NEW YORK (Bloomberg) — American International Group Inc. was sued by Duke University for failing to pay legal costs tied to the school's court battle with lacrosse team members falsely accused of charges they sexually assaulted a stripper.

An AIG unit that sold the university insurance for legal costs has "acknowledged potential coverage", according to a complaint filed on November 24 in federal court in Durham, North Carolina, where Duke is based. A lawyer for AIG said the company offered $5 million.

Duke is seeking payment for costs related to confidential settlements with three members of the team who were exonerated after they were accused of rape by a stripper invited to a team party in 2006. The school also wants reimbursement for expenses from defending against lawsuits by unindicted players and another by the team's former coach over Duke's role in investigating the accusation. The athletes said Duke remained silent during the probe even though the university had evidence they were innocent.

AIG "has offered to pay $5 million, and probably will still pay it anyway because we have to perform under our contract", said Joseph O'Neil, a lawyer at Peabody & Arnold LLP in Boston representing the insurer. The $5 million represents the maximum under the applicable policy, O'Neil said. AIG's National Union Fire Insurance Co. of Pittsburgh, Pennsylvania unit may file a response by January 16, said O'Neil, who declined to comment further.

The university asked the court in the AIG case last month to award damages and reimbursement for its costs, which it left unspecified except to say they were more than $75,000.

The three players were indicted in April 2006 after Durham County District Attorney Michael Nifong concluded a month-long investigation into the alleged assault on a 27-year-old stripper.