Travelers 2007 Annual Report Download - page 237

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
15. CONTINGENCIES, COMMITMENTS AND GUARANTEES (Continued)
further appellate review of the Second Circuit’s opinion, and the Company is evaluating its appellate
options. Unless the Second Circuit’s decision is reversed on further appeal and the bankruptcy court’s
order is reinstated and becomes final, the settlements will be voided, TPC will have no obligation to
pay the amounts due under the settlement agreements (other than certain administrative expenses) and
the Company intends to litigate the direct action cases vigorously.
SPC, which is not covered by the bankruptcy court rulings or the settlements described above, has
numerous defenses in the direct action cases asserting common law claims that are pending against it.
There have been favorable rulings during 2003 and 2004 in Texas and during 2004 and 2005 in Ohio on
motions to dismiss 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, only one court, in June of 2005, has denied
the insurers’ initial challenges to the pleadings. That ruling was contrary to the rulings by other courts
in similar cases, and SPC and the other insurer defendants have filed a petition with the Texas Court of
Appeals seeking relief from that ruling.
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 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 be material to the
Company’s results of operations in future periods.
Shareholder Litigation and Related Proceedings
In November 2004, two purported class actions were brought in the U.S. District Court for the
District of Minnesota by certain shareholders of the Company against the Company and certain of its
current and former officers and directors. These two actions were consolidated as In re St. Paul
Travelers Securities Litigation II. An amended consolidated complaint was filed alleging violations of
federal securities laws in connection with (i) the Company’s alleged failure to make disclosure relating
to the practice of paying brokers commissions on a contingent basis, (ii) the Company’s alleged
involvement in a conspiracy to rig bids and (iii) the Company’s allegedly improper use of finite
reinsurance products. On January 17, 2008, the parties in In re St. Paul Travelers Securities Litigation II
entered into a stipulation of settlement resolving the case. The settlement is subject to court approval.
The settlement will not have a material impact on the Company’s results of operations.
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. These
proceedings 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 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),
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