Honeywell 2007 Annual Report Download - page 121

HONEYWELL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share amounts)
do not believe that we have a reasonable basis for estimating asbestos claims beyond 2018 under SFAS No. 5,
"Accounting for Contingencies". 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. Honeywell projected the probable number and value, including trust
claim handling costs, of asbestos related future liabilities based upon experience of asbestos claims filing rates in
the tort system and in certain operating asbestos trusts, and the claims experience in those forums. The
valuation methodology also 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. This 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. In
December 2006, as a result of significantly varying experiences of asbestos claims filing rates in the tort system
(as a result of more clearly defined proof requirements) and in certain operating asbestos trusts, we updated the
range of estimated liability for future NARCO-related claims. Such update resulted in a range of estimated liability
for future claims of $743 to $961 million. We believe that no amount within this range is a better estimate than
any other amount. Accordingly, in December 2006 we recorded the minimum amount in the range which resulted
in a reduction of $207 million in our estimated liability for future NARCO-related asbestos claims. There has been
no new data or developments during 2007 which would warrant a change in our estimated liability for future
NARCO-related asbestos claims.
As of December 31, 2007 and 2006, our consolidated financial statements reflect an insurance receivable
corresponding to the liability for settlement of pending and future NARCO-related asbestos claims of $939 and
$955 million, respectively. This coverage reimburses Honeywell for portions of the costs incurred to settle
NARCO related claims and court judgments as well as defense costs and 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 December 31, 2007, 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. We
conduct analyses to determine the amount of insurance that we estimate is probable of recovery in relation to
payment of current and estimated 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. We made judgments concerning insurance coverage that we believe are reasonable and consistent
with our historical dealings with our insurers, our knowledge of any pertinent solvency issues surrounding
insurers and various judicial determinations relevant to our insurance programs.
In the second quarter of 2006, Travelers Casualty and Insurance Company ("Travelers") filed a lawsuit
against Honeywell and other insurance carriers in the Supreme Court of New York, County of New York,
disputing obligations for NARCO-related asbestos claims under high excess insurance coverage issued by
Travelers and other insurance carriers. Approximately $340 million of coverage under these policies is included in
our NARCO-related insurance receivable at December 31, 2007. Honeywell believes it is entitled to the coverage
at issue and has filed counterclaims in the Superior Court of New Jersey seeking, among other things,
declaratory relief with respect to this coverage. In the third quarter of 2007, Honeywell prevailed in the New York
action on a critical choice of law issue concerning the appropriate method of allocating NARCO-related asbestos
liabilities to triggered policies. The Court's ruling is subject to appeal. While Honeywell expects to prevail in this
matter, an adverse outcome could have a material impact on our results of operations in the period recognized
but would not be material to our consolidated financial position or operating cash flows.
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