Honeywell 2009 Annual Report Download - page 124

HONEYWELL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share amounts)
future Bendix related asbestos claims. We have valued Bendix pending and future claims using average
resolution values for the previous four years (extended from three years). Changes in the tort system which
began in 2006 refocused asbestos litigation on mesothelioma cases, making the four year period 2006 through
2009 representative for forecasting purposes. We will continue to update the expected resolution values used to
estimate the cost of pending and future Bendix claims during the fourth quarter each year.
The estimated liability for future claims represents the estimated value of future asbestos related bodily injury
claims expected to be asserted against Bendix over the next five years. In light of the uncertainties inherent in
making long-term projections, as well as certain factors unique to friction product asbestos claims, we do not
believe that we have a reasonable basis for estimating asbestos claims beyond the next five years. The estimate
is based upon Bendix historical experience in the tort system for the four years ended December 31, 2009 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 $172 and $156 million are reflected as receivables
in our consolidated balance sheet at December 31, 2009 and 2008, 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 45
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 35 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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