Honeywell 2010 Annual Report Download - page 94

HONEYWELL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share amounts)
Bendix related asbestos claims of $594 and $566 million at December 31, 2010 and December 31, 2009, respectively. Our liability for the estimated cost of
future Bendix related asbestos claims is based on historic claims filing experience, disease classifications, expected resolution values, and historic dismissal
rates. In the fourth quarter of each year, we update our analysis of the estimated cost of future Bendix related asbestos claims. We have valued Bendix
pending and future claims using average resolution values for the previous five years. Changes in the tort system, which began in 2006, refocused asbestos
litigation on mesothelioma cases, making the five year period 2006 through 2010 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 five years ended December 31, 2010 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 $1,900 million of insurance coverage remaining with respect to pending and potential future Bendix related
asbestos claims, of which $157 and $172 million are reflected as receivables in our consolidated balance sheet at December 31, 2010 and December 31, 2009,
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 41 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.
Refractory and Friction Products — The following tables summarize information concerning NARCO and Bendix asbestos related balances:
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