Judge Blocks Greenberg Move to Add AIG Execs to Lawsuit Over C.V. Starr

A judge this week denied a defense motion to add more current and former American International Group Inc. officials to a lawsuit challenging payments that the insurance giant made to an outside firm headed by former AIG Chairman Maurice “Hank” Greenberg.

A Louisiana teachers pension fund is challenging hundreds of millions of dollars in commissions paid by AIG to C.V. Starr & Co., controlled by Greenberg and other AIG directors, from 2000 through 2005, when Greenberg was forced out as AIG chairman amid an accounting scandal.

In a lawsuit filed in 2002 in Delaware Chancery Court, the plaintiffs claim that AIG could have done the work for which it paid Starr, and that the commissions were simply a mechanism for Starr directors to line their pockets.

Greenberg and two other Starr directors named as defendants, former AIG Vice Chairman Edward Matthews and former AIG Chief Financial Officer Howard Smith, deny any wrongdoing. They argue the commissions paid to Starr in its role as a managing agent directing business to New York-based AIG were legitimate and in line with industry norms.

While denying any wrongdoing, the defendants sought to file a third-party claim against 25 other individuals who knew of or participated in the transactions between AIG and Starr. Chief among them are current AIG Chief Executive Martin Sullivan and retired Vice Chairman Thomas Tizzio. The defendants claim that Sullivan and Tizzio, previously dismissed as defendants in the case, received millions of dollars as directors of Starr and were more responsible than anyone else in structuring the commission arrangements.

“They’re the heart of this case,” defense attorney Kevin Abrams told Vice Chancellor Leo Strine Jr., adding that Sullivan and Tizzio cut a “sweetheart” deal with the plaintiffs to be dismissed from the lawsuit.

Strine noted that a condition of his dismissal of Sullivan, Tizzio and other prior defendants was that they could be subject to later claims by Starr of contributory liability should he agree with the plaintiffs that the remaining defendants breached their fiduciary duties to AIG.

Abrams argued that reinstating the former defendants now, as well as adding a dozen others, could help avoid the need to hold a separate trial to apportion liability.

Strine said he could understand the defendants’ desire to “share the hurt,” but he denied the motion. “These arguments can be made later,” the judge said, noting that Sullivan and Tizzio likely will be subjected to questioning during the trial.

Strine did grant a defense motion to file a cross-claim asserting unjust enrichment of AIG based on the plaintiffs’ request that Starr be ordered to repay all of the commission payments it received from AIG, as well as non-AIG reinsurers, between 2000 and 2005.

Attorneys for Starr argue that any reimbursements should take into account the expenses incurred by Starr in directing business to AIG.

“We are delighted that the court granted C.V. Starr’s motion to proceed against AIG,” Starr spokeswoman Sarah Lubman said in a prepared statement.

No trial date has been set.