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Federal judge dismisses lawsuit against AIG

DES MOINES, Iowa — A federal judge has thrown out one lawsuit against American International Group Inc. alleging it defrauded about 600 workers compensation insurance companies but another case, which is seeking class-action status, will move forward.

The dismissed case was filed by the National Council On Compensation Insurance Inc. on behalf of about 600 insurance companies that are members of the National Workers Compensation Reinsurance Pool.

In an order filed Thursday in the Northern District of Illinois, Judge Robert W. Gettleman dismissed the case, saying the NCCI lacked standing to sue AIG.

He noted that the dismissal doesn't mean the end of the litigation.

Safeco Insurance Co. of America filed a lawsuit on April 14, which was reassigned to Gettleman because it is related to the NCCI case.

"The court will examine the viability of proceeding as a class action in due course," he wrote.

He ordered the parties to appear on Sept. 4 for a hearing on the Safeco case and other matters involving the litigation against New York-based AIG.

AIG spokeswoman Christina Pretto said Friday the company is pleased Gettleman dismissed the NCCI's case and plans to fight Safeco's class-action complaint, saying it's "deficient for several reasons, and AIG intends to seek dismissal of that case at the appropriate time."

AIG also has filed a counter lawsuit against several insurance companies claiming they too engaged in similar activities of underreporting workers compensation premiums and "AIG will continue to pursue those claims vigorously," she said.

A spokesman for NCCI did not immediately return calls seeking comment.

The roots of the dismissed case go as far back as 2005 when New York officials concluded that AIG had, over several decades, provided false reports of its workers compensation premiums to the NCCI and state tax authorities.

AIG issued a formal report detailing its unlawful conduct and acknowledged the unreported workers compensation premiums totaled between $300 million and $400 million annually, which gave AIG an unlawful benefit in the range of $60 million to $80 million or more a year.

The report admitted that AIG's reporting practices were unlawful and exposed it to civil liability and potential criminal prosecution.

AIG entered into settlement agreements in 2006 with several enforcement authorities, including a $1.6 billion settlement with New York and federal authorities.

The NCCI claimed that total damages to its member companies exceeded $1 billion and it sought fair compensation in the lawsuit, which it claimed the settlement did not accomplish.

The judge ruled the NCCI lacked legal standing to seek damages on behalf of the insurance companies.

Shares of AIG rose 85 cents, or 2.6 percent, to $33.15 in afternoon trading.