Travelers 2006 Annual Report Download - page 70

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payment of up to $90 million by TPC, subject to a number of significant contingencies. Each of these
settlements is contingent upon, among other things, an order of the bankruptcy court clarifying that all of
these claims, and similar future asbestos-related claims against TPC, are barred by prior orders entered by
the bankruptcy court in connection with the original Johns-Manville bankruptcy proceedings.
On August 17, 2004, the bankruptcy court entered an order approving the settlements and clarifying
its prior orders that all of the pending Statutory and Hawaii Actions and substantially all Common Law
Claims pending against TPC are barred. The order also applies to similar direct action claims that may be
filed in the future.
Four appeals were taken from the August 17, 2004 ruling. On March 29, 2006, the U.S. District Court
for the Southern District of New York substantially affirmed the bankruptcy court’s orders while vacating
that portion of the bankruptcy court’s orders that required all future direct actions against TPC to first be
approved by the bankruptcy court before proceeding in state or federal court. Judgment was entered on
March 31, 2006.
Five appeals from the March29, 2006 ruling were filed in the U.S. Court of Appeals for theSecond
Circuit and TPC filed a cross-appeal. Two appellants voluntarily dismissed their appeals and a motion to
dismiss the cross-appeal was filed. Additionally, TPC appealed from a procedural order of the district
court relating to the timeliness of the cross-appeal. On January 17, 2007, the Second Circuit dismissed
TPC’s cross-appeal and denied TPC’s appeal from the procedural order. The three remaining principal
appeals have been consolidated for disposition and remain pending. It is not possible to predict how the
appellate court will rule on the pending appeals. The Company has no obligation to pay any of the
settlement amounts unless and until the orders and relief become final and are not subject to any further
appellate review.
SPC, which is not covered by the bankruptcy court rulings or the settlements described above, has
numerous defenses in all of the direct action cases asserting Common Law Claims that are pending against
it. SPC’s defenses include the fact that these novel theories have no basis in law; that they are directly at
odds with the well-established law pertaining to the insured/insurer relationship; that there is no
generalized duty to warn as alleged by the plaintiffs; and that the applicable statute of limitations as to
many of these claims has long since expired. Many of these defenses have been raised in initial motions to
dismiss filed by SPC and other insurers. There have been favorable rulings during 2003 and 2004 in Texas
and during 2004 and 2005 in Ohio on some of these motions filed by SPC and other insurers that dealt with
statute of limitations and the validity of the alleged causes of actions. On May 26, 2005, the Court of
Appeals of Ohio, Eighth District, affirmed the earliest of these favorable rulings. In Texas, onlyone court,
in June of 2005, has deniedthe insurers’ initial challenges to thepleadings. That ruling was contrary to the
rulings by other courts in similar cases, and SPC and the other insurer defendants have filed a mandamus
petition with the Texas Court of Appeals.
The Company is defending its asbestos- and environmental-related litigation vigorously and believes
that it has meritorious defenses; however, the outcome of these disputes is uncertain. In this regard, the
Company employs dedicated specialists and aggressive resolution strategies to manage asbestos and
environmental loss exposure, including settling litigation under appropriate circumstances. For a
discussion of other information regarding the Company’s asbestos and environmental exposure, see
“Item7—Management’sDiscussion and Analysis ofFinancial Condition and Results of Operations—
Asbestos Claims and Litigation”, “—Environmental Claims and Litigation” and “—Uncertainty Regarding
Adequacy of Asbestos and Environmental Reserves.”
Currently, it is not possible to predict legal outcomes and their impact on the future development of
claims and litigation relating to asbestos and environmental claims. Any such development will be affected
by future court decisions and interpretations, as well as changes in applicable legislation. Because of these
uncertainties, additional liabilities may arise for amounts in excess of the current related reserves. In