Travelers 2007 Annual Report Download - page 236

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
15. CONTINGENCIES, COMMITMENTS AND GUARANTEES (Continued)
In October 2001 and April 2002, two purported class action suits (Wise v. Travelers and Meninger v.
Travelers) were filed against TPC and other insurers (not including SPC) in state court in West Virginia.
These cases were subsequently consolidated into a single proceeding in the Circuit Court of Kanawha
County, West Virginia. The plaintiffs allege that the insurer defendants engaged in unfair trade
practices by inappropriately handling and settling asbestos claims. The plaintiffs seek to reopen large
numbers of settled asbestos claims and to impose liability for damages, including punitive damages,
directly on insurers. Similar lawsuits were filed in West Virginia, Massachusetts and Hawaii state courts
(these suits are collectively referred to as the Statutory and Hawaii Actions).
In March 2002, the plaintiffs in consolidated asbestos actions pending before a mass tort panel of
judges in West Virginia state court amended their complaint to include TPC as a defendant, alleging
that TPC and other insurers breached alleged duties to certain users of asbestos products. The
plaintiffs seek damages, including punitive damages. Lawsuits seeking similar relief and raising similar
allegations, primarily violations of purported common law duties to third parties, are also pending in
Texas state court against TPC and SPC, and in Louisiana state court against TPC (the claims asserted
in these suits, together with the West Virginia suit, are collectively referred to as the Common Law
Claims).
The federal bankruptcy court that had presided over the bankruptcy of TPC’s former policyholder
Johns-Manville Corporation issued a temporary injunction prohibiting the prosecution of the Statutory
Actions (but not the Hawaii Actions), the Common Law Claims and an additional set of cases filed in
various state courts in Texas and Ohio, and enjoining certain attorneys from filing any further lawsuits
against TPC based on similar allegations. Notwithstanding the injunction, additional common law
claims were filed against TPC.
In November 2003, the parties reached a settlement of the Statutory and Hawaii Actions. This
settlement includes a lump-sum payment of up to $412 million by TPC, subject to a number of
significant contingencies. In May 2004, the parties reached a settlement resolving substantially all
pending and similar future Common Law Claims against TPC. This settlement requires a 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.
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.
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.
Various parties appealed the district court’s March 29, 2006 ruling to the U.S. Court of Appeals
for the Second Circuit. On February 15, 2008, the Second Circuit issued an opinion vacating on
jurisdictional grounds the District Court’s approval of an order issued by the bankruptcy court
prohibiting the prosecution of the Statutory and Hawaii Actions and the Common Law Claims, as well
as future similar direct action litigation, against TPC. Final approval of the order was a predicate to
TPC’s financial obligations under the settlement agreements. One or more of the parties may seek
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