Travelers 2006 Annual Report Download - page 60

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of Financial Condition and Results of Operations—Critical Accounting Estimates—Claims and Claim
Adjustment Expense Reserves.”
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 hassuffered from
court decisions and other trends that have attempted toexpand insurance coverage for asbestos claims far
beyond the intent of insurers and policyholders. While we have experienced a decrease in asbestos claims
over the past two years, we continue to receive a significant number of asbestos claims from our
policyholders (which includes 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 bylawy ers 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
proceedingsmay 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, includingus.
Bankruptcy proceedings have also caused increased settlement demands against thosepolicyholders who
are notin 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 of prioritizing claims involving credible
evidence of injuries, along with the focus on new and previously peripheral defendants, contributes to the
loss and loss expense payments experienced by us. In addition, our 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.
We continue to be involved in coverage litigation concerning a number of policyholders, some of
whom 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. (See “Item 3—Legal Proceedings”). In these instances, policyholders also may assert that each
individual bodily injury claim should be treated as a separate occurrenceunder the policy. It is difficult to
predict whether these policyholders will be successful on both issues. To the extent both issues are resolved
in policyholders’ favor and our other defenses are not successful, our coverage obligations under the
policies at issue would be materiallyincreased and bounded only by the applicable per-occurrence limits
and the number of asbestos bodily injury claims against the policyholders. Accordingly, although we have
seen a moderation in the overall risk associated with these lawsuits, it remains difficult to predict the
ultimate cost of these claims.
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 bankruptpolicyholders may includeextensive releases which are
favorable to us but which could result in settlements for larger amounts than originally anticipated. There
also may be instances where a court may not approve a proposed settlement, which may result inadditional
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, andclaims by individuals seeking damages arising from
alleged asbestos-related bodily injuries. Other direct actions against insurers, including us, could be filed 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.