AIG 2012 Annual Report Download - page 316

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District of Illinois) against us with respect to the underpayment by AIG of its residual market assessments for
workers’ compensation insurance. The complaint alleged claims for violations of RICO, breach of contract, fraud and
related state law claims arising out of our alleged underpayment of these assessments between 1970 and the
present and sought damages purportedly in excess of $1 billion.
On April 1, 2009, Safeco Insurance Company of America (Safeco) and Ohio Casualty Insurance Company (Ohio
Casualty) filed a complaint in the Northern District of Illinois, on behalf of a purported class of all NWCRP participant
members, against AIG and certain of its subsidiaries with respect to the underpayment by AIG of its residual market
assessments for workers’ compensation insurance. The complaint was styled as an ‘‘alternative complaint,’’ should
the Northern District of Illinois grant our motion to dismiss the NCCI lawsuit for lack of subject-matter jurisdiction,
which motion to dismiss was ultimately granted on August 23, 2009. The allegations in the class action complaint are
substantially similar to those filed by the NWCRP.
On February 28, 2012, the Northern District of Illinois entered a final order and judgment approving a class action
settlement between us and a group of intervening plaintiffs, made up of seven participating members of the NWCRP,
which would require AIG to pay $450 million to satisfy all liabilities to the class members arising out of the workers’
compensation premium reporting issues, a portion of which would be funded out of the remaining amount held in the
Workers’ Compensation Fund. Liberty Mutual filed papers in opposition to approval of the proposed settlement and in
opposition to certification of a settlement class, in which it alleged our actual exposure, should the class action
continue through judgment, to be in excess of $3 billion. We dispute this allegation. Liberty Mutual and its
subsidiaries Safeco and Ohio Casualty subsequently appealed the Northern District of Illinois’ final order and
judgment to the United States Court of Appeals for the Seventh Circuit (the Seventh Circuit). On January 10, 2013,
AIG and Liberty Mutual entered into a settlement under which Liberty Mutual, Safeco and Ohio Casualty agreed
voluntarily to withdraw their appeals. In furtherance of such settlement, AIG, the Liberty Mutual parties and the
settlement class plaintiffs submitted an agreed stipulation of dismissal that is currently under review by the Seventh
Circuit.
The $450 million settlement amount, which is currently held in escrow pending final resolution of the class-action
settlement, was funded in part from the approximately $191 million remaining in the Workers’ Compensation Fund. In
the event that the settlement between AIG and Liberty Mutual is not approved, the appeal of the order and judgment
approving the class action settlement may resume. As of December 31, 2012, we had an accrued liability equal to
the amounts payable under the settlement.
Litigation Matters Relating to AIG’s Insurance Operations
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AIG and certain of its subsidiaries have been named defendants in two putative class actions in state
court in Alabama that arise out of the 1999 settlement of class and derivative litigation involving Caremark Rx, Inc.
(Caremark). The plaintiffs in the second-filed action intervened in the first-filed action, and the second-filed action was
dismissed. An excess policy issued by a subsidiary of AIG with respect to the 1999 litigation was expressly stated to
be without limit of liability. In the current actions, plaintiffs allege that the judge approving the 1999 settlement was
misled as to the extent of available insurance coverage and would not have approved the settlement had he known
of the existence and/or unlimited nature of the excess policy. They further allege that AIG, its subsidiaries, and
Caremark are liable for fraud and suppression for misrepresenting and/or concealing the nature and extent of
coverage.
The complaints filed by the plaintiffs and the intervenors request compensatory damages for the 1999 class in the
amount of $3.2 billion, plus punitive damages. AIG and its subsidiaries deny the allegations of fraud and suppression,
assert that information concerning the excess policy was publicly disclosed months prior to the approval of the
settlement, that the claims are barred by the statute of limitations, and that the statute cannot be tolled in light of the
public disclosure of the excess coverage. The plaintiffs and intervenors, in turn, have asserted that the disclosure
was insufficient to inform them of the nature of the coverage and did not start the running of the statute of limitations.
On August 15, 2012, the trial court entered an order granting plaintiffs’ motion for class certification. AIG and the
other defendants have appealed that order to the Alabama Supreme Court, and the case in the trial court will be
stayed until that appeal is resolved. General discovery has not commenced and AIG is unable to reasonably estimate
the possible loss or range of losses, if any, arising from the litigation.
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AIG 2012 Form 10-K 299
Caremark.
ITEM 8 / NOTE 16. CONTINGENCIES, COMMITMENTS AND GUARANTEES