Travelers 2006 Annual Report Download - page 62

50
claims and associated liabilities considers the inconsistencies of court decisions as to coverage, plaintiffs’
expanded theories of liability and the risks inherent in complex litigation and other uncertainties, in the
opinion of our management, it is possible that the outcome of the continued uncertainties regarding these
claims could result in liability in future periods that differs from current reserves by an amountthat could
be material to our operating results in future periods. See “Item 7—Management’s Discussion and
Analysis of Financial Condition and Results of Operations—Asbestos Claims and Litigation” and
“Management’s Discussion and Analysisof Financial Condition and Results of Operations—
Environmental Claims and Litigation.”
We are exposed to, and may face adverse developments involving, mass tort claims such as those
relating to exposure to potentially harmful products or substances. In addition to asbestos and
environmental pollution, we face exposure to other types of mass tort claims, including claims related to
exposure to potentially harmfulproducts or substances, including lead paint, silica and welding rod fumes.
Establishing claim and claim adjustment expense reserves for mass tort claims is subject to uncertainties
because of many factors, including expanded theories of liability, disputes concerning medical causation
with respect tocertain diseases, geographical concentration of the lawsuits asserting the claims and the
potential for a large rise in the total number of claims without underlying epidemiological developments
suggesting an increase in disease rates. Moreover, evolving judicial interpretations regarding the
application of various tort theories and defenses, including application of various theories of joint and
several liabilities, as well as the application of insurance coverage to these claims, impede our ability to
estimate our ultimate liability for such claims.
Because of the uncertainties set forth above, additional liabilities may arise for amounts in excess of
the current related reserves. In addition, our estimate of claims and claim adjustment expenses may
change. These additional liabilities or increases in estimates, or a range of either, cannot now be
reasonably estimated and couldmaterially and adversely affect our results of operations in future periods.
The effects of emerging claim and coverage issues on our business are uncertain. As industry
practices and legal, judicial, social and other environmental conditions change, unexpected and unintended
issues related to claim and coverage may emerge. These issues may adversely affect our business by either
extending coverage beyond our underwriting intentor by increasing the number or size of claims.
Examples of emerging claims and coverage issues include:
•adverse changes in loss cost trends, including inflationary pressures in medical costs and auto and
home repair costs;
•judicial expansion of policy coverage and the impact of new theories of liability;
•a growing trend of plaintiffs targeting property and casualty insurers, including us, in purported
class action litigation relating to claim-handling and other practices;
•increases in the number and size of claims relating to construction defects, which often present
complex coverage and damage valuation questions;
•increases in the number and size of claims related to expenses for testing andremediation of mold
conditions; and
•claims from directors’ and officers’ insurance relating to possible accounting irregularities,
corporate governance issues and stock option “backdating,” “spring-loading” and other option
grant practices.
The effects of these and other unforeseenemergingclaim and coverage issues are extremely hard to
predict and could harm our business and materially adversely affect our results of operations in future
periods.