Travelers 2006 Annual Report Download - page 72

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Company is obligated to indemnify its officers and directors to the extent provided under Minnesota law.
As part of that obligation, the Company will advance officers and directors attorneys’ fees and other
expenses they incur in defending these lawsuits.
Other Proceedings
From time to time, the Company is involved in proceedings addressing disputes with its reinsurers
regarding the collection of amounts due under the Company’s reinsurance agreements. Theseproceedings
may be initiated by the Company or the reinsurers and may involve the terms of the reinsurance
agreements, the coverage of particular claims, exclusions under the agreements, as well as counterclaims
for rescission of the agreements. One of these disputes is the action described in the following paragraphs.
The Company’s Gulf operation brought an action on May 22, 2003, as amended on May 12, 2004, in
the Supreme Court of New York, County of New York ( Gulf Insurance Company v. Transatlantic
Reinsurance Company, et al. ), against Transatlantic Reinsurance Company (Transatlantic), XL
Reinsurance America, Inc. (XL), Odyssey America Reinsurance Corporation (Odyssey), Employers
Reinsurance Company (Employers) and Gerling Global Reinsurance Corporation of America (Gerling),
to recover amounts due under reinsurance contracts issued to Gulf and related to Gulf’s February 2003
settlement of a coverage disputeunder a vehicle residual value protection insurancepolicy. The reinsurers
have asserted counterclaims seeking rescission of the vehicle residual value reinsurance contracts issued to
Gulf and unspecified damages for breach of contract. Separate actions filed by Transatlantic and Gerling
have been consolidated with the original Gulf action for pre-trial purposes.
On October 1, 2003, Gulf entered into a final settlement agreement with Employers, and all claims
and counterclaims with respect to Employers have beendismissed. On May 26, 2004, the Court denied
Gulf’s motion to dismiss certain claims asserted by Transatlantic and denied a joint motion by
Transatlantic, XL and Odyssey for summary judgment against Gulf. On December 22, 2006, Gulf and XL
entered into a final settlement agreement which resolves all claims between Gulf and XL under the
reinsurance agreements at issue in the litigation. Fact and expert discovery are complete with respect to
the remaining parties: Transatlantic, Odyssey and Gerling. Gulf, Transatlantic and Gerling have filed
motions for partial summary judgment. The Court has not yet set a trial date. Gulf denies the reinsurers’
allegations, believes that it has a strong legal basis to collect the amounts due under the reinsurance
contracts andintends to vigorously pursue the actions.
Based on the Company’s beliefs about its legal positions in its various reinsurance recovery
proceedings, the Companydoes notexpect any of these matters will have a material adverse effect on its
results of operations in a future period.
The Company is a defendant in three consolidated lawsuits in the United States District Court for the
Eastern District of Louisiana arising out of disputes with certain policyholders over whether insurance
coverage is available for flood losses arising fromHurricane Katrina: Chehardy, et al. v. State Farm, et al. ,
C.A. No. 06-1672, 06-1673 and06-1674, Vanderbrook, et al. v. State Farm Fire & Cas. Co., et al. C.A.
No. 05-6323;and Xavier University of Louisiana v. Travelers Property Ca. Co. of America, C.A. No. 06-516.
Chehardy and Vanderbrook are proposed class actions in which the Company is one of several insurer
defendants.Xavier is an individual suit involving a property insurance policy brought by one of the
Company’s insureds. The losses involved in all of these suits allegedly were caused by the failure of the
New Orleans levees. On November 27, 2006, the Court issued a ruling in the three consolidated cases
denying the motions of the Company and certain other insurers for a summary disposition of the cases.
The Court’s ruling does not determine that any additional amounts are owed under any of the Company’s
policies or otherwise reach the merits of the policyholders’ claims. The Company disagrees with the ruling
and, along withcertain other insurers named in the consolidated lawsuits, filed amotion with the United
States Court of Appeals for the Fifth Circuit, seeking to have the Court of Appeals accept an immediate
appeal from the District Court’s ruling. OnFebruary 1, 2007, the Fifth Circuit accepted the appeal.