Travelers 2006 Annual Report Download - page 233

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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14. DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE OF FINANCIAL INSTRUMENTS
(Continued)
The fair value of commercial paper included in debt outstanding at December 31, 2006 and 2005
approximated its book value because of its short-term nature. For other debt, the fair value estimate was
based upon the bid price atDecember 31, 2006 and 2005.
15. CONTINGENCIES, COMMITMENTS AND GUARANTEES
Contingencies
The following section describes the major pending legal proceedings,other than ordinary routine
litigation incidental to the business, to which the Company or any of its subsidiaries is a party or to which
any of the Company’s property is subject.
Asbestos- and Environmental-Related Proceedings
In the ordinary course of its insurance business, the Company receives claims for insurance arising
under policies issued by the Company asserting alleged injuries and damages from asbestos, hazardous
waste and other toxic substances that are the subject of related coverage litigation, including, among
others, the litigation described below. The Company continues to be subject to aggressive asbestos-related
litigation. The conditions surrounding the final resolution of these claims and the related litigation
continue to change.
Travelers Property Casualty Corp. (TPC) is involved in three significant proceedings (including a
bankruptcy proceeding) relating to ACandS, Inc. (ACandS), formerly a national distributor and installer of
products containing asbestos. The proceedings involve disputes as to whether and to what extent any of
ACandS’ potential liabilities for current or future bodily injury asbestos claims are covered by insurance
policies issued by TPC. The status of the various proceedings is described below.
ACandS filed for bankruptcy in September 2002 ( In re: ACandS, Inc., pending in the U.S. Bankruptcy
Court for the District of Delaware). In its proposed plan of reorganization, ACandS sought to establish a
trust to pay asbestos bodily injury claims against it and sought to assign to the trust its rights under the
insurance policies issued by TPC. The proposed plan and disclosure statement filed by ACandS claimed
that ACandS had settled the vast majority of asbestos-related bodily injury claims currently pending
against it for approximately $2.80 billion. ACandS asserts that, basedon a prior agreement between TPC
and ACandS and ACandS’ interpretation of the July 31, 2003 arbitration panel ruling described below,
TPC is liable for 45% of the$2.80 billion. On January 26, 2004, the bankruptcy court issueda decision
rejecting confirmation of ACandS’ proposed plan of reorganization. The bankruptcy court found,
consistent with TPC’s objections to ACandS’ proposed plan, that the proposed plan was not fundamentally
fair, was not proposed in good faith and did not comply with Section 524(g) of the Bankruptcy Code.
ACandS has filed a notice of appeal of the bankruptcy court’s decision and has filed objections to the
bankruptcy court’s findings of fact and conclusions of law in the United States District Court. TPC has
moved to dismiss the appeal and objections and has also filed an opposition toACandS’ objections.
An arbitration was commenced in January 2001 to determine whether and to what extentACandS’
financial obligations for bodily injury asbestos claims are subject to insurance policy aggregate limits. On
July 31, 2003, the arbitration panel ruled in favor of TPC that asbestos bodily injury claims against ACandS
are subject to the aggregate limits of the policies issued to ACandS, which have been exhausted. In