Halliburton 2011 Annual Report Download - page 112

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In addition to the contractual indemnities discussed above, we have a general liability insurance
program of $600 million. Our insurance is designed to cover claims by businesses and individuals made
against us in the event of property damage, injury or death and, among other things, claims relating to
environmental damage, as well as legal fees incurred in defending against those claims. We have received
and expect to continue to receive payments from our insurers with respect to covered legal fees incurred in
connection with the Macondo well incident. Through January 2012, we have incurred legal fees and related
expenses covered by our insurance program of approximately $76 million. To the extent we incur any
losses beyond those covered by indemnification, there can be no assurance that our insurance policies will
cover all potential claims and expenses relating to the Macondo well incident. In addition, we may not be
insured with respect to civil or criminal fines or penalties, if any, pursuant to the terms of our insurance
policies. Insurance coverage can be the subject of uncertainties and, particularly in the event of large
claims, potential disputes with insurance carriers, as well as other potential parties claiming insured status
under our insurance policies.
Barracuda-Caratinga arbitration
We provided indemnification in favor of KBR under the master separation agreement for all out-
of-pocket cash costs and expenses (except for legal fees and other expenses of the arbitration so long as
KBR controls and directs it), or cash settlements or cash arbitration awards, KBR may incur after
November 20, 2006 as a result of the replacement of certain subsea flowline bolts installed in connection
with the Barracuda-Caratinga project. At Petrobras’ direction, KBR replaced certain bolts located on the
subsea flowlines that failed through mid-November 2005, and KBR informed us that additional bolts have
failed thereafter, which were replaced by Petrobras. These failed bolts were identified by Petrobras when it
conducted inspections of the bolts. In March 2006, Petrobras commenced arbitration against KBR claiming
$220 million plus interest for the cost of monitoring and replacing the defective bolts and all related costs
and expenses of the arbitration, including the cost of attorneys’ fees. The arbitration panel held an
evidentiary hearing in March 2008 to determine which party was responsible for the designation of the
material used for the bolts. On May 13, 2009, the arbitration panel held that KBR and not Petrobras
selected the material to be used for the bolts. Accordingly, the arbitration panel held that there is no implied
warranty by Petrobras to KBR as to the suitability of the bolt material and that the parties' rights are to be
governed by the express terms of their contract. The parties presented evidence and witnesses to the panel
in May 2010, and final arguments were presented in August 2010. During the third quarter of 2011, the
arbitration panel issued an award against KBR in the amount of $201 million, which is reflected as a
liability and a component of loss from discontinued operations in our consolidated financial statements.
KBR filed a motion to vacate the arbitration award with the United States District Court for the Southern
District of New York. See Note 7 for additional information regarding the KBR indemnification.
Securities and related litigation
In June 2002, a class action lawsuit was filed against us in federal court alleging violations of the
federal securities laws after the Securities and Exchange Commission (SEC) initiated an investigation in
connection with our change in accounting for revenue on long-term construction projects and related
disclosures. In the weeks that followed, approximately twenty similar class actions were filed against us.
Several of those lawsuits also named as defendants several of our present or former officers and directors.
The class action cases were later consolidated, and the amended consolidated class action complaint, styled
Richard Moore, et al. v. Halliburton Company, et al., was filed and served upon us in April 2003. As a
result of a substitution of lead plaintiffs, the case was styled Archdiocese of Milwaukee Supporting Fund
(AMSF) v. Halliburton Company, et al. AMSF has changed its name to Erica P. John Fund, Inc. (the Fund).
We settled with the SEC in the second quarter of 2004.
In June 2003, the lead plaintiffs filed a motion for leave to file a second amended consolidated
complaint, which was granted by the court. In addition to restating the original accounting and disclosure
claims, the second amended consolidated complaint included claims arising out of our 1998 acquisition of
Dresser Industries, Inc., including that we failed to timely disclose the resulting asbestos liability exposure.