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Appeals court orders AIG subsidiary to pay $500 million for workers' comp claims
A subsidiary of American International Group must pay more than $500 million in claims of workers injured on the job, a federal appeals court ruled today.
The ruling by the U.S. 9th Circuit Court of Appeals upheld an arbitration award requiring U.S. Life Insurance Co. to pay reinsurance of more than $500 million to Superior National Insurance Companies, state insurance regulators said.
"Upholding this award means that that hundreds of millions of dollars will be available to pay the claims of workers injured on the job through the California Insurance Guarantee Association and other guarantee associations," California Insurance Commissioner Steve Poizner said.
U.S. Life is a subsidiary of AIG and was a reinsurer for five California workers' compensation insurance companies that were liquidated in 2000.
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U.S. Life argued that Superior National and its affiliates failed to disclose to U.S. Life all pertinent information regarding the solvency of its outstanding reserves for payment of claims, and exposing U.S. Life to substantial losses.
In June 2007, a Los Angeles federal judge ruled against U.S. Life for $443,515,724. U.S. Life subsequently appealed to the 9th Circuit, which upheld the original judgment.
Although the court upheld the judgment, U.S. Life still may seek to file a motion to reconsider, Poizner said.
Given that this appeal relates to the affirmation of an arbitration award, it is unlikely the appeals court will grant further review, Poizner said.
Poizner said that at no time were people in the workers' compensation system at risk of not being paid.
The California Insurance Guarantee Association has been paying the claims of injured workers whose policies were reinsured by U.S. Life. Once the money is collected from U.S. Life or from the $600 million bond AIG posted as security, it will be distributed to CIGA and other guaranty associations, Poizner said.
CIGA will receive about 90 percent of the final amount, Poizner said.
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