The Hartford 2009 Annual Report Download - page 212

THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-63
12. Commitments and Contingencies
Accounting Policy
Management evaluates each contingent matter separately. A loss is recorded if probable and reasonably estimable. Management
establishes reserves for these contingencies at its “best estimate,” or, if no one number within the range of possible losses is more
probable than any other, the Company records an estimated reserve at the low end of the range of losses.
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 investment products.
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 complaint, claims under
the Employee Retirement Income Security Act of 1971 (“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 prejudice, and
has closed both cases. The plaintiffs have appealed the dismissal of the claims in both consolidated amended complaints, except the
ERISA claims.
In September 2007, the Ohio Attorney General filed a civil action in Ohio state court alleging that certain insurance companies,
including The Hartford, conspired with Marsh in violation of Ohio’ s antitrust statute. The trial court denied defendants’ motion to
dismiss the complaint in July 2008. The Company disputes the allegations and intends to defend this action vigorously.
In May 2009, The Hartford reached an agreement in principle to settle, for an immaterial amount, two consolidated securities actions
filed in the United States District Court for the District of Connecticut asserting claims on behalf of a putative class of shareholders
alleging that the Company and certain of its executive officers violated Section 10(b) of the Securities Exchange Act of 1934 and Rule
10b-5 by failing to disclose to the investing public that The Hartford’ s business and growth was predicated on the unlawful activity
alleged in the New York Attorney General’ s complaint against Marsh. A stipulation of settlement received final court approval in
December 2009, and the case was dismissed with prejudice.