Minn. Groups Sue AIG for $100 Million in Damages for Fraud, RICO Violations

July 19, 2007

The Minnesota Workers’ Compensation Reinsurance Association (WCRA) and the Minnesota Workers’ Compensation Insurers Association (MWCIA) filed suit Tuesday (July 17) against American International Group Inc. (AIG) to recover more than $100 million in damages for fraudulent actions and violations of the Federal Racketeer Influenced and Corrupt Organizations Act (RICO).

The WCRA is a nonprofit association created by the Minnesota Legislature in 1979 to supply reinsurance to all insurers and self-insurers in Minnesota. This reinsurance is used to pay catastrophic workers’ compensation claims to injured Minnesota workers. MWCIA is nonprofit corporation authorized under Minnesota law to collect workers’ compensation insurance information from all insurers in Minnesota and to supply ratemaking information to WCRA, state regulators and insurers.

In the complaint filed in United States District Court for the District of Minnesota, WCRA and MWCIA allege that AIG underreported its workers’ compensation premiums to MWCIA and WCRA for the last 22 years in order to avoid paying reinsurance premiums to WCRA and assessments to MWCIA that were computed based upon AIG’s reported premiums. The WCRA is seeking to recover underpaid reinsurance premiums from 1985 to present, plus the investment income the WCRA would have earned on those premiums. MWCIA is seeking to recover underpaid assessments due from AIG for this same period.

“We first became aware of AIG’s fraudulent reporting of workers’ compensation premium data to the WCRA and MWCIA in the spring of 2005,” according to WCRA President & CEO Carl W. Cummins III. Cummins obtained a copy of a memorandum written in 1992 by AIG’s former general counsel, as a result of the New York Attorney General’s investigation of AIG. That memorandum acknowledged that AIG’s workers’ compensation business was “permeated with illegality” and revealed that as a part of this illegal conduct, AIG was lowering reinsurance premiums due WCRA.

In a settlement with the State of New York in 2006, AIG agreed to pay $1.64 billion for fraudulent business practices including underpaying workers’ compensation premiums. However, the estimated $1.2 million reward that Minnesota would have received under that settlement did not provide compensation to WCRA or MWCIA for the damages they sustained as a result of AIG’s false reporting practices.

“We contacted the Minnesota Department of Commerce and the Minnesota Attorney General and, together with MWCIA and other affected Minnesota entities, entered into negotiations with AIG to settle this matter,” said Cummins. “After nearly two years of investigations and discussion, we concluded that AIG had underpaid millions of dollars in premiums, which caused us to lose millions more in investment returns. Unfortunately, we have also learned that AIG is unwilling to correct its misdeeds. The only remaining option to collect the money owed us was to sue AIG.”

The WCRA/MWCIA lawsuit against AIG is in addition to litigation by the Minnesota Attorney General to determine losses suffered by the Minnesota Department of Revenue, the Minnesota Insurance Guaranty Association and the Minnesota Assigned Risk Plan.

A copy of the WCRA/MWCIA complaint against AIG is available by contacting Cathy Kennedy at cathy@cathrynkennedy.com or 1-612-309-3951.

Source: Minnesota Workers’ Compensation Reinsurance Association

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