Travelers 2006 Annual Report Download - page 71

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addition, the Company’s estimate of ultimate 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
could result in income statement charges that could bematerial to the Company’s results of operations in
future periods.
Shareholder Litigation and Related Proceedings
Three actions against the Company and certain of its current and former officers and directors are
pending in the United States District Court for the District of Minnesota. Two of these actions, which were
originally captioned Kahn v. The St. Paul Travelers Companies, Inc., et al. (Nov. 2, 2004) and Michael A.
Bernstein Profit Sharing Plan v. The St. Paul Travelers Companies, Inc., et al. (Nov. 10, 2004), are putative
class actions brought by certain shareholders of the Company against the Company and certain of its
current and former officers and directors. These actions have been consolidated as In re St. Paul Travelers
Securities Litigation II, and a lead plaintiff and lead counsel have been appointed. On July 11, 2005, the
lead plaintiff filed an amended consolidated complaint. The amended consolidated complaint alleges
violations of federal securities laws in connection with the Company’s alleged failure to make disclosure
relating to the practice of paying brokers commissions on a contingent basis, the Company’s alleged
involvement in a conspiracy to rig bids and the Company’s allegedly improper use of finite reinsurance
products. On September 26, 2005, the Company and the other defendants inIn re St. Paul Travelers
Securities Litigation II moved to dismiss the amended consolidated complaint for failure to state a claim.
Oral argument on the Company’s motionto dismiss was presented on June15, 2006. By order dated
September 25, 2006, the Court denied the Company’s motion to dismiss. Discovery has commenced. On
November 3, 2006, the Company and the other defendants in In re St. Paul Travelers Securities Litigation II
moved for partial judgmenton the pleadings seeking dismissal of the allegations relating to the allegedly
improper use of finite reinsurance products. That motion remainspending. In the third action, an alleged
beneficiary of the Company’s 401(k) savings plan commenced a putative class action against the Company
and certain of its current and former officers and directors captioned Spiziri v. TheSt. Paul Travelers
Companies, Inc., et al. (Dec. 28, 2004). The complaint alleges violations of the Employee Retirement
Income Security Act based on the theory that defendants were allegedly aware of issues concerning the
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