Dish Network 2002 Annual Report Download - page 84

ECHOSTAR COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
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determined, there can be no assurance future anomalies will not cause further losses which could impact commercial
operation of the satellite.
Satellite Insurance
As a result of the failure of EchoStar IV solar arrays to fully deploy and the failure of 38 transponders to date, a
maximum of 6 of the 44 transponders (including spares) on EchoStar IV are available for use at this time. In addition to
transponder and solar array failures, EchoStar IV experienced anomalies affecting its thermal systems and propulsion
system. There can be no assurance that further material degradation, or total loss of use, of EchoStar IV will not occur in
the immediate future. Currently no programming is being transmitted to customers on EchoStar IV, and the satellite
functions as an in-orbit spare.
In September 1998, EchoStar filed a $219.3 million insurance claim for a total loss under the launch insurance
policies covering EchoStar IV. The satellite insurance consists of separate substantially identical policies with different
carriers for varying amounts that, in combination, create a total insured amount of $219.3 million. The insurance
carriers include La Reunion Spatiale; AXA Reinsurance Company (n/k/a AXA Corporate Solutions Reinsurance
Company), United States Aviation Underwriters, Inc., United States Aircraft Insurance Group; Assurances Generales De
France I.A.R.T. (AGF); Certain Underwriters at Lloyd’s, London; Great Lakes Reinsurance (U.K.) PLC; British
Aviation Insurance Group; If Skaadeforsikring (previously Storebrand); Hannover Re (a/k/a International Hannover);
The Tokio Marine & Fire Insurance Company, Ltd.; Marham Space Consortium (a/k/a Marham Consortium
Management); Ace Global Markets (a/k/a Ace London); M.C. Watkins Syndicate; Goshawk Syndicate Management
Ltd.; D.E. Hope Syndicate 10009 (Formerly Busbridge); Amlin Aviation; K.J. Coles & Others; H.R. Dumas & Others;
Hiscox Syndicates, Ltd.; Cox Syndicate; Hayward Syndicate; D.J. Marshall & Others; TF Hart; Kiln; Assitalia Le
Assicurazioni D'Italia S.P.A. Roma; La Fondiaria Assicurazione S.P.A., Firenze; Vittoria Assicurazioni S.P.A., Milano;
Ras - Riunione Adriatica Di Sicurta S.P.A., Milano; Societa Cattolica Di Assicurazioni, Verano; Siat Assicurazione E
Riassicurazione S.P.A, Genova; E. Patrick; ZC Specialty Insurance; Lloyds of London Syndicates 588 NJM, 1209 Meb
AND 861 Meb; Generali France Assurances; Assurance France Aviation; and Ace Bermuda Insurance Ltd.
The insurance carriers offered us a total of approximately $88 million, or 40% of the total policy amount, in
settlement of the EchoStar IV insurance claim. The insurers assert, among other things, that EchoStar IV was not a
total loss, as that term is defined in the policy, and that we did not abide by the exact terms of the insurance policies.
EchoStar strongly disagrees and filed arbitration claims against the insurers for breach of contract, failure to pay a
valid insurance claim and bad faith denial of a valid claim, among other things. Due to individual forum selection
clauses in certain of the policies, EchoStar is pursuing its arbitration claims against Ace Bermuda Insurance Ltd. in
London, England, and its arbitration claims against all of the other insurance carriers in New York, New York. The
New York arbitration is currently scheduled to begin in late April 2003, but the Insurers have recently requested that
that hearing date be delayed. The parties to the London arbitration are currently negotiating the schedule for a
hearing, and, while there can be no assurance, EchoStar anticipates that the hearing date in that proceeding will be
set for later in 2003. There can be no assurance that EchoStar will receive the amount claimed in either the New
York or the London arbitrations or, if EchoStar does, that EchoStar will retain title to EchoStar IV with its reduced
capacity.
At the time EchoStar filed its claim in 1998, EchoStar recognized an impairment loss of $106 million to write-
down the carrying value of the satellite and related costs, and simultaneously recorded an insurance claim receivable for
the same amount. EchoStar will have to reduce the amount of the receivable if a final settlement is reached for less than
this amount.
As a result of the thermal and propulsion system anomalies, EchoStar reduced the estimated remaining useful
life of EchoStar IV to approximately 4 years during January 2000. EchoStar will continue to evaluate the performance of
EchoStar IV and may modify its loss assessment as new events or circumstances develop.