Travelers 2007 Annual Report Download - page 73

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),
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
dispute under a vehicle residual value protection insurance policy. The reinsurers asserted
counterclaims seeking rescission of the vehicle residual value reinsurance contracts issued to Gulf and
unspecified damages for breach of contract. Gerling commenced a separate action asserting the same
claims, which has been consolidated with the original Gulf action for pre-trial purposes.
Gulf has entered into final settlement agreements with Employers, XL, Transatlantic and Odyssey
which resolve all claims between Gulf and these defendants under the reinsurance agreements at issue
in the litigation.
In November 2007, the court issued rulings denying Gulf’s motion for partial summary judgment
against Gerling, the sole remaining defendant, but granting Gerling’s motion for partial summary
judgment on certain claims and counterclaims asserted by Gulf and Gerling. Gulf has appealed the
court’s decision to the Supreme Court of New York Appellate Division, First Department, and has
been granted a stay of trial on the remaining claims pending that appeal. Gulf denies Gerling’s
allegations, believes that it has a strong legal basis to collect the amounts due under the reinsurance
contracts and intends to vigorously pursue the action.
Based on the Company’s beliefs about its legal positions in its various reinsurance recovery
proceedings, the Company does not expect 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 U.S. 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 from Hurricane Katrina: Chehardy, et al. v. State Farm, et
al., Vanderbrook, et al. v. State Farm Fire & Cas. Co., et al., and Xavier University of Louisiana v. Travelers
Property Ca. Co. of America. Chehardy and Vanderbrook are purported class actions in which the
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