Hank Greenberg managed last night to draw to a close a protracted legal battle over accusations that he had failed in his fiduciary duty as former chief executive of AIG.

He and three other former executives agreed to pay $115 million (£66 million) to settle a lawsuit that would have come to trial next week in Delaware. While the insurer will receive proceeds from the settlement, less fees, it is an insurance policy covering the directors that will pick up about $85.5 million of the settlement.

C.V. Starr, a company that was once affiliated with AIG and is now overseen by Mr Greenberg, will pay the rest, according to Lee Wolosky, the lawyer who represents Mr Greenberg. Mr Wolosky added that C.V. Starr’s payment represents “a small fraction of the $1 billion to $2 billion damages sought in this case”.

The settlement resolves the lawsuit brought in 2002 by the Teachers Retirement System of Louisiana, an AIG shareholder. It alleged that certain executives and directors breached their fiduciary duties by directing business to C.V. Starr, arguing that the business should have gone directly to AIG, according to a statement issued by the plaintiff’s lawyer, Grant & Eisenhofer.

Mr Wolosky said arrangements that Mr Greenberg presided over during his tenure as AIG chief executive had been “proper” and contributed to the insurer’s growth.

Besides Mr Greenberg, Howard Smith, the former chief financial officer, Edward Matthews, the former vice-chairman of investments, and Thomas Tizzio, the former vice-chairman were named in this action.

The settlement brings one legal action involving AIG and Mr Greenberg to a close. However, a string of lawsuits between the insurer and either Mr Greenberg, former executives, or Mr Greenberg’s controlled entities remain outstanding.

Mr Greenberg left AIG in 2005 after Eliot Spitzer, the New York attorney-general at the time, and the Securities and Exchange Commission made allegations of financial misconduct against him and the company. Mr Greenberg has denied any wrongdoing.

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