Small Businesses Sue AIG Over Workers’ Compensation Insurance Scheme

Lawsuits in California, New York, New Jersey Allege Decades-Long AIG Fraud

Small businesses in California, New York and New Jersey this week initiated coordinated class action lawsuits in federal courts on both coasts against American International Group (“AIG”), its subsidiary companies and former CEO Maurice Greenberg alleging unfair business practices, fraud and violations of the federal racketeering statutes.

The businesses allege that for approximately four decades beginning in the 1970s, AIG engaged in a sophisticated scheme to misreport the amount of workers’ compensation premiums it collected in each state, thereby causing insured employers to pay more in certain workers’ compensation fees than they otherwise would have paid.  By making it appear less money was collected in workers’ compensation premiums in these states, AIG caused regulators, through no fault of their own, to assess artificially inflated fees on insured employers for certain state-mandated workers’ compensation programs.

Attorneys for the businesses estimate AIG saved hundreds of millions of dollars in workers’ compensation fees and premium taxes and cheated insured employers out of hundreds of millions of dollars, which could have gone back into the economy to create or preserve jobs.  According to the complaint, this underreporting went on for decades, and – although AIG has paid almost $150 million in fines, taxes and assessments to various states and has agreed to pay $450 million to resolve litigation brought by other insurance carriers – it has never compensated the many small businesses and other insured employers who were for decades defrauded into paying inflated workers compensation fees and surcharges.  These are the first lawsuits brought on behalf of those businesses.

“AIG has resolved a significant amount, but not all, of its liability for this brazen scheme,” said Derek Brandt, an attorney with the Simmons Hanly Conroy representing the plaintiffs. “Our clients have not been reimbursed for the money they were cheated out of and we look forward to recovering that money for them.”

Adds co-counsel Drew Pomerance and Nicholas Roxborough, “We seek justice for the thousands of insured businesses who were damaged for years and years by AIG’s fraudulent and deceptive practices.”

The plaintiffs are represented by Brandt and Deborah Rosenthal of Simmons Browder Gianaris Angelides and Barnerd LLC, based in Alton, Illinois and San Francisco, California; Nicholas P. Roxborough and Drew E. Pomerance of Roxborough, Pomerance, Nye & Adreani based in Los Angeles, California; and Andrea Bierstein and Thomas Sheridan of Hanly Conroy Bierstein Sheridan Fisher & Hayes, LLP in New York City.

Franjo, Inc. and DMS Facility Services, Inc., et al. v. American International Group, Inc., et al., U.S. District Court for the Northern District of California, No. CV 13 4685 JCS; Jayarvee, Inc., d/b/a Birdland, and tmg-emedia, Inc. v. American International Group, Inc., et al., U.S. District Court for the Southern District of New York, No. 13-cv-7137; and JPS Collision, Inc. v. American International Group, Inc., et al., U.S. District Court for the District of New Jersey, No. 2:13-cv-05990-JLL-MAH.