Lacrosse hoax: Duke rejected $5 million from insurer AIG to cover some legal costs. New mediation planned

The Bloomberg News wire has just sent out the following story:

(( FC note: we believe the $5 million is the maximum specified in Duke's insurance policy. It is not known why Duke is seeking more than the max ))

American International Group Inc. is in talks with Duke University to settle a lawsuit over expenses tied to the school’s court dispute with lacrosse team members falsely accused of sexually assaulting a stripper.

Duke and a unit of New York-based insurer AIG set a mediation date in the almost two-year-old case, according to a motion filed last week. The school was seeking reimbursement of costs from confidential settlements with three members of the team who were exonerated after they were accused of rape by a stripper invited to a 2006 party.

“The parties are hopeful that they will be able to resolve this dispute at the November 4 mediation and have agreed that it is preferable to avoid incurring significant expenses,” according to the motion from AIG and Duke in federal court in Durham, North Carolina.

A settlement may reduce distractions as AIG seeks to repay taxpayer loans within its $182.3 billion government bailout. Chief Executive Officer Robert Benmosche has settled disputes with investors and former CEO Maurice “Hank” Greenberg.

Duke and AIG have held settlement talks and agreed to reconvene, according to the Oct. 8 filing. Mark Herr, a spokesman for AIG, and Michael Schoenfeld of Durham-based Duke declined to comment.

Duke had demanded reimbursement for costs tied to lawsuits by players and another by the team’s former coach over the school’s role in investigating the accusation, according to the November 2008 complaint. The athletes said Duke remained silent during the probe even though the university had evidence they were innocent.

$5 Million Offer

Duke had purchased two so-called individual-and- organization policies protecting the school and some of its administrators from legal costs, according to the complaint.

AIG had offered $5 million to Duke, Joseph O’Neil, a lawyer at Peabody & Arnold LLP in Boston involved in the defense, said in December 2008. O’Neil declined to comment when reached by telephone today.

AIG and Duke made the Oct. 8 comments as part of a pre- trial request for a 60-day extension to complete discovery, or the swapping of evidence.

The case is Duke University and Duke University Health System Inc. v. National Union Fire Insurance Co. of Pittsburgh Pa., 08-cv-0854, U.S. District Court, Middle District of North Carolina (Durham).