3M 2013 Annual Report Download - page 110

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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 Company’s on-going review of its accruals and the greater cost of resolving claims of persons who claim
more serious injuries, including mesothelioma and other malignancies, the Company increased its accruals in 2013 for
respirator mask/asbestos liabilities by $48 million. In 2013, the Company made payments for fees and settlements of $47
million related to the respirator mask/asbestos litigation. As of December 31, 2013, the Company had accruals for respirator
mask/asbestos liabilities of $127 million (excluding Aearo accruals). The Company cannot estimate the amount or range of
amounts by which the liability may exceed the accrual the Company has established because of the (i) inherent difficulty in
projecting the number of claims that have not yet been asserted, (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, 2013, the Company’s receivable for insurance recoveries related to the respirator mask/asbestos
litigation was $58 million. The Company estimates insurance receivables based on an analysis of its numerous policies,
including their exclusions, pertinent case law interpreting comparable policies, its experience with similar claims, and
assessment of the nature of each claim and remaining coverage, and records an amount it has concluded is likely to be
recovered. 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.
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. The action, in the District Court in Ramsey County, Minnesota,
sought 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.
The plaintiffs, Continental Casualty and Continental Insurance Co., as well as a significant number of the insurer defendants
named in the amended complaint had been dismissed because of settlements they had reached with the Company
regarding the matters at issue in the lawsuit. In July 2013, the Company reached agreements in principle with the remaining
insurers in the lawsuit. The Company and those insurers have been in the process of preparing formal settlement
agreements. After all of the settlement agreements have been executed, the Court will issue dismissal orders at which time
this matter will be concluded. During 2013, the Company received payments of $29 million from settlements with insurers.
The Company has unresolved coverage with claims-made carriers for respirator mask claims. Once the claims-made
insurance coverage is resolved, the Company will have collected substantially all of its remaining insurance coverage for
respirator mask claims.
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 manufactured and sold various products, including personal protection equipment, such as
eye, ear, head, face, fall and certain respiratory protection products.
As of December 31, 2013, 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.
As of December 31, 2013, the Company, through its Aearo subsidiary, has recorded $25 million as the best estimate of the
probable liabilities for product liabilities and defense costs related to current and future Aearo-related asbestos and silica-
related claims. Responsibility for legal costs, as well as for settlements and judgments, is currently shared in an informal
arrangement among Aearo, Cabot, American Optical Corporation and a subsidiary of Warner Lambert and their insurers (the
“Payor Group”). Liability is allocated among the parties based on the number of years each company sold respiratory