$1 Billion Suit Against AIG Over Workers' Compensation Dismissed

American International Group Inc. won dismissal of a federal lawsuit accusing the troubled insurer of fraudulently shortchanging state workers' compensation pools out of more than $1 billion.

However, Thursday's ruling by Judge Robert Gettleman of the U.S. District Court in Chicago does not absolve AIG of potential claims by insurers that take part in such pools.

Many are pursuing claims in a separate lawsuit that seeks class-action status and which Gettleman is also overseeing.

In Thursday's ruling, the judge said the National Council on Compensation Insurance Inc. lacked standing to sue New York-based AIG on behalf of several hundred insurers in its National Workers Compensation Reinsurance Pool.

Many states require firms that sell workers compensation insurance to also fund pools to cover injuries for workers at companies that cannot obtain coverage on the open market, in some cases because their jobs are too risky.

The judge, citing a New York state investigation and an internal AIG probe, said the insurer had for several decades understated workers compensation premiums to evade required payments, resulting in at least $60 million of unlawful annual benefits.

Gettleman said, though, that while NCCI claimed to rely on AIG's false reports in administrating the pool, it did not allege that the company's actions harmed it or the pool.

The judge added, however: "There is no dispute that the pool's members -- the participating companies -- have standing to bring claims separately against AIG."

Gettleman previously put the case seeking class-action status on hold, and said he will rule on that request "in due course."

AIG spokeswoman Christina Pretto said the insurer was pleased with Thursday's ruling.

The company is trying to sell assets to repay the government, which owns a nearly 80 percent stake, after roughly $180 billion of federal bailouts in the last year.

Pete Wentz, a spokesman for the board of the National Workers Compensation Reinsurance Pool, said the insurers plan to keep pursuing their claims "to remedy AIG's admitted wrongdoing (and) to obtain a full and fair accounting by AIG."

AIG shares were up 6.3 percent at $34.33 in morning New York Stock Exchange trading.

The case is National Council on Compensation Insurance Inc. v. American International Group Inc. et al, U.S. District Court, Northern District of Illinois (Chicago), No. 07-2898.