Travelers 2005 Annual Report Download - page 98

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ASBESTOS CLAIMS AND LITIGATION
The Company believes that the property and casualty insurance industry has suffered from court
decisions andother trends that have attempted to expand insurance coverage for asbestos claims far
beyond the intent of insurers and policyholders. As a result, the Company continues to experience a
significant number of asbestos claims being tendered to the Company by the Company’s policyholders
(which includes others seeking coverage under a policy), including claims against the Company’s
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 on new 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 the volatility of asbestos-related losses by initially delaying the reporting of
claims and later by significantly accelerating and increasing loss payments by insurers, including the
Company. Bankruptcy proceedings are also causing increased settlement demands against those
policyholders who are not in bankruptcy but that remain in the tort system. Recently, in many jurisdictions,
those who allege very serious injury and who can present credible medical evidence of their injuries are
receiving priority trial settings in the courts, while those who have not shown any credible disease
manifestation have their hearing dates delayed or placed on an inactive docket. This trend, along with the
focus on new and previously peripheral defendants, contributes to the loss and loss expense payments
experienced by the Company. In addition, the Company’s asbestos-related loss and loss expense experience
is impacted by the exhaustion or unavailability due to insolvency of other insurance potentially available to
policyholders along with the insolvency or bankruptcy of other defendants. The Company is 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. Asa 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 injuryclaim 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 the Company 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, the Company’s 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 the Company but which could result in settlements for larger amounts than originally
anticipated. As in the past, the Company will continue to pursue settlement opportunities.
In addition, proceedings have been launched directly against insurers, including the Company,
challenging insurers’ conduct in respect of asbestos claims, and, as discussed below, claims by individuals
seeking damages arising from alleged asbestos-related bodily injuries. The Company anticipates the filing
of other direct actions against insurers, including the Company, 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. The Company believes it has meritorious defenses to
these claims and has received favorable rulings in certain jurisdictions. Additionally, TPC has entered into