AIG Asks Judge to Throw Out Bailout Lawsuit

American International Group Inc. is asking a federal judge to throw out what the company calls a "lottery ticket" lawsuit filed by Brookfield Asset Management Inc., which alleges "certain bankruptcy events of default have been triggered under the parties' standard-form swap agreement" about 20 years ago, according to court papers.

In a motion to dismiss filed in U.S. District Court for the Southern District of New York, AIG contends that if Brookfield's allegations were true, "it would be inexplicable that not a single other counterparty has sought to assert the same position" as Brookfield, which claims the federal government's bailout of AIG was tantamount to a bankruptcy default.

"Brookfield is desperately trying to evade a more than $1 billion obligation owed to AIG," said spokesman Mark Herr. "We believe Brookfield's position is without merit and should be rejected."

In its lawsuit filed late September 2009, Brookfield said the swaps entered into in 1990 were automatically terminated "as a result of AIG's recent financial collapse." According to court records, Brookfield said several provisions within the swap deal, which was meant to protect each party from the other's severe financial distress, were "plainly triggered." AIG has refused to concede a default as outlined by the swap, Brookfield said in its suit.

AIG writes in court papers that Brookfield "purchased a litigation 'lottery ticket' and hopes to pull off a massive and inequitable $1.2 billion windfall, notwithstanding the fact that their claims lack a legal or factual basis." Brookfield's legal action "flies directly in the face of the federal government's goal in deciding to provide financial assistance to AIG: to prevent AIG from triggering the very kinds of defaults that (Brookfield) now claims were nonetheless triggered" and under this theory, "the billions that the federal government has invested in AIG was for naught."

AIG was saved from the brink of failing last year by a federal bailout of $182.3 billion, including the government's purchase of 79.9% of AIG's shares.

Most AIG insurance companies have current Best's Financial Strength Ratings of A (Excellent) with a negative outlook.

Shares of AIG (NYSE: AIG) stock were trading at $28.06 a share prior to opening on Dec. 22.

(By Chad Hemenway, associate editor, BestWeek: Chad.Hemenway@ambest.com)