A federal judge in Chicago yesterday threw out the suit filed in 2007 by the National Council on Compensation Insurance Inc., saying the group lacked standing to sue New York-based AIG on behalf of 600 insurers in its National Workers Compensation Reinsurance Pool.

In most states, firms that sell compensation insurance must also fund pools that serve as insurers of last resort to cover on-the-job injuries at companies where the jobs pose unattractive risks. The judge, citing a 2008 Supreme Court ruling involving Sprint Nextel Corp., said the council couldn’t seek damages on behalf of its members and hadn’t sought to prove that it had been harmed by AIG.

“Merely assigning a case to an attorney to prosecute the claim does not confer standing on the attorney,” U.S. District Judge Robert Gettleman wrote in the decision. “While it may be possible to plead and prove a claim that NCCI and the pool suffered harm as a consequence of AIG’s underreporting, that is not the claim presently before the court.”

The judge didn’t rule on the council’s claim that AIG had underpaid the workers’ compensation funds for more than three decades, or on an AIG allegation from 2008 that its rivals, including Liberty Mutual Group Inc., Hartford Financial Services Group Inc. and Travelers Cos., had also duped regulators.

‘Vigorous’ Pursuit

“AIG is pleased with the decision dismissing the complaint,” spokeswoman Christina Pretto said. “AIG’s claims against those participating companies that engaged in underreporting of workers’ compensation premium were unaffected by the court’s decision, and AIG will continue to pursue those claims vigorously.”

AIG agreed in 2006 to fund a $301 million program after then-New York Attorney General Eliot Spitzer accused AIG of underreporting premiums used to calculate contributions.

The settlement fund covers underpayment from 1985 to 1996. The national group, representing insurers in 40 states, said AIG underpaid for 35 years and estimated the fund was owed more than $1 billion. AIG also agreed in 2006 to pay about $42 million in taxes related to workers’ compensation.

A separate lawsuit, reassigned to Gettleman in April, is seeking class-action status for members of the workers’ compensation pool. The case had been stayed pending the judge’s ruling on the earlier case. “The court will examine the viability of proceeding as a class action in due course,” Gettleman wrote yesterday.

‘Admitted Wrongdoing’

“These claims will continue to be prosecuted as a class action or in another form to remedy AIG’s admitted wrongdoing, to obtain a full and fair accounting by AIG, and to pursue all other available remedies,” said Pete Wentz, a spokesman for the board of the reinsurance pool.

The case is National Council on Compensation Insurance Inc., for the participating companies of the National Workers Compensation Reinsurance Pool v. American International Group Inc., 1:07C-2898, U.S. District Court, Northern District of Illinois (Chicago).

To contact the reporter on this story: Erik Holm in New York at eholm2@bloomberg.net.

This article was published today by Bloomberg and recopied from: http://www.bloomberg.com/apps/news?pid=20601103&sid=arD0141Q6P2M