A federal judge has approved American International Group Inc's $450 million settlement with rival insurers to end litigation accusing AIG of underreporting premiums on workers' compensation policies.

AIG will make the payment after rivals accused it of understating its market share in workers compensation to state insurance regulators, allowing it to shortchange state insurance pools by making lower contributions. Rivals claimed the understatements dated back to the 1980s.

Many states require firms that sell workers compensation insurance to also fund pools to cover injuries for workers at companies that cannot obtain coverage on the open market, in some cases because their jobs are too risky.

District Judge Robert Gettleman in Chicago approved the AIG settlement on December 21, calling it fair, reasonable, and adequate.

Final approval will take effect when Gettleman issues an opinion addressing a variety of issues in the case, the judge wrote.

Liberty Mutual Group had opposed the settlement, saying it concealed the true nature of AIG's underreporting and the resulting damages.

A Liberty Mutual spokesman was not immediately available for comment.

AIG last December agreed to pay $146.5 million in fines, taxes and assessments in a settlement with all 50 U.S. states over alleged workers compensation reporting errors.

The case is Safeco Insurance Co of America et al v. American International Group Inc et al, U.S. District Court, Northern District of Illinois, No. 09-02026.

(Reporting by Jonathan Stempel in New York; Editing by Phil Berlowitz)

Settlement