Minnesota Associations Sue AIG for $100 Million in Damages for Fraud, RICO Violations

Compensation Sought for Underpaid Workers' Compensation Premiums,

Investment Income

    SAINT PAUL, Minn., July 19 /PRNewswire/ -- The Minnesota Workers'
 Compensation Reinsurance Association (WCRA) and the Minnesota Workers'
 Compensation Insurers Association (MWCIA) filed suit Tuesday 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