Liberty Mutual Outbids AIG for Golden Eagle

SAN DIEGO â€”  In a deal that will make it the second-largest workers’ compensation insurer in California, Boston-based Liberty Mutual agreed Friday to acquire troubled Golden Eagle Insurance of San Diego for at least $420 million in a court-supervised auction.

Liberty Mutual, which says it is the largest workers’ comp insurer in the United States, will close on the purchase within 60 to 90 days but will start to take control of the 1,300-employee company next week. Golden Eagle has 100,000 policyholders and assets of about $1.2 billion.

The Boston-based insurer, which has $40 billion in assets, outbid American International Group of New York, with $148 billion in assets, for Golden Eagle, which was seized by state insurance regulators on Jan. 31. Commissioner Chuck Quackenbush claimed that owner and Chief Executive John Mabee had failed to set up adequate reserves, drained existing Golden Eagle reserves with illegal self-loans and falsified documents.

Mabee claimed he was the victim of a political vendetta and vowed to win his company back in court. But in a settlement reached Thursday before San Francisco Superior Court Judge William Cahill, Mabee relinquished his claims to the company and promised not to reenter the insurance business. In exchange, Mabee will receive $20 million from the company, $10 million of which will be put into a collateral account for three to seven years for use as a reserve against future claims over the amount Liberty agreed to cover. The settlement also ends the Department of Insurance’s litigation against Mabee.

The settlement and sale end an acrimonious public battle between Mabee, a leading California horse breeder and philanthropic figure, and Quackenbush, who acted after Golden Eagle failed to respond to his warnings that the company was underreserved by as much as $289 million.

Both sides claimed victory on Friday, with Quackenbush declaring “a great victory for California consumers.� Mabee’s San Diego attorney, Charles Goldberg, said terms of the settlement also allow Mabee to collect a future share of company reserves not needed to cover claims, which, he said, could be as much as $375 million over the next seven years. The state, though, said it doubts the figure would top $20 million in that period.

In combining Golden Eagle’s $350 million in California workers’ compensation policies with its $219 million, Liberty Mutual will rank second only to the $1-billion State Compensation Insurance Fund, a private company owned by the state, according to trade publication Workers’ Comp Executive.

The purchase price is the cash value of the additional policyholder guarantees that Liberty Mutual agreed to make.