Did AIG Really Consider This Lawsuit?

American International Group (NYSE:AIG) may have begun 2013 with a nationwide advertising campaign thanking taxpayers for its bailout, but that did not prevented the insurer’s board of directors from considering a lawsuit against the federal government only one month after the Treasury Department sold its last shares in the company. Ultimately, though, AIG’s consideration period ended quickly as the company decided on Wednesday to not participate in the suit.

In the meeting, which The Wall Street Journal described as a “mock trial,” board members examined the terms of a suit brought in federal claims court last year by former AIG chief executive Maurice “Hank” Greenberg, who now runs Starr International. Based on claims that the U.S. government exploited AIG during its rescue from the financial crisis, he is asking for $25 billion in damages for the insurance company and its shareholders.

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To further his case, Greenberg asked the board to authorize AIG to “assume control of the claims.” While the publication reported that a majority of AIG’s directors were “leery” of the proposition heading into the meeting, the company has outlined three possible options: take over Greenberg’s lawsuit against the government, prevent the claims from being prosecuted and likely face a lawsuit from Starr, or allow Starr to pursue the claims on AIG’s behalf.

All three options had significant downsides, but the first alternative was the most problematic. The insurer was met with a flood of criticism on the news that the company would hear arguments presented by Starr’s team of lawyers. Politicians were particularly outraged. Democratic representative Elijah Cummings, who serves on the House Committee on Oversight and Government Reform, wrote in an email seen by the WSJ that the possibility of AIG joining the suit was “an unbelievable insult to our nation’s taxpayers.” He compared the situation to “suing the paramedic who just gave you CPR because he didn’t give you a pillow.”

Despite the fact that company’s directors refused to support Greenberg’s suit, there will likely be an appeal, as corporate adviser Ronald Janis told the WSJ.

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