Disability Law

AIG Escapes Liability for WC Insurance Fraud - For Now

By David A. McCranie, Esq.

A federal judge in Illinois has ruled that NCCI has no standing to sue AIG for its alleged under-reporting of workers' compensation insurance premiums.  But, said the judge, he isn't ruling out the possibility of a class action lawsuit against AIG by individual insurers. Here's a condensed explanation of what happened:

Most employers satisfy their obligation to provide workers' compensation insurance coverage for their employees through the purchase of insurance in the "voluntary market" - that is, by finding an insurer which is willing to write the policy.  But some employers - usually because of a poor loss history - are unable to find insurers willing to undertake that risk.  Those employers must purchase their insurance through the "residual market."  Insurers that write insurance in the "voluntary market" are required to participate in the "residual market."  And the amount of insurance that an insurer is required to provide to the "residual market" is directly proportional to the amount of premiums it collects in the "voluntary market."

NCCI administers a re-insurance pool which provides a means for insurers to comply with their residual market requirements.  In this case, NCCI alleged that AIG had deliberately under-reported the amount of premiums which it collected in the voluntary market, thus evading its obligations to the residual market.

The judge dismissed the suit, but not because of a ruling on the merits.  Rather, the court just said that NCCI had no standing to bring the suit in its name.  The ruling leaves open the possibility of a class action suit by the individual insurers which were harmed by AIG's fraud.  Bloombeg.com has the story here; ABC News has the story here.  And here's a copy of Judge Gettleman's August 20 order dismissing the suit.

Full post as published by Florida Workers’ Compensation Law Blog on August 24, 2009 (boomark / email).