Travelers 2006 Annual Report Download - page 61

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Environmental Claims. We continue to receive claims from policyholders who allege that they are
liable for injury or damage arising outof their alleged disposition of toxic substances. Mostly, these claims
are due to various legislative as well as regulatory efforts aimed at environmental remediation. For
instance, the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA),
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
insurancepolicies that wereissued 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.As a result of the processes andprocedures described in
“Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations,”
management believes that the reserves carried for asbestos and environmental claims at December 31,
2006 are appropriately established based upon known facts, current law and management’s judgment.
However, the uncertainties surrounding the final resolution of these claims continue, and 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 asbestosand environmental claims beyond that
which is anticipated, the role of any umbrella or excess policies wehave issued, the resolution or
adjudication of somedisputes 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
reinsurancefor asbestos and environmental claims. In addition, our asbestos-related claims and claim
adjustment 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, although we have noted a recent decrease in the number and volatility of asbestos-
related bankruptcies. It is also not possible to predict changes in the legal and legislative environment and
their 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
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. As part of its continuing analysis of asbestos reserves, which includes an
annual review of asbestos policyholders, we continue to study the implications of these and other
developments. We completed our most recent annual review during the third quarter of2006. 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 “Item 3—Legal
Proceedings.”
A portion of our loss reserves are for asbestos and environmental claims and related litigation which
aggregated$4.47 billion at December 31, 2006. While the ongoing study of asbestos and environmental