Honeywell 2005 Annual Report Download - page 239

billion for NARCO related asbestos litigation charges, net of insurance recoveries. This charge consisted of the estimated liability to settle current asbestos
related claims, the estimated liability related to future asbestos related claims through 2018 and obligations to NARCO's parent, net of insurance recoveries of
$1.8 billion. During the six months ended June 30, 2005, we recognized a charge of approximately $52 million to reflect a settlement of certain pending
asbestos claims during the period.
The estimated liability for current claims is based on terms and conditions, including evidentiary requirements, in definitive agreements with in excess
of 90 percent of current claimants. Substantially all settlement payments with respect to current claims are expected to be made by the end of 2007.
The liability for future claims estimates the probable value of future asbestos related bodily injury claims expected to be asserted against NARCO
through 2018 and obligations to NARCO's parent as discussed above. The estimate is based upon the disease criteria and payment values contained in the
NARCO Trust Distribution Procedures negotiated with the NARCO Asbestos Claimants Committee and the NARCO future claimants' representative. In light
of the uncertainties inherent in making long-term projections we do not believe that we have a reasonable basis for estimating asbestos claims beyond 2018
under Statement of Financial Accounting Standards No. 5. Honeywell retained the expert services of Hamilton, Rabinovitz and Alschuler, Inc. (HR&A) to
project the probable number and value, including trust claim handling costs, of asbestos related future liabilities based upon historical experience with similar
trusts. The methodology used to estimate the liability for future claims has been commonly accepted by numerous courts and is the same methodology that is
utilized by an expert who is routinely retained by the asbestos claimants committee in asbestos related bankruptcies. The valuation methodology includes an
analysis of the population likely to have been exposed to asbestos containing products, epidemiological studies to estimate the number of people likely to
develop asbestos related diseases, NARCO claims filing history, the pending inventory of NARCO asbestos related claims and payment rates expected to be
established by the NARCO trust.
Honeywell has approximately $1.2 billion in insurance limits remaining that reimburses it for portions of the costs incurred to settle NARCO related
claims and court judgments as well as defense costs. This coverage is provided by a large number of insurance policies written by dozens of insurance
companies in both the domestic insurance market and the London excess market. At June 30, 2005, a significant portion of this coverage is with insurance
companies with whom we have agreements to pay full policy limits based on corresponding Honeywell claims costs. This includes agreements with a
substantial majority of the London-based insurance companies entered into primarily in the first quarter of 2004. We conduct analyses to determine the
amount of insurance that we estimate is probable that we will recover in relation to payment of current and projected future claims. While the substantial
majority of our insurance carriers are solvent, some of our individual carriers are insolvent, which has been considered in our analysis of probable recoveries.
In the second quarter of 2004, based on our ongoing evaluation of our ability to enforce our rights under the various insurance policies, we concluded that we
had additional probable insurance recoveries of $47 million, net of solvency reserves, which has been reflected in insurance receivables. We made judgments
concerning insurance coverage that we believe are reasonable and consistent with our historical dealings with our insurers, our
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