Travelers 2007 Annual Report Download - page 103

not shown any credible disease manifestation are having their hearing dates delayed or placed on an
inactive docket. This trend of prioritizing claims involving credible evidence of injuries, along with the
focus on previously peripheral defendants, contributes to the loss and loss expense payments
experienced by the Company. The Company’s asbestos-related claims and claim adjustment expense
experience has been impacted by the unavailability of other insurance sources potentially available to
policyholders, whether through exhaustion of policy limits or insolvency.
The Company continues to be involved in coverage litigation concerning a number of
policyholders, some of whom have filed for bankruptcy, who in some instances have asserted that all or
a portion of their asbestos-related claims are not subject to aggregate limits on coverage. In these
instances, policyholders also may assert that each individual bodily injury claim should be treated as a
separate occurrence under the policy. It is difficult to predict whether these policyholders will be
successful on both issues. To the extent both issues are resolved in a policyholders’ favor and other
Company defenses are not successful, the Company’s coverage obligations under the policies at issue
would be materially increased and bounded only by the applicable per-occurrence limits and the
number of asbestos bodily injury claims against the policyholders. Accordingly, although the Company
has seen a moderation in the overall risk associated with these lawsuits, it remains difficult to predict
the ultimate cost of these claims.
Many coverage disputes with policyholders are only resolved through settlement agreements.
Because many policyholders make exaggerated demands, it is difficult to predict the outcome of
settlement negotiations. Settlements involving bankrupt policyholders may include extensive releases
which are favorable to the Company but which could result in settlements for larger amounts than
originally anticipated. There also may be instances where a court may not approve a proposed
settlement, which may result in additional litigation and potentially less beneficial outcomes for the
Company. As in the past, the Company will continue to pursue settlement opportunities.
On July 6, 2007, the Company announced that it had entered into a settlement to resolve fully all
current and future asbestos-related coverage claims relating to ACandS. Under the settlement
agreement, the Company will contribute $449 million to a trust to be established pursuant to ACandS’
plan of reorganization. In exchange, the Company will be released from any obligations it has to
ACandS for asbestos-related claims and will be protected from any such claims by injunctions to be
issued in the Company’s favor by the federal court overseeing ACandS’ bankruptcy case. The
settlement is subject to a number of contingencies. On August 27, 2007 the bankruptcy court overseeing
ACandS’ bankruptcy approved the settlement and no appeals from that approval were taken. As a
result, the Company has placed $449 million into escrow. Upon fulfillment of all contingencies,
including final court approval of a plan of reorganization for ACandS and the issuance of the
injunctions described above, those funds will be released from escrow to the trust created under
ACandS’ plan of reorganization. The release of the funds to the trust will be recorded as a paid claim
and a reduction in claim reserves and, accordingly, there will be no effect on the Company’s results of
operations. The Company expects to seek to recover approximately $84 million of the $449 million
from reinsurers. (Also, see ‘‘Part I—Item 3, Legal Proceedings’’).
In addition to claims against policyholders, proceedings have been launched directly against
insurers, including the Company, by individuals challenging insurers’ conduct with respect to the
handling of past asbestos claims and by individuals seeking damages arising from alleged asbestos-
related bodily injuries. The Company anticipates the filing of other direct actions against insurers,
including the Company, in the future. It is difficult to predict the outcome of these proceedings,
including whether the plaintiffs will be able to sustain these actions against insurers based on novel
legal theories of liability. The Company believes it has meritorious defenses to these claims and has
received favorable rulings in certain jurisdictions. Additionally, Travelers Property Casualty Corp.
(TPC), a wholly-owned subsidiary of the Company, had entered into settlement agreements, which had
been approved by the court in connection with the proceedings initiated by TPC in the Johns Manville
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