AIG 2014 Annual Report Download - page 306

ITEM 8 / NOTE 16. CONTINGENCIES, COMMITMENTS AND GUARANTEES
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damages allegedly sustained by the United States as well as interest, attorneys’ fees, costs and expenses. The complaint and
the first amended complaint were initially filed and maintained under seal while the United States considered whether to
intervene in the action. On or about April 28, 2011, after the United States declined to intervene, the District Court lifted the
seal, and Relators served the first amended complaint on AIG on July 11, 2011. On April 19, 2013, the Court granted AIG’s
motion to dismiss, dismissing the first amended complaint in its entirety, without prejudice, giving the Relators the opportunity
to file a second amended complaint. On May 24, 2013, the Relators filed a second amended complaint, which attempted to
plead the same claims as the prior complaints and did not specify an amount of alleged damages. AIG and its co-defendants
filed motions to dismiss the second amended complaint on August 9, 2013. On March 29, 2014, the Court dismissed the
second amended complaint with prejudice. On April 30, 2014, the Relators filed a Notice of Appeal to the Ninth Circuit. We are
unable to reasonably estimate the possible loss or range of losses, if any, arising from the litigation.
Litigation Matters Relating to AIG’s Insurance Operations
Caremark. 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, and on September 12,
2014, the Alabama Supreme Court affirmed that order. AIG and the other defendants have petitioned for rehearing of that
decision. Absent further review of the class certification order, the matter will return to the trial court for general discovery
(which has not yet commenced) and adjudication of the merits. AIG is unable to reasonably estimate the possible loss or range
of losses, if any, arising from the litigation.
Regulatory and Related Matters
In April 2007, the National Association of Insurance Commissioners (NAIC) formed a Settlement Review Working Group,
directed by the State of Indiana, to review the Workers’ Compensation Residual Market Assessment portion of the settlement
between AIG, the Office of the New York Attorney General, and the New York State Department of Insurance. In late 2007,
the Settlement Review Working Group, under the direction of Indiana, Minnesota and Rhode Island, recommended that a
multi-state targeted market conduct examination focusing on workers’ compensation insurance be commenced under the
direction of the NAIC’s Market Analysis Working Group. AIG was informed of the multi-state targeted market conduct
examination in January 2008. The lead states in the multi-state examination were Delaware, Florida, Indiana, Massachusetts,
Minnesota, New York, Pennsylvania and Rhode Island. All other states (and the District of Columbia) agreed to participate in
the multi-state examination. The examination focused on legacy issues related to certain AIG entities’ writing and reporting of
workers compensation insurance between 1985 and 1996.
On December 17, 2010, AIG and the lead states reached an agreement to settle all regulatory liabilities arising out of the
subjects of the multistate examination. This regulatory settlement agreement, which was agreed to by all 50 states and the
District of Columbia, included, among other terms, (i) AIG’s payment of $100 million in regulatory fines and penalties; (ii) AIG’s
payment of $46.5 million in outstanding premium taxes and assessments; (iii) AIG’s agreement to enter into a compliance plan
describing agreed-upon specific steps and standards for evaluating AIG’s ongoing compliance with state regulations governing
the setting of workers’ compensation insurance premium rates and the reporting of workers compensation premiums; and (iv)
AIG’s agreement to pay up to $150 million in contingent fines in the event that AIG fails to comply substantially with the