Risk Management

Mass. Digs Up $59 Million from AIG in Missing Funds

The workers' compensation insurer on the Big Dig project settles with the state.
Laura DeMarsMay 15, 2007

After unearthing missing funds that workers’ compensation insurer AIG had failed to pay the state, Massachusetts Attorney General Martha Coakley has reached a settlement with the insurer under which it will pay $58.5 million related the Big Dig project, according to a statement released by the attorney general’s office on Monday.

The money represents 15 years of unpaid surplus funds which the insurer had contracted to return to the state. The total includes $26 million in losses plus interest. AIG, the state’s workers’ comp carrier for the project, has already paid a large portion of the funds back to the state, according to Coakley. The company is expected to return the rest by May 22.”We are pleased to resolve this matter,” said company spokesperson Joseph Norton, adding that the funds have already been set aside and reflected in the insurer’s financial statements.

The missing funds were found when Coakley launched an investigation into the finances of the Big Dig, a traffic tunnel development project that has spanned more than 15 years and cost the state more than $14 billion, according to the attorney general’s office.

The state’s worker’s comp insurance system includes a “residual market” mechanism for insuring employers that have difficulty obtaining insurance in the open market, mainly those with high-injury risks, says a release from the attorney general’s office on the matter. Under the system, premiums are paid into the pool and payments to injured workers are paid out of the pool. Any surplus is profit for the insurer. Under AIG’s contract with Massachusetts, the insurer was required to return the surplus.

This isn’t the first time that AIG has come under fire for its practices concerning the Massachusetts workers’ comp plan. In 1999 an investigation found that the state overpaid on its plan by $128.9 million. But instead of returning the funds, AIG was allowed to invest them in a trust fund.