A unit of bailed-out insurer American International Group must pay $86.7 million to a U.S.-based unit of a Belgian bank over a dispute involving an investor in life insurance policies, the Wall Street Journal reported.

The American Arbitration Association panel, which ordered the payment, ruled 2-1 in favor of Lonsdale LLC, a unit of KBC Group NV, based in Belgium. Its ruling went against AIG's life insurance unit, Lexington Insurance Co.

Both Lexington and Lonsdale alleged breaches of a complex credit-insurance agreement, the paper reported on Tuesday.

The arbitrators who ruled in favor of Lonsdale said Lexington failed to prove that policies were originated through a prohibited act or that Lonsdale concealed any material fact.

A spokesman for AIG declined to comment to the Journal. The company also declined to comment when contacted by Reuters.

(Reporting by Siddharth Cavale in Bangalore. Editing by Robert MacMillan)

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