Ostensibly, this $375 million dollar fund is to make up for the kickback schemes and price manipulation between AIG and the broker Marsh, whereby AIG companies were able to bid on policies with the pricing therefor "validated" through Marsh's solicitation of fake, inflated bids from other insurers. Because of this bid rigging, policyholders paid more in premiums than would have been the case in a competitive, fair market.

Policyholders ripped off in this fashion should be compensated, but Attorney General Spitzer (with all due respect and with due credit for unearthing this scandalous perfidy) has permitted AIG to require that policyholders sign a broad release in exchange for obtaining their share of the settlement pie.

Let's say my neighbor takes my rake and does not give it back. I then demand that he return what is mine, and he refuses to give me my rake unless I sign a release? When he gives me my rake, my damages may then stop, but the notion that AIG stole from policyholders in cahoots with the broker (by bribing the broker and corrupting it through the payment of kickbacks) and overcharged policyholders should result in AIG's returning the overcharged portion (sheepishly and with profuse apology). Once AIG returns the overcharge, then the policyholder may still have a damages claim, but as a practical matter the economics are such that such claims would not be pursued (for what other damages could be shown, other than in exceptional cases?).

Here, however, the "releasor" gives up "any and all claims . . . whatsoever, including known and unknown claims, now existing or hereafter arising, . . . . to the extent any such claims . . . relate to, in whole or in part, (i) any . . . allegations, . . . transactions, events, types of conduct . . . that are the subject of [the AG's] Complaint [or related cases]." Maybe there shouldn't be a release at all. At least, why shouldn't the release be more narrowly drawn to focus only on the amount of damages from the overcharge as opposed to any other damages the policyholder can show or other related misconduct perpetrated on the policyholder? Or, if say the policyholder was overcharged by 100 and the AIG settlement payment is for 60, maybe AIG should just hope the policyholder does not sue it for the remaining 40.

It is mystifying that the Attorney General of the State of New York would help shield AIG from paying full compensation to damaged policyholders. If the damages claims are so overwhelming for AIG -- a situation that is unfathomable -- then bankruptcy is the solution the law provides. If the Attorney General believes that allowing greater damages will harm shareholders who themselves were victimized by AIG's fraudulent accounting, then as between policyholders and shareholders the shareholders should pay the price, since they were ostensibly in the position to control management and the board of directors (or to sue directors and officers for mismanagement, waste, and malfeasance, as is their right).

AIG should establish the settlement fund, send checks to the wronged policyholders, and then hope that it is not sued further. The Attorney General is right to demand a settlement fund in exchange for his curtailing his enforcement powers, but it is puzzling for him to curtail the rights of policyholder victims.

For those interested, some of the source documents are available:

1. New York state Settlement agreement . Note that the Agreement is dated January 18 but is being announced only today, February 9, 2006.
2. SEC complaint
3. NY Attorney General Eliot Spitzer's Press release
4. SEC's press release
5. Prior Insurance Scrawl commentary on the AIG Mess.

Note that this $1.6 billion settlement does not resolve the claims against the individuals, including those against Mr. Maurice "Hank" Greenberg.