Travelers 2006 Annual Report Download - page 237

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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15. CONTINGENCIES, COMMITMENTS AND GUARANTEES (Continued)
value of SPC’s loss reserves yet failed to protect plan participants from continued investment in Company
stock.On June 1, 2005, the Company and the other defendants in Spiziri moved to dismiss the complaint.
On January 4, 2006, the parties in Spiziri entered into a stipulation of settlement. The settlement remains
subject to court approval.
In addition, two derivative actions have been brought in the United States District Court for the
District of Minnesota against all of the Company’s current directors and certain of the Company’s former
Directors, naming the Company as a nominal defendant: Rowe v. Fishman, et al. (Oct. 22, 2004) and Clark
v. Fishman, et al. (Nov. 18, 2004). The derivative actions have been consolidated for pretrial proceedings as
Rowe, et al. v.Fishman, et al. and a consolidated derivative complaint has been filed. The consolidated
derivative complaint asserts state law claims, including breach of fiduciary duty, based on allegations
similar to those alleged in In re St. Paul Travelers Securities Litigation II and Spiziri described above. On
March 23, 2006, the Court dismissed the complaint without prejudice and, on March 30, 2006, entered
judgment in favor of the Company and the other defendants. On June5, 2006, plaintiffs in Rowe moved to
alter or amend the judgment for leave to file an amended complaint. The Company and the other
defendants opposed that motion. On November 1, 2006, the parties in Rowe entered into a stipulation of
settlement whereby plaintiffs released the Company and other defendants from liability in exchange for an
agreement by defendants to adopt certain corporate governance measures for the benefit of the Company.
The settlement remains subject to court approval.
The Company believes that the pending lawsuits have no merit and intends to defend vigorously;
however, the Company is not able to provide any assurance thatthe financial impact of one or more of
these proceedings will not be material to the Company’s results of operations in a future period. The
Company is obligated to indemnify its officers and directors to the extent provided under Minnesota law.
As part of that obligation, the Company will advance officers anddirectors attorneys’ fees and other
expenses they incur in defending these lawsuits.
Other Proceedings
From time to time, the Company is involved in proceedings addressing disputes with its reinsurers
regarding the collection of amounts due under the Company’s reinsurance agreements. Theseproceedings
may be initiated by the Company or the reinsurers and may involve the terms of the reinsurance
agreements, the coverage of particular claims, exclusions under the agreements, as well as counterclaims
for rescission of the agreements. One of these disputes is the action described in the following paragraphs.
The Company’s Gulf operation brought an action on May 22, 2003, as amended on May 12, 2004, in
the SupremeCourt of New York, County of New York ( Gulf Insurance Company v. Transatlantic
Reinsurance Company, et al.), against Transatlantic Reinsurance Company (Transatlantic), XL
Reinsurance America, Inc. (XL), Odyssey America Reinsurance Corporation (Odyssey), Employers
Reinsurance Company (Employers) and Gerling Global Reinsurance Corporation of America (Gerling),
to recover amounts due under reinsurance contracts issued to Gulf and related to Gulf’s February 2003
settlement of a coverage disputeunder a vehicle residual value protection insurancepolicy. The reinsurers
have asserted counterclaims seeking rescission of the vehicle residual value reinsurance contracts issued to
Gulf and unspecified damages for breach of contract. Separate actions filed by Transatlantic and Gerling
have been consolidated with the original Gulf action for pre-trial purposes.