AIG 2010 Annual Report Download - page 330

American International Group, Inc., and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of February 16, 2011, plaintiff has not specified an amount of alleged damages and the Court has not
determined whether it has jurisdiction or granted plaintiff’s application to file a statement of claim. As a result,
AIG is unable to reasonably estimate the possible loss or range of losses, if any, arising from the litigation.
Other Litigation Related to AIGFP
On September 30, 2009, Brookfield Asset Management, Inc. and Brysons International, Ltd. (together,
Brookfield) filed a complaint against AIG and AIGFP in the Southern District of New York. Brookfield seeks a
declaration that a 1990 interest rate swap agreement between Brookfield and AIGFP (guaranteed by AIG)
terminated upon the occurrence of certain alleged events that Brookfield contends constituted defaults under the
swap agreement’s standard ‘‘bankruptcy’’ default provision. Brookfield claims that it is excused from all future
payment obligations under the swap agreement on the basis of the purported termination. At December 31, 2010,
the estimated present value of expected future cash flows discounted at LIBOR was $1.3 billion, which represents
AIG’s maximum contractual loss from the alleged termination of the contract. It is AIG’s position that no
termination event has occurred and that the swap agreement remains in effect. A determination that a termination
event has occurred could result in AIG losing its entitlement to all future payments under the swap agreement
and result in a loss to AIG of the full value at which AIG is carrying the swap agreement.
A determination that AIG triggered a ‘‘bankruptcy’’ event of default under the swap agreement could also,
depending on the Court’s precise holding, affect other AIG or AIGFP agreements that contain the same or
similar default provisions. Such a determination could also affect derivative agreements or other contracts between
third parties, such as credit default swaps under which AIG is a reference credit, which could affect the trading
price of AIG securities.
On December 17, 2009 defendants filed a motion to dismiss. On September 28, 2010, the Court issued a
decision granting defendants’ motion in part and denying it in part, holding that the complaint: (i) failed to allege
that an event of default had occurred based upon defendants’ failure to pay or inability to pay debts as they
became due; but, (ii) sufficiently alleged that an event of default had occurred based upon other sections of the
swap agreement’s ‘‘bankruptcy’’ default provision. On January 26, 2011, Brookfield filed an amended complaint
that seeks to reassert, on the basis of additional factual allegations, the claims that were dismissed from the initial
complaint. On February 9, 2011, AIG filed a motion to dismiss the claim that Brookfield seeks to reassert in its
amended complaint.
Securities Lending Dispute with Transatlantic Holdings Inc.
On May 24, 2010, Transatlantic Holdings, Inc. (Transatlantic) and two of its subsidiaries, Transatlantic
Reinsurance Company and Trans Re Zurich Reinsurance Company Ltd. (collectively, Claimants), commenced an
arbitration proceeding before the American Arbitration Association in New York against AIG and two of its
subsidiaries (the AIG Respondents). Claimants allege breach of contract, breach of fiduciary duty, and common
law fraud in connection with certain securities lending agency agreements between AIG’s subsidiaries and
Claimants. Claimants allege that AIG and its subsidiaries should be liable for the losses that Claimants purport to
have suffered in connection with securities lending and investment activities, and seek damages of $350 million
and other unspecified damages.
On June 29, 2010, AIG brought a petition in the Supreme Court of the State of New York, seeking to enjoin
the arbitration on the ground that AIG is not a party to the securities lending agency agreements with Claimants.
On July 29, 2010, the parties agreed to resolve that petition by consolidating the arbitration commenced by
Claimants with a separate arbitration, commenced by AIG on June 29, 2010, in which AIG is seeking damages of
Euro 17.6 million ($23.5 million at the December 31, 2010 exchange rate) from Transatlantic for breach of a
Master Separation Agreement among Transatlantic, AIG and one of its subsidiary companies.
On September 13, 2010, the AIG Respondents submitted an answer to Claimants’ claims asserting, among other
things, that there was no breach of the securities lending agency agreements, and that Claimants’ other allegations
including purported breach of fiduciary duty and fraud are not meritorious. Transatlantic submitted an answer
314 AIG 2010 Form 10-K