2007 Annual Report - AIG.com

American International Group, Inc. and Subsidiaries
11. Debt Outstanding
of the 1999 settlement of class and derivative litigation involving
Continued
Caremark Rx, Inc. (Caremark). The plaintiffs in the second-filed
action have intervened in the first-filed action, and the second-filed
(ii) Junior subordinated debt: In January 2007, AGF issued junior
action has been dismissed. An excess policy issued by a
subordinated debentures in an aggregate principal amount of
subsidiary of AIG with respect to the 1999 litigation was expressly
$350 million that mature in January 2067. The debentures
stated to be without limit of liability. In the current actions,
underlie a series of trust preferred securities sold by a trust
plaintiffs allege that the judge approving the 1999 settlement was
sponsored by AGF in a Rule 144A/Regulation S offering. AGF can
misled as to the extent of available insurance coverage and would
redeem the debentures at par beginning in January 2017.
not have approved the settlement had he known of the existence
AIG does not guarantee any of the debt obligations of AGF. and/or unlimited nature of the excess policy. They further allege
that AIG, its subsidiaries, and Caremark are liable for fraud and
(h) Other Notes, Bonds, Loans and Mortgages Payable at
suppression for misrepresenting and/or concealing the nature and
December 31, 2007, consisted of the following:
extent of coverage. In addition, the intervenor-plaintiffs allege that
Uncollateralized Collateralized various lawyers and law firms who represented parties in the
Notes/Bonds/Loans Loans and underlying class and derivative litigation (the ‘‘Lawyer Defend-
(in millions) Payable Mortgages Payable
ants’’) are also liable for fraud and suppression, misrepresenta-
AIGCFG $1,839 $ — tion, and breach of fiduciary duty. The complaints filed by the
AIG 729 — plaintiffs and the intervenor-plaintiffs request compensatory dam-
Other subsidiaries 600 175
ages for the 1999 class in the amount of $3.2 billion, plus
Total $3,168 $175
punitive damages. AIG and its subsidiaries deny the allegations of
(i) Interest Expense for All Indebtedness: Total interest
fraud and suppression and have asserted that information
expense for all indebtedness, net of capitalized interest, aggreto
concerning the excess policy was publicly disclosed months prior
gated $9.69 billion in 2007, $6.95 billion in 2006 and $5.7 bilassert
the approval of the settlement. AIG and its subsidiaries further
lion in 2005. Capitalized interest was $37 million in 2007,
that the current claims are barred by the statute of
$59 million in 2006 and $64 million in 2005. Cash distributions
limitations and that plaintiffs’ assertions that the statute was
on the preferred shareholders’ equity in subsidiary companies of
tolled cannot stand against the public disclosure of the excess
ILFC and liabilities connected to trust preferred stock of AIGLH
coverage. The plaintiffs and intervenor-plaintiffs, in turn, have
subsidiaries are accounted for as interest expense in the
asserted that the disclosure was insufficient to inform them of
consolidated statement of income. The cash distributions for ILFC
the nature of the coverage and did not start the running of the
were approximately $5 million for each of the years ended
statute of limitations. On November 26, 2007, the trial court
December 31, 2007, 2006 and 2005. The cash distributions for
issued an order that dismissed the intervenors’ complaint against
AIGLH subsidiaries were approximately $107 million, $107 million
the Lawyer Defendants and entered a final judgment in favor of
and $112 million for the years ended December 31, 2007, 2006
the Lawyer Defendants. The intervenors are appealing the dismis-
and 2005, respectively.
sal of the Lawyer Defendants and have requested a stay of all
trial court proceedings pending the appeal. If the motion to stay is
12. Commitments, Contingencies and
granted, no further proceedings at the trial court level will occur
Guarantees
until the appeal is resolved. If the motion to stay is denied, the
next step will be to proceed with class discovery so that the trial
In the normal course of business, various commitments and court can determine, under standards mandated by the Alabama
contingent liabilities are entered into by AIG and certain of its Supreme Court, whether the action should proceed as a class
subsidiaries. In addition, AIG guarantees various obligations of action. AIG cannot reasonably estimate either the likelihood of its
certain subsidiaries.
prevailing in these actions or the potential damages in the event
liability is determined.
(a) Litigation and Investigations
Litigation Arising from Insurance Operations — Gunderson. A
Litigation Arising from Operations. AIG and its subsidiaries, in subsidiary of AIG has been named as a defendant in a putative
common with the insurance and financial services industries in class action lawsuit in the 14th Judicial District Court for the
general, are subject to litigation, including claims for punitive State of Louisiana. The Gunderson complaint alleges failure to
damages, in the normal course of their business. In AIG’s
comply with certain provisions of the Louisiana Any Willing
insurance operations, litigation arising from claims settlement Provider Act (the Act) relating to discounts taken by defendants on
activities is generally considered in the establishment of AIG’s bills submitted by Louisiana medical providers and hospitals that
reserve for losses and loss expenses. However, the potential for provided treatment or services to workers compensation claimincreasing
jury awards and settlements makes it difficult to
ants and seeks monetary penalties and injunctive relief. On
assess the ultimate outcome of such litigation.
July 20, 2006, the court denied defendants’ motion for summary
Litigation Arising from Insurance Operations — Caremark. AIG judgment and granted plaintiffs’ partial motion for summary
and certain of its subsidiaries have been named defendants in judgment, holding that the AIG subsidiary was a ‘‘group purtwo
putative class actions in state court in Alabama that arise out chaser’’ and, therefore, potentially subject to liability under the
AIG 2007 Form 10-K 173