Travelers 2005 Annual Report Download - page 59

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enacted in 1980 and later modified, enables private parties as well as federal and state governments to take
action with respect to releases and threatened releases of hazardous substances. This federal statute
permits the recovery of response costs from some liable parties and may require liable parties to undertake
their own remedial action. Liability under CERCLA may be joint and several with other responsible
parties.
We have been, and continue to be, involved in litigation involving insurance coverage issues pertaining
to environmental claims. We believe that some court decisions have interpreted the insurance coverage to
be broader than the original intent of the insurers and policyholders. These decisions often pertain to
insurance policies that were issued by us prior to the mid-1970s. These decisions continue to be
inconsistent and vary from jurisdiction to jurisdiction. Environmental claims when submitted rarely
indicate the monetary amount being sought by the claimant from the policyholder, and we do not keep
track of the monetary amount being sought in those few claims which indicate a monetary amount.
Asbestos and Environmental Claims. It is difficult to determine the ultimate exposure for asbestos and
environmental claims and related litigation. As a result, these reserves are subject to revision as new
information becomes available and as claims develop. The continuing uncertainties include, without
limitation, the risks and lack of predictability inherent in complex litigation, any impact from the
bankruptcy protection sought by various asbestos producers and other asbestos defendants, a further
increase or decrease in asbestos and environmental claims which cannot now be anticipated, the role of any
umbrella or excess policies we have issued, the resolution or adjudication of some disputes pertaining to
the amount of available coverage for asbestos and environmental claims in a manner inconsistent with our
previous assessment of these claims, the number and outcome of direct actions against us and future
developments pertaining to our ability to recover reinsurance for asbestos and environmental claims. In
addition, our asbestos-related loss and loss expense experience has been 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. It is also not possible to predict changes in the legal and
legislative environment andtheir impact on the future development of asbestos and environmental claims.
This development will be affected by future court decisions and interpretations, as well as changes in
applicable legislation, including proposed legislation related to asbestos reform. It is also difficult to
predict the ultimate outcome of large coverage disputes until settlement negotiations near completion and
significant legal questions are resolved or, failing settlement, until the dispute is adjudicated. This is
particularly the case with policyholders in bankruptcy where negotiations often involve a large number of
claimants and other parties and require court approval to be effective. See the “Asbestos Claims and
Litigation” and “Environmental Claims and Litigation” sections of “Management’s Discussion and
Analysis of Financial Condition and Results of Operations.” Also see “Part I—Item 3, Legal Proceedings.”
Because of the uncertainties set forth above, additional liabilities may arise for amounts in excess of
the current reserves for asbestos and environmental claims. In addition, our estimate of claims and claim
adjustment expenses may change. These additional liabilities or increases in estimates, or a range of either,
cannot now be reasonably estimated and could result in income statement charges that could be material
to our operating results and financial condition in future periods.
Reinsurancemay not protect us against losses. We use reinsurance to help manage our exposure to
property and casualty risks. The availability and cost of reinsurance are subject to prevailing market
conditions, both in terms of price and available capacity, which can affect our business volume and
profitability. Although the reinsurer is liable to us to the extent of the ceded reinsurance, we remain liable
as the direct insurer on all risks reinsured. As a result, ceded reinsurance arrangements do not eliminate
our obligation to pay claims. Accordingly, we are subject to credit risk with respect to our ability to recover
amounts due from reinsurers. In addition, some of our reinsurance claims may be disputed by the
reinsurers, and we may ultimately receive partial or no payment. This is a particular risk in the case of
claims that relate to insurance policies written many years ago, including those relating to asbestos and