Travelers 2005 Annual Report Download - page 58

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Our business could be harmed because of our potential exposure to asbestos and environmental
claims and related litigation.
Asbestos Claims. We believe that the property and casualty insurance industry has suffered from
court decisions and other trends that have attempted to expand insurance coverage for asbestos claims far
beyond the intent of insurers and policy holders. As a result, we continue to experience a significant
number of asbestos claims being tendered to us by our policyholders (whichincludes others seeking
coverage under a policy) including claims against our policyholders by individuals who do not appear to be
impaired by asbestos exposure. Factors underlying these claim filings include intensive advertising by
lawyers seeking asbestos claimants, the focus by plaintiffs onnew and previously peripheral defendants and
entities seeking bankruptcy protection as a result of asbestos-related liabilities. In addition to contributing
to the overall number of claims, bankruptcy proceedings may increase asbestos-related losses by initially
delaying the reporting of claims and later by significantly accelerating and increasing loss payments by
insurers, including us. Bankruptcy proceedings are also causing increased settlement demands against
those policyholders who are not in bankruptcy but that remain in the tort system. In addition, our asbestos-
related loss and loss expense experience is impacted by the exhaustion or unavailability due to insolvency
of other insurance sources potentially available to policyholders along with the insolvency or bankruptcy of
other defendants. We are currently involved in coverage litigation concerning a number of policyholders
who have filed for bankruptcy, including, among others, ACandS, Inc., who in some instances have
asserted that all or a portion of their asbestos-related claims are not subject to aggregate limits on coverage
as described generally in the next paragraph. Also see “Part I—Item 3—Legal Proceedings”. These trends
are expected to continue in the near term. As a result of the factors described above, there is a high degree
of uncertainty with respect to future exposure from asbestos claims.
In some instances, policyholders continue to assert that their claims for asbestos-related insurance are
not subject to aggregate limits on coverage and that each individual bodily injury claim should be treated as
a separate occurrence under the policy. It is difficult to predict whether these policyholders will be
successful on both issues or whether we will be successful in asserting additional defenses. To the extent
both issues are resolved in policyholders’ favor and other additional Company defenses are not successful,
our coverage obligations under the policies at issue would be materially increased and bounded only by the
applicable per-occurrence limits and the number of asbestos bodily injury claims against the policyholders.
Accordingly, it is difficult to predict the ultimate cost of the claims for coverage not subject to aggregate
limits.
Many coverage disputes with policyholders are only resolved through settlement agreements. Because
many policyholders make exaggerated demands, it is difficult to predict the outcome of settlement
negotiations. Settlements involving bankrupt policyholders may include extensive releases which are
favorable to us but which could result in settlements for larger amounts than originally anticipated. Also,
courts may not approve proposed settlements, whichwould result in additional litigation and potentially
less beneficial outcomes for us. As in the past, we will continue to pursue settlement opportunities.
In addition, proceedings have been launched directly against insurers, including us, challenging
insurers’ conduct in respect of asbestos claims, and claims by individuals seeking damages arising from
alleged asbestos-related bodily injuries. There may be additional filings of other direct actions against
insurers, including us, in the future. It is difficult to predict the outcome of these proceedings, including
whether the plaintiffs will be able to sustain these actions against insurers based on novel legal theories of
liability.
Environmental Claims.We continue to receive claims from policyholders who allege that they are
liable for injury or damage arising out of their alleged disposition of toxic substances. Mostly, these claims
are due to various legislative as well as regulatory efforts aimed at environmental remediation.For
instance, the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA),