Honeywell 2008 Annual Report Download - page 125

HONEYWELL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share amounts)
product asbestos claims, we do not believe that we have a reasonable basis for estimating asbestos claims
beyond the next five years under SFAS No. 5, "Accounting for Contingencies". The estimate is based upon
Bendix historical experience in the tort system for the three years ended December 31, 2008 with respect to
claims filing and resolution values. The methodology used to estimate the liability for future claims has been
commonly accepted by numerous courts. It is similar to that used to estimate the future NARCO related asbestos
claims liability.
Honeywell currently has approximately $1.9 billion of insurance coverage remaining with respect to pending
and potential future Bendix related asbestos claims, of which $156 and $197 million are reflected as receivables
in our consolidated balance sheet at December 31, 2008 and 2007, respectively. 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. Insurance receivables are recorded in the financial statements
simultaneous with the recording of the liability for the estimated value of the underlying asbestos claims. The
amount of the insurance receivable recorded is based on our ongoing analysis of the insurance that we estimate
is probable of recovery. This determination is based on our analysis of the underlying insurance policies, our
historical experience with our insurers, our ongoing review of the solvency of our insurers, our interpretation of
judicial determinations relevant to our insurance programs, and our consideration of the impacts of any
settlements reached with our insurers. Insurance receivables are also recorded when structured insurance
settlements provide for future fixed payment streams that are not contingent upon future claims or other events.
Such amounts are recorded at the net present value of the fixed payment stream.
On a cumulative historical basis, Honeywell has recorded insurance receivables equal to approximately 50
percent of the value of the underlying asbestos claims recorded. However, because there are gaps in our
coverage due to insurance company insolvencies, certain uninsured periods, and insurance settlements, this rate
is expected to decline for any future Bendix related asbestos liabilities that may be recorded. Future
recoverability rates may also be impacted by numerous other factors, such as future insurance settlements,
insolvencies and judicial determinations relevant to our coverage program, which are difficult to predict.
Assuming continued defense and indemnity spending at current levels, we estimate that the cumulative
recoverability rate could decline over the next five years to approximately 40 percent.
Honeywell believes it has sufficient insurance coverage and reserves to cover all pending Bendix related
asbestos claims and Bendix related asbestos claims estimated to be filed within the next five years. Although it is
impossible to predict the outcome of either pending or future Bendix related asbestos claims, we do not believe
that such claims would have a material adverse effect on our consolidated financial position in light of our
insurance coverage and our prior experience in resolving such claims. If the rate and types of claims filed, the
average resolution value of such claims and the period of time over which claim settlements are paid (collectively,
the "Variable Claims Factors") do not substantially change, Honeywell would not expect future Bendix related
asbestos claims to have a material adverse effect on our results of operations or operating cash flows in any
fiscal year. No assurances can be given, however, that the Variable Claims Factors will not change.
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