AIG Caught Up in the Duke Lacrosse Case

As if AIG didn't already have enough to worry about. After jumping headfirst into the risky waters of credit default swaps, it is now on the hook for $150 billion (and growing) of American taxpayer money. It's been ridiculed for lavish spending habits and has reportedly been forced to slash insurance rates in order to stay alive.

And now, that old Duke lacrosse stripper episode is making matters even worse for the troubled insurance giant.

Late last month, Duke University filed a lawsuit against AIG subsidiary National Union Fire Insurance for failure to pay claims for the university's settlements with its lacrosse players. Duke, you may remember, fired its lacrosse coach in 2006 after a local North Carolina woman claimed she was raped when she attended a party of team players as a stripper.

The defendants denied the charges. After creating a national news frenzy, the North Carolina attorney general eventually dropped the case against the young men after seeing insufficient evidence to support the woman's claims. The three players at the center of the suit then sued Duke for its handling of the case. Duke settled with the players for an undisclosed sum but continues to fight lawsuits brought by more than 40 other lacrosse players and the former coach.

Duke claims that two policies with National Union promise to protect it from losses incurred by legal claims, but the insurance company has not yet paid a dime. In its court filing, Duke claims that National Union has acknowledged it "potentially" could be responsible for the claims.

Since the government is now the majority owner of AIG, and AIG is the majority owner of National Union Fire Insurance, Duke is essentially suing the Feds. So the case that effectively started with the attorney general in North Carolina has now come full circle back to the U.S. government.

And you wonder where your taxes go?

by Megan Barnett