3M 2011 Annual Report Download - page 107

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manufactured by the Company), (v) the number of current claims and a projection of the number of future asbestos
and other claims that may be filed against the Company, (vi) the cost to resolve recently settled claims, and (vii) an
estimate of the cost to resolve and defend against current and future claims.
Developments may occur that could affect the Company’s estimate of its liabilities. These developments include, but
are not limited to, significant changes in (i) the number of future claims, (ii) the average cost of resolving claims,
(iii) the legal costs of defending these claims and in maintaining trial readiness, (iv) changes in the mix and nature of
claims received, (v) trial and appellate outcomes, (vi) changes in the law and procedure applicable to these claims,
and (vii) the financial viability of other co-defendants and insurers.
As a result of the increased costs of aggressively defending itself and the greater cost of resolving claims of persons
with malignant conditions, the Company increased its reserves in 2011 for respirator mask/asbestos liabilities by $39
million. As of December 31, 2011, the Company had reserves for respirator mask/asbestos liabilities of $100 million
(excluding Aearo reserves). The Company cannot estimate the amount or range of amounts by which the liability
may exceed the reserve the Company has established because of the (i) inherent difficulty in projecting the number
of claims that have not yet been asserted, particularly with respect to the Company’s respiratory products that
themselves did not contain any harmful materials, (ii) the complaints nearly always assert claims against multiple
defendants where the damages alleged are typically not attributed to individual defendants so that a defendant’s
share of liability may turn on the law of joint and several liability, which can vary by state, (iii) the multiple factors
described above that the Company considers in estimating its liabilities, and (iv) the several possible developments
described above that may occur that could affect the Company’s estimate of liabilities.
As of December 31, 2011, the Company’s receivable for insurance recoveries related to the respirator
mask/asbestos litigation was $121 million. The Company increased its receivables for insurance recoveries by $8
million in 2011 related to this litigation. As a result of settlements reached with its insurers, the Company was paid
approximately $9 million in 2011 in connection with the respirator mask/asbestos litigation.
Various factors could affect the timing and amount of recovery of this receivable, including (i) delays in or avoidance
of payment by insurers; (ii) the extent to which insurers may become insolvent in the future, and (iii) the outcome of
negotiations with insurers and legal proceedings with respect to respirator mask/asbestos liability insurance
coverage. The difference between the accrued liability and insurance receivable represents in part the time delay
between payment of claims on the one hand and receipt of insurance reimbursements on the other hand. Because of
the lag time between settlement and payment of a claim, no meaningful conclusions may be drawn from quarterly or
annual changes in the amount of receivables for expected insurance recoveries or changes in the number of
claimants.
As previously reported, on January 5, 2007 the Company was served with a declaratory judgment action filed on
behalf of two of its insurers (Continental Casualty and Continental Insurance Co. — both part of the Continental
Casualty Group) disclaiming coverage for respirator mask/asbestos claims. These insurers represent approximately
$14 million of the $121 million insurance recovery receivable referenced in the above table. The action, pending in
the District Court in Ramsey County, Minnesota, seeks declaratory judgment regarding coverage provided by the
policies and the allocation of covered costs among the policies issued by the various insurers. The action named, in
addition to the Company, over 60 of the Company’s insurers. This action is similar in nature to an action filed in 1994
with respect to breast implant coverage, which ultimately resulted in the Minnesota Supreme Court’s ruling of 2003
that was largely in the Company’s favor. The plaintiff insurers have served an amended complaint that names some
additional insurers and deletes others. A significant number of the insurer defendants named in the amended
complaint have been dismissed because of settlements they have reached with 3M regarding the matters at issue in
the lawsuit. The case is currently in the discovery phase. Trial is scheduled to begin in the fall of 2012.
Respirator Mask/Asbestos Litigation — Aearo Technologies
On April 1, 2008, a subsidiary of the Company purchased the stock of Aearo Holding Corp., the parent of Aearo
Technologies (“Aearo”). Aearo manufactures and sells various products, including personal protection equipment,
such as eye, ear, head, face, fall and certain respiratory protection products.
As of December 31, 2011, Aearo and/or other companies that previously owned and operated Aearo’s respirator
business (American Optical Corporation, Warner-Lambert LLC, AO Corp. and Cabot Corporation (“Cabot”)) are
named defendants, with multiple co-defendants, including the Company, in numerous lawsuits in various courts in
which plaintiffs allege use of mask and respirator products and seek damages from Aearo and other defendants for
alleged personal injury from workplace exposures to asbestos, silica-related, or other occupational dusts found in
products manufactured by other defendants or generally in the workplace.