The Hartford 2008 Annual Report Download - page 436

Table of Contents
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
11. Reserves for Future Policy Benefits and Unpaid Losses and Loss Adjustment Expenses (continued)
Net favorable reserve development of $226 in 2008 included, among other reserve changes, a $156 release of workers’
compensation reserves primarily for accident years 2000 to 2007, a $105 release of general liability claims, primarily related
to accident years 2001 to 2007, and a $75 release of reserves for directors and officers claims and errors and omissions
claims for accident years 2003 to 2006, partially offset by a $103 strengthening of asbestos and environmental reserves.
Among other reserve changes, prior accident year development of $48 in 2007 included a $151 release of workers’
compensation reserves for accident years 2002 to 2006, a $79 strengthening of workers’ compensation and general liability
reserves for accident years more than 20 years old and a charge of $99 principally as a result of an adverse arbitration
decision involving claims owed to an insurer of the Company’s former parent. The prior year provision of $296 in 2006
includes, among other reserve changes, $243 of prior accident year development resulting from an agreement with Equitas
and the Company’s evaluation of the reinsurance recoverables and allowance for uncollectible reinsurance associated with
older, long-term casualty liabilities reported in the Other Operations. In addition, the prior year provision in 2006 includes
strengthening of Specialty Commercial construction defect claim reserves for accident years 1997 and prior and adverse
development in environmental reserves. The 2006 reserve strengthening was partially offset by a reduction in catastrophe
reserves related to the 2005 and 2004 hurricanes and a release of allocated loss adjustment expense reserves for workers’
compensation and package business related to accident years 2003 to 2005.
12. Commitments and Contingencies
Litigation
The Hartford is involved in claims litigation arising in the ordinary course of business, both as a liability insurer defending
or providing indemnity for third-party claims brought against insureds and as an insurer defending coverage claims brought
against it. The Hartford accounts for such activity through the establishment of unpaid loss and loss adjustment expense
reserves. Subject to the uncertainties discussed below under the caption “Asbestos and Environmental Claims,” management
expects that the ultimate liability, if any, with respect to such ordinary-course claims litigation, after consideration of
provisions made for potential losses and costs of defense, will not be material to the consolidated financial condition, results
of operations or cash flows of The Hartford.
The Hartford is also involved in other kinds of legal actions, some of which assert claims for substantial amounts. These
actions include, among others, putative state and federal class actions seeking certification of a state or national class. Such
putative class actions have alleged, for example, underpayment of claims or improper underwriting practices in connection
with various kinds of insurance policies, such as personal and commercial automobile, property, life and inland marine;
improper sales practices in connection with the sale of life insurance and other investment products; and improper fee
arrangements in connection with mutual funds and structured settlements. The Hartford also is involved in individual actions
in which punitive damages are sought, such as claims alleging bad faith in the handling of insurance claims. Like many
other insurers, The Hartford also has been joined in actions by asbestos plaintiffs asserting, among other things, that insurers
had a duty to protect the public from the dangers of asbestos and that insurers committed unfair trade practices by asserting
defenses on behalf of their policyholders in the underlying asbestos cases. Management expects that the ultimate liability, if
any, with respect to such lawsuits, after consideration of provisions made for estimated losses, will not be material to the
consolidated financial condition of The Hartford. Nonetheless, given the large or indeterminate amounts sought in certain of
these actions, and the inherent unpredictability of litigation, an adverse outcome in certain matters could, from time to time,
have a material adverse effect on the Company’s consolidated results of operations or cash flows in particular quarterly or
annual periods.
Broker Compensation Litigation – Following the New York Attorney General’s filing of a civil complaint against Marsh &
McLennan Companies, Inc., and Marsh, Inc. (collectively, “Marsh”) in October 2004 alleging that certain insurance
companies, including The Hartford, participated with Marsh in arrangements to submit inflated bids for business insurance
and paid contingent commissions to ensure that Marsh would direct business to them, private plaintiffs brought several
lawsuits against the Company predicated on the allegations in the Marsh complaint, to which the Company was not party.
Among these is a multidistrict litigation in the United States District Court for the District of New Jersey. There are two
consolidated amended complaints filed in the multidistrict litigation, one related to conduct in connection with the sale of
property-casualty insurance and the other related to alleged conduct in connection with the sale of group benefits products.
The Company and various of its subsidiaries are named in both complaints. The complaints assert, on behalf of a putative
class of persons who purchased insurance through broker defendants, claims under the Sherman Act, the Racketeer
Influenced and Corrupt Organizations Act (“RICO”), state law, and in the case of the group-benefits products complaint,
claims under ERISA. The claims are predicated upon allegedly undisclosed or otherwise improper payments of contingent
commissions to the broker defendants to steer business to the insurance company defendants. The district court has
dismissed the Sherman Act and RICO claims in both complaints for failure to state a claim and has granted the defendants’
motions for summary judgment on the ERISA claims in the group-benefits products complaint. The district court further has
declined to exercise supplemental jurisdiction over the state law claims, has dismissed those state law claims without
Source: HARTFORD FINANCIAL S, 10-K, February 12, 2009