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A group of 18 insurers is suing American International Group and bankrupt fronting company Trenwick America Reinsurance Corp. for allegedly scheming to collect as much as $73 million in what the insurers claim are “grossly inflated” workers compensation and other reinsurance claims.

The suit alleges that only about $15 million of the $73 million in claims for which ÌìÃÀÍøÕ¾´«Ã½´«Ã½ has demanded payment appear to be eligible for reinsurance coverage. The remaining amount reflects “highly suspect” estimates of future (incurred but not reported) losses, according to the complaint, which was filed in Suffolk Superior Court in Boston on July 6.

In a statement to Insurance Journal, ÌìÃÀÍøÕ¾´«Ã½´«Ã½ denied any wrongdoing including allegations of fraud. The statement from spokesman Joe Norton referred to the matter as “a reinsurance collection dispute” that would “normally be handled in private arbitration.”

The plaintiff insurers are members of a reinsurance facility managed by LDG Facilities in Wakefield, Mass. LDG in turn hired Trenwick and its predecessor, Chartwell Reinsurance, to issue policies on behalf of the consortium and to verify and manage claims, including ones from ÌìÃÀÍøÕ¾´«Ã½´«Ã½. According to plaintiffs, ÌìÃÀÍøÕ¾´«Ã½´«Ã½’s claims figures were “highly suspicious.” The suit contends that ÌìÃÀÍøÕ¾´«Ã½´«Ã½ never provided satisfactory proof or explanations of claims; instead ÌìÃÀÍøÕ¾´«Ã½´«Ã½ and Trenwick together engaged in a pattern of “evasive and obstructionist conduct” in response to attempts by LDG to obtain proof of losses.

Financial footing
Plaintiffs maintain that ÌìÃÀÍøÕ¾´«Ã½´«Ã½ took advantage of Trenwick’s shaky financial footing (filed for Chaper 11) to convince the firm to pass through millions of dollars in claims to the reinsurers without verifying their legitimacy. In exchange, ÌìÃÀÍøÕ¾´«Ã½´«Ã½ extended financing to Trenwick in the form of a promissory note with favorable terms for a financially strapped firm, according to the complaint. This note made it appear Trenwick had signed off on the claims as legitimate.

ÌìÃÀÍøÕ¾´«Ã½´«Ã½ has asserted its “right to recover funds from the reinsurance pools as the result of a negotiated agreement with Trenwick” and said it would respond to the complaint “in the appropriate forum at the appropriate time.”

Among the insurers bringing the suit are First Allmerica, Dorinco, Hartford Life, HCC Holdings, John Hancock, Sun Life, Insurance of Hannover, Phoenix Life, Clarica and Swiss Re.