American Int'l Grp., Inc. v. ACE INA Holdings, Inc.
| Decision Date | 28 February 2012 |
| Docket Number | No. 09 C 2026,No. 07 CV 2898,07 CV 2898,09 C 2026 |
| Court | U.S. District Court — Northern District of Illinois |
| Parties | AMERICAN INTERNATIONAL GROUP, INC., AIG CASUALTY COMPANY f/k/a BIRMINGHAM FIRE INSURANCE COMPANY OF PENNSYLVANIA, AIU INSURANCE COMPANY, AMERICAN HOME ASSURANCE COMPANY, AMERICAN INTERNATIONAL PACIFIC INSURANCE COMPANY f/k/a AMERICAN FIDELITY COMPANY, AMERICAN INTERNATIONAL SOUTH INSURANCE COMPANY f/k/a AMERICAN GLOBAL INSURANCE COMPANY, AMERICAN INTERNATIONAL SPECIALTY LINES INSURANCE COMPANY f/k/a ALASKA INSURANCE COMPANY, COMMERCE AND INDUSTRY INSURANCE COMPANY, INC., GRANITE STATE INSURANCE COMPANY, ILLINOIS NATIONAL INSURANCE COMPANY, INSURANCE COMPANY OF THE STATE OF PENNSYLVANIA, NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, and NEW HAMPSHIRE INSURANCE COMPANY, Plaintiffs, v. ACE INA HOLDINGS, INC., ADVANTAGE WORKERS COMPENSATION INSURANCE COMPANY, ALASKA NATIONAL INSURANCE COMPANY, AMTRUST GROUP, BERKLEY RISK ADMINISTRATORS CO. LLC, CHUBB GROUP OF INSURANCE COMPANIES, CINCINNATI INSURANCE COMPANY, COMPANION PROPERTY & CASUALTY INSURANCE COMPANY, THE COVENANT GROUP, CRUM & FORSTER, GUARD INSURANCE COMPANY, GENERAL CASUALTY INSURANCE COMPANIES, HARLEYSVILLE INSURANCE GROUP, THE HARTFORD FINANCIAL SERVICES GROUP, INC., LIBERTY MUTUAL GROUP, INC., MEMIC INDEMNITY COMPANY, SAFECO CORPORATION, TRAVELERS INSURANCE GROUP, SENTRY INSURANCE GROUP, TRUCK INSURANCE EXCHANGE, and UTICA NATIONAL INSURANCE CO., Defendants. SAFECO INSURANCE COMPANY OF AMERICA and OHIO CASUALTY INSURANCE COMPANY, individually and on behalf of a class consisting of members of the National Workers Compensation Reinsurance Pool, Plaintiffs, ACE INA HOLDINGS, INC., AUTO-OWNERS INSURANCE CO., COMPANION PROPERTY AND CASUALTY INSURANCE CO., FIRSTCOMP INSURANCE CO., THE HARTFORD FINANCIAL SERVICES GROUP, INC.; TECHNOLOGY INSURANCE CO., THE TRAVELERS INDEMNITY COMPANY, individually and on behalf of a settlement class consisting of Participating Companies in the National Workers Compensation Reinsurance Pool and the New Mexico Residual Market Pool, Plaintiffs-Intervenors, v. AMERICAN INTERNATIONAL GROUP, INC., AIG CASUALTY COMPANY f/k/a BIRMINGHAM FIRE INSURANCE COMPANY OF PENNSYLVANIA, AIU INSURANCE COMPANY, AMERICAN HOME ASSURANCE COMPANY, AMERICAN INTERNATIONAL PACIFIC INSURANCE COMPANY f/k/a AMERICAN FIDELITY COMPANY, AMERICAN INTERNATIONAL SOUTH INSURANCE COMPANY f/k/a AMERICAN GLOBAL INSURANCE COMPANY, AMERICAN INTERNATIONAL SPECIALTY LINES INSURANCE COMPANY f/k/a ALASKA INSURANCE COMPANY, COMMERCE AND INDUSTRY INSURANCE COMPANY, INC., GRANITE STATE INSURANCE COMPANY, ILLINOIS NATIONAL INSURANCE COMPANY, INSURANCE COMPANY OF THE STATE OF PENNSYLVANIA, NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, and NEW HAMPSHIRE INSURANCE COMPANY, Defendants. |
MEMORANDUM OPINION AND ORDER
In July 2011, the court certified a settlement class under Fed. R. Civ. P. 23(b)(3) and preliminarily approved the settlement agreement in this class action, arising out of AIG's alleged scheme of fraudulently underreporting workers compensation premium, the complex procedural and factual history of which this court's previous opinions describe in some detail.1 Notice of this action and the proposed settlement was sent to 1,346 class members in accordance with the court-approved plan, pursuant to Fed. R. Civ. P. 23(c)(2)(B) and (e)(1). Only three related class members—Liberty Mutual and two of its subsidiaries, Safeco and Ohio Casualty—objected tothe settlement agreement,2 and just one—RLI Insurance Company—requested to be excluded from the class.
The proposed settlement agreement factors in approximately $375 million in economic damages (and interest), plus an additional $75 million, for a total of $450 million, allocated to the class members based on their participation in the market. The proposed settlement agreement's terms allow AIG to terminate the agreement if any potential class member with one percent or more of the class fund's allocation—other than Liberty and any of its affiliates, subsidiaries, divisions, or units (such as Safeco and Ohio Casualty)—elects to exclude itself from the class, or if potential class members—again excluding the Liberty companies—that together add up to at least five percent of $450 million elect to opt out.
In addition to the proposed settlement agreement, AIG has entered into a Regulatory Settlement Agreement ("RSA") with the states, conditioned on approval of the instant class action settlement by December 31, 2011. Under that agreement, AIG will pay the states $100 million in penalties and $46,507,385 in back taxes and assessments, and has agreed to reform its workers compensation reporting.
On November 29, 2011, the court held a final fairness hearing pursuant to Fed. R. Civ. P. 23(e)(2), and on December 21, 2011, the court held a hearing on the parties' various fee petitions. The next day, the court entered an order that granted final approval of the settlement (but stayed that ruling pending the court's determinations of fees and issuance of this memorandum opinion), granted Settlement Class Plaintiffs' first, second, and third interim feepetitions, granted Settlement Class Plaintiffs' petition for incentive fee awards, granted in part Liberty Mutual's fee petition, and granted in part Safeco and Ohio Casualty's fee petition.3
I. Final Approval of the Settlement
"Federal courts naturally favor the settlement of class action litigation." Isby v. Bayh, 75 F.3d 1191, 1196 (7th Cir. 1996). But the court may not approve a settlement that binds class members unless it finds, after a hearing, that the settlement is "fair, reasonable, and adequate." Fed. R. Civ. P. 23(e)(3); e.g., Williams v. Rohm and Haas Pension Plan, 658 F.3d 629, 634 (7th Cir. 2011).4 Whether a settlement is "fair" requires comparing class members against each other and against similarly situated non-class members. Manual of Complex Litig. § 21.62 (4th ed. 2004). Whether a settlement is "reasonable" calls for analysis of the class's claims in comparison to its terms. Id. Finally, whether a settlement is "adequate" demands assessing the settlement's terms with reference to what the class members might have obtained individually, absent a class action. Id.
In making these three determinations, the court considers five factors: (1) the strength of plaintiffs' case compared to the terms of the proposed settlement; (2) the likely complexity,length and expense of continued litigation; (3) the amount of opposition to settlement among affected parties; (4) the opinion of competent counsel; and (5) the stage of the proceedings and the amount of discovery completed. Synfuel Techs., Inc. v. DHL Express (USA), Inc., 463 F.3d 646, 653 (7th Cir. 2006) (quoting Isby, 75 F.3d at 1199).
The court provisionally performed this analysis in determining that preliminary approval of the settlement was appropriate, and because the parties have not presented materially different arguments this time around, the court's review is more searching but the issues are fundamentally identical.5 As the court concluded at preliminary approval, these five factors all support the court's conclusion that the settlement is fair, reasonable, and adequate.
The "most important factor" in evaluating a proposed settlement is "the strength of plaintiff's case on the merits balanced against the amount offered in the settlement." In re Gen. Motors Corp. Engine Interchange Litig., 594 F.2d 1106, 1132 n.44 (7th Cir. 1979) (quoted in Synfuel, 463 F.3d at 653). The Seventh Circuit instructs that "[a] district court must take special care in performing this assessment when the proposed settlement evinces certain warning signs." In Synfuel, that was a "settlement bias toward in-kind compensation" (Williams, 658 F.3d at 634 (citing Synfuel, 463 F.3d at 654)); in Mirfasihi v. Fleet Mortg. Corp., 356 F.3d 781, 785 (7th Cir. 2004), it was a "large subset of the class receiving 'a big fat zero' in settlement," Williams, 658 F.3d at 654 (quoting Mirfasihi, 356 F.3d at 785); and in Reynolds v. Beneficial Nat'l Bank, 288F.3d 277, 283 (7th Cir. 2002), it was strong evidence of collusion between class counsel and the defendant. But here, there is no indication of any similarly suspicious circumstances. To the contrary, the circumstances affirmatively indicate that Settlement Class Counsel—whose fees are based on their standard 2010 hourly rates, not a contingency arrangement—is not selling out the class, and that the class members—who are all insurance companies—are well-positioned to protect their own interests. The class members are in the risk assessment business themselves, and are certainly qualified to weigh the risks of litigation against the benefits of the settlement. This does not mean that the court's role is usurped—but it does mean that the court need not view Settlement Class Counsel's predictions and calculations with the same suspicion that another sort of case might demand.
First, to determine the case's strength, the court is instructed to calculate the "net expected value of continued litigation to the class." Reynolds, 288 F.3d at 284-85. Once the net expected value of litigation is determined, the court proceeds to "estimate the range of possible outcomes and ascribe a probability to each point on the range." Synfuel, 463 F.3d at 653 (citation and quotation marks omitted). Although this might sound like an exact science, the Seventh Circuit recognizes that "a high degree of precision cannot be expected" in these calculations, which are by definition speculative. Instead, courts are to provide a "'ballpark valuation'" of the class's claims. Synfuel, 463 at 653 (quoting Reynolds, 288 F.3d at 285).
At the final fairness hearing, counsel for all parties helpfully devoted a substantial portion of their time to presenting their calculations of the net expected valuation of the class...
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