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National Council on Compensation Insurance, Inc. v. American International Group

August 20, 2009

NATIONAL COUNCIL ON COMPENSATION INSURANCE, INC., SOLELY AS ATTORNEY-IN-FACT FOR THE PARTICIPATING COMPANIES OF THE NATIONAL WORKERS COMPENSATION REINSURANCE POOL, PLAINTIFF,
v.
AMERICAN INTERNATIONAL GROUP, INC., AIG CASUALTY COMPANY F/K/A BIRMINGHAM FIRE INSURANCE COMPANY OF PENNSYLVANIA, AIU INSURANCE COMPANY, AMERICAN HOME ASSURANCE COMPANY, AMERICAN INTERNATIONAL PACIFIC INSURANCE COMPANY F/K/A AMERICAN FIDELITY COMPANY, AMERICAN INTERNATIONAL SOUTH INSURANCE COMPANY F/K/A AMERICAN GLOBAL INSURANCE COMPANY, AMERICAN INTERNATIONAL SPECIALTY LINES INSURANCE COMPANY F/K/A ALASKA INSURANCE COMPANY, COMMERCE AND INDUSTRY INSURANCE COMPANY, INC., GRANITE STATE INSURANCE COMPANY, ILLINOIS NATIONAL INSURANCE COMPANY, INSURANCE COMPANY OF THE STATE OF PENNSYLVANIA, NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, NEW HAMPSHIRE INDEMNITY COMPANY, AND NEW HAMPSHIRE INSURANCE COMPANY, DEFENDANTS.



The opinion of the court was delivered by: Robert W. Gettleman United States District Judge

Judge Robert W. Gettleman

MEMORANDUM OPINION AND ORDER

Plaintiff National Council on Compensation Insurance, Inc. ("NCCI"), solely as attorney-in-fact for the participating companies of the National Workers Compensation Reinsurance Pool ("the Pool"),*fn1 has brought an eight-count complaint against defendants American International Group, Inc. ("AIG Inc.") and its affiliates and subsidiaries, AIG Casualty Company f/k/a Birmingham Fire Insurance Company of Pennsylvania, AIU Insurance Company, American Home Assurance Company, American International Pacific Insurance Company f/k/a American Fidelity Company, American International South Insurance Company f/k/a American Global Insurance Company, American International Specialty Lines Insurance Company f/k/a Alaska Insurance Company, Commerce and Industry Insurance Company, Inc., Granite State Insurance Company, Illinois National Insurance Company, Insurance Company of the State of Pennsylvania, National Union Fire Insurance Company of Pittsburgh, New Hampshire Indemnity Company, and New Hampshire Insurance Company (collectively "AIG").

The complaint alleges that AIG has committed a massive fraud against the Pool and its member workers compensation insurance companies, and asserts claims under the Racketeer Influenced and Corrupt Organization's Act ("RICO"), 18 U.S.C. § 1966 et seq., and other doctrines, seeking an accounting, damages, and other relief. In its answer to the complaint, AIG raised numerous defenses, all of which were either voluntarily withdrawn or dismissed by the court in its February 23, 2009, Memorandum Opinion and Order. AIG also filed counterclaims for an equitable accounting and an action on an open, current, and mutual account, both of which survived NCCI's motion to dismiss. Additionally, AIG filed a twelve count third-party complaint against twenty-four named companies and numerous unnamed companies. Of the original third-party claims, only four remain.

AIG has filed the instant motion to dismiss for lack of subject matter jurisdiction pursuant to Rules 12(b)(1), 12(g)(2), and 12(h)(3). Because this court finds that NCCI does not have standing to pursue this action, AIG's motion is granted.

FACTS*fn2

All states require employers to provide workers compensation insurance for their employees. Most employers find insurers willing to provide them with coverage; these employers participate in what is known as the "voluntary market" for workers compensation insurance. Insurers that provide coverage to the voluntary market are also required to provide coverage to the "residual market" -- the market for employers who cannot obtain coverage on the voluntary market -- through a state's assigned risk plan. Under that plan, the amount of insurance an insurer is required to provide to the residual market is directly proportional to the amount of premiums it collects for the policies it writes for the voluntary market.

The National Workers Compensation Reinsurance Pool ("the Pool") is an unincorporated association active in more than forty states. Established in 1970, the Pool provides insurance companies with a means of complying with their residual market requirements. The Pool is organized and governed by the Articles of Agreement ("the Agreement"), a contract to which all participating insurers ("Participating Companies") have agreed and are signatories. The Agreement provides that NCCI, a statistical, research, and ratemaking not-for-profit corporation, is the administrator of the Pool, and is responsible for a variety of functions related to fulfilling the purpose of the Pool. As administrator, NCCI "executes the quota share reinsurance contracts on behalf of the participating companies . . . performs all accounting, actuarial, and administrative functions for those agreements including data collection and billing." It also administers bank accounts for the Pool and the Participating Companies, and functions as the attorney-in-fact for each Participating Company.*fn3

NCCI's primary role is to calculate the "reinsurance participation rate" for each Participating Company using premium data from the annual certified financial reports filed by each company. These rates reflect each company's proportional share of the residual market on a a state-by-state and policy-year-by-policy-year basis. A company's annual reinsurance participation rate is the ratio of the amount of voluntary market workers compensation premiums billed by that company (numerator) to the total amount of workers compensation premiums billed in the voluntary market by all Participating Companies (denominator). Consequently, any company that underreports its premiums to NCCI decreases its reinsurance participation rate and the overall total used to calculate all the rates.

In 2005 a New York state investigation revealed that AIG had, over several decades, provided false reports of its workers compensation premiums to NCCI and state tax authorities to evade its residual market obligations. That investigation resulted in a formal report issued by AIG detailing its unlawful conduct and determining that the unreported workers compensation premiums totaled between $300 million and $400 million annually and gave AIG "an unlawful benefit in the range of $60-80 million or more annually." The report admitted that AIG's reporting practices were unlawful and exposed it to civil liability and potential criminal prosecution.

In 2006 AIG entered into settlement agreements with several enforcement authorities, including a $1.6 billion settlement with New York and federal authorities. The Participating Companies did not believe that the settlement agreements offered full and fair restitution. According to NCCI, total damages exceed $1 billion. For that reason, the Pool has refused to allow any state to tender a release on its behalf, which precludes those states from participating in the settlement fund.

On May 24, 2007, NCCI filed the instant suit based on injury caused to the Participating Companies as a result of AIG's alleged underreporting of its premium data. The caption of the complaint lists only NCCI, "solely as Attorney-In-Fact for the participating companies of the National Workers Compensation Reinsurance Pool," as plaintiff. As noted in footnote 1 above, on December 11, 2007, Magistrate Judge Schenkier, in the context of a discovery dispute, held that both NCCI and the Pool are plaintiffs in this case, although the individual members of the Pool are not. This court adopted that holding in its February 23, 2009, Memorandum Opinion and Order, because the issue was not briefed for the motions pending at that time. The court now revisits this issue on the merits because it is central to the instant motion.*fn4

DISCUSSION

Standard of Review

The threshold requirement for bringing a suit in federal court is that the plaintiff present a case or controversy between him- or itself and the defendant within the meaning of Article III of the U.S. Constitution. See Warth v. Seldin, 422 U.S. 490, 498, 45 L.Ed. 2d 343, 95 S.Ct. 2197 (1975). A central element in the case-or-controversy requirement is that the plaintiff have standing to bring the suit. See Lujan v. Defenders of Wildlife, 504 U.S. 555, 560, 119 L.Ed. 2d 351, 112 S.Ct. 2130 (1992). To possess standing, a plaintiff must show three things: (1) that it personally has suffered some actual or threatened injury as a result of the putatively illegal conduct of the defendant; (2) that the injury fairly can be traced to the challenged action; and (3) that the injury is likely to be redressed by a favorable decision in the suit. Lujan, 504 U.S. at 560-61; see Valley Forge Christian College v. Americans United For Separation of Church ...


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