorded an after-tax charge of $1.15 billion relating to specified AIG policyholders. As of February 20, 2008, eligible
these settlements in the fourth quarter of 2005. policyholders entitled to receive approximately $359 million (or
The settlements resolved investigations conducted by the SEC, 95 percent) of the excess casualty fund had opted to receive
NYAG and DOI in connection with the accounting, financial settlement payments in exchange for releasing AIG and its
reporting and insurance brokerage practices of AIG and its subsidiaries from liability relating to certain insurance brokerage
subsidiaries, as well as claims relating to the underpayment of practices. Amounts remaining in the excess casualty fund may be
certain workers compensation premium taxes and other assess- used by AIG to settle claims from other policyholders relating to
ments. These settlements did not, however, resolve investigations such practices through February 29, 2008 (originally set for
by regulators from other states into insurance brokerage practices January 31, 2008 and later extended), after which they will be
related to contingent commissions and other broker-related con- distributed pro rata to participating policyholders.
duct, such as alleged bid rigging. Nor did the settlements resolve In addition to the escrowed funds, $800 million was deposited
any obligations that AIG may have to state guarantee funds in into a fund under the supervision of the SEC as part of the
connection with any of these matters. settlements to be available to resolve claims asserted against AIG
As a result of these settlements, AIG made payments or by investors, including the shareholder lawsuits described herein.
placed amounts in escrow in 2006 totaling approximately Also, as part of the settlements, AIG agreed to retain, for a
$1.64 billion, $225 million of which represented fines and period of three years, an independent consultant to conduct a
penalties. Amounts held in escrow totaling $347 million, including review that will include, among other things, the adequacy of AIG’s
interest thereon, are included in other assets at December 31, internal control over financial reporting, the policies, procedures
2007. At that date, approximately $330 million of the funds were and effectiveness of AIG’s regulatory, compliance and legal
escrowed for settlement of claims resulting from the underpay- functions and the remediation plan that AIG has implemented as
ment by AIG of its residual market assessments for workers a result of its own internal review.
compensation. On May 24, 2007, The National Workers Compen- Other than as described above, at the current time, AIG cannot
sation Reinsurance Pool, on behalf of its participant members, predict the outcome of the matters described above, or estimate
filed a lawsuit against AIG with respect to the underpayment of any potential additional costs related to these matters.
such assessments. On August 6, 2007, the court denied AIG’s
motion seeking to dismiss or stay the complaint based on Private Litigation
Colorado River abstention or forum non conveniens, or in the Securities Actions. Beginning in October 2004, a number of
alternative, to transfer to the Southern District of New York. On putative securities fraud class action suits were filed against AIG
December 26, 2007, the court denied AIG’s motion to dismiss and consolidated as In re American International Group, Inc.
the complaint. AIG filed its answer on January 22, 2008. On
174 AIG 2007 Form 10-K