Big Dig Insurer AIG to Pay $58 Million in Surplus Funds to Mass.

May 14, 2007

Massachusetts Attorney General Martha Coakley’s Office has reached a $58.5 million settlement with American International Group (AIG), the workers’ compensation carrier for the Central Artery Tunnel (CA/T) Project, known as the Big Dig.

Coakley said a review by her office found that the company failed to pay certain surplus funds to the Commonwealth as required under its contract. The $58.5 million settlement includes $26 million in losses to the state, plus interest. The recovered money, which represents 15 years of unpaid surplus funds, will be returned to the CA/T Project.

In the course of the attorney general’s investigation and negotiations, AIG agreed to pay a large portion of the funds immediately to help address the CA/T’s financial needs; AIG will pay the remainder of the settlement by May 22, according to Coakley.

“In a long term, multi-billion dollar project like the Big Dig, it is imperative that we maintain vigilant oversight of the finances to ensure that all parties are performing as agreed,” said Coakley. “The Attorney General’s Office will continue our review of the project’s expenses, and we remain committed to ensuring that the Commonwealth is not shortchanged.”

AIG was the worker’s compensation insurance carrier for the entire CA/T project.

The worker’s compensation insurance system in Massachusetts includes a “residual market” mechanism for insuring customers who have difficulty obtaining insurance in the open marketplace. This allows high risk employers, such as roofing and construction companies, to obtain insurance from a common pool of funding drawn from all insurers in the marketplace. Conceptually, payments for claims on high risk policies taken from that pool, and premiums for high risk employers are paid into the pool. When losses are lower than expected, and the pool has a surplus, the insurance companies make a profit.

As part of the agreement, the Commonwealth was required to reimburse AIG for any additional “residual market” loss attributable to the CA/T Project account. Similarly, AIG was required to pass through to the Commonwealth any residual market surplus attributable to the CA/T Project account. The attorney general’s review showed that AIG failed to charge the state or pass along surplus monies as agreed in the contract.

Source: Mass. Attorney General

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