National Union to Pay AMS $43 Million

American Management Systems Inc. appears to have closed the last chapter on the unpleasant story of its litigation with the state of Mississippi over a failed tax system.

AMS announced Oct. 15 it will receive $43 million in cash during fourth quarter 2001 from National Union Fire Insurance Co. of Pittsburgh. National Union was one of two insurance companies providing AMS coverage at the time of its litigation with Mississippi.

Both AMS and Federal Insurance Co. of Warren, N.J., the other insurance company, sued National Union after the case was over.

The $43 million, which will go entirely to AMS, is in addition to any coverage National Union was obligated to provide at the time of the original settlement, AMS said.

AMS settled the Mississippi case Aug. 28, 2000, agreeing to pay the state $185 million over 13 years. Mississippi had sued AMS for failing to deliver an automated tax system on schedule. The value of the original contract, signed in 1993 and terminated by the state in 1999, was $11.2 million.

At the time of the settlement, AMS had $102 million in liability insurance from the two carriers, including $52 million from Federal Insurance and $50 million from National Union. Consequently, AMS was responsible for paying more than $80 million over 13 years to cover its portion of the settlement. The company took a one-time, pre-tax charge of $35 million in 2000 to cover its costs.

But AMS then initiated a lawsuit against National Union, claiming the insurance company prevented AMS from settling the Mississippi lawsuit before it went to trial.

National Union did not carry out negotiations for a pre-trial settlement with Mississippi "in a responsible manner," thus costing AMS a lot more money than the company should have paid, Brands said in October 2000. He retired in February.

William Purdy, AMS' interim CEO, said the company is pleased to have resolved the dispute with National Union, and that the settlement would set the stage for AMS to move forward under Alfred Mockett, the company's new chairman and CEO, who starts Dec. 1.

AMS of Fairfax, Va., is an international business and information technology consulting firm. The company has about 8,300 employees and annual revenue of $1.28 billion.

About the Author

William Welsh is a freelance writer covering IT and defense technology.

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