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AIG, KBR and CNA Face New Questions About Insurance for Injured Civilian Contractors

Executives from CNA, AIG and KBR will face questions today from a House panel about insurance for civilian contractors injured in Iraq and Afghanistan. (Getty Images)Unlike insurance giant AIG, which promised to cease lobbying after receiving billions in bailout money, Chicago-based carrier CNA still works hard to influence lawmakers. The company has spent more than $6 million in lobbying since 2001, including more than $300,000 in the first quarter of this year, according to the Center for Responsive Politics.

The spending continued last week, when the company sent a lobbyist to visit members of the House Oversight and Government Reform Committee. The company was trying to convince lawmakers to excuse the firm's executives from having to testify at a hearing today over whether insurance carriers have routinely denied benefits to civilian workers injured in Iraq and Afghanistan, according to Hill staffers who attended the meetings. The argument: CNA was too small a fish to fry since AIG dominates the market for such coverage, required by a federal law known as the Defense Base Act.

The argument failed to impress, and CNA's Executive Vice President, George Fay, will be seated alongside AIG's Kristian P. Moor today to explain the industry's position. "I don't know what they were thinking," one Hill staff member said. "It was a total waste of effort."

During the last two weeks, the committee's Domestic Policy panel asked CNA to provide case files for injured workers after investigations by ProPublica, ABC News and the Los Angeles Times showed that AIG, CNA and other carriers were battling civilian contractors over paying for items like prosthetic legs. But it wasn't until Tuesday that CNA sent out notices to the workers asking permission to share the files.

CNA spokeswoman Katrina Parker said the company was not seeking to avoid the hearing, but instead wanted all insurance carriers that sold policies to appear. Bermuda-based ACE Group, New Jersey-based Chubb Group and Switzerland's Zurich Financial Services also sell insurance to defense contractors to cover civilian workers. "It wasn't so much that we were trying to be removed. We were trying to make sure that everyone was invited," Parker said. She also said that CNA had continuously cooperated with committee requests, while at the same time seeking to protect the privacy of its clients. There was no intent to slow things down, she said. "We were just following the process," Parker said.

As CNA scrambled to answer questions, questions continued to arise about the insurance program. Bloomberg News' Tony Capaccio revealed that the Defense Contract Audit Agency had recently recommended that contracting giant KBR pay back $27.6 million for war zone workers' compensation insurance purchased from AIG in 2003. The reason? KBR could not show that it had shopped to get the best price. Of course, that might be because AIG holds a near monopoly on the market, handling almost 90 percent of the claims from war zones. In a statement, KBR officials said the firm was "not aware" of the recommendation but had provided information to the audit agency when requested. AIG declined to comment.

The issue of the high costs of the insurance is almost certain to surface at the hearing. Despite years of warnings, nobody has really figured out how much the government is paying for the insurance or whether premiums are too high. In 2007, a U.S. Army audit found (PDF) that KBR paid "unreasonably high" premiums to AIG on one contract. Last year, the House reform committee conducted a study (PDF) that found that taxpayers had paid AIG more than $1.3 billion in premiums for the insurance, which is included in the price of federal contracts. And yet the company had paid out only about $500 million in benefits -- almost a 40 percent profit margin. While profit margins are believed to have declined since then, both AIG and CNA make far more money on war zone workers' compensation insurance than stateside workers' compensation policies, which typically return single digit gains.

For more on this story, read ABC News' coverage on The Blotter.

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