Travelers 2008 Annual Report Download - page 105

of which have been fulfilled. On August 6, 2008, the Company’s $449 million settlement payment was
released from the escrow to the ACandS Trust. This transaction was recorded as a paid claim and
reduction in claim reserves, and accordingly, there was no effect on the Company’s results of
operations. The Company is seeking to recover approximately $84 million of the $449 million from
reinsurers; such a recovery would also have no effect on the Company’s results of operations.
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.
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 bankruptcy court. 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 which 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. On February 29, 2008, TPC and certain other parties to the appeals filed
petitions for rehearing and/or rehearing en banc, requesting reinstatement of the district court’s
judgment, which were denied. TPC and certain other parties filed Petitions for Writ of Certiorari in the
United States Supreme Court seeking review of the Second Circuit’s decision and on December 12,
2008, the Petitions were granted. Unless the Supreme Court reverses the Second Circuit’s decision, and
the bankruptcy court’s order is reinstated and becomes final, the settlements will be voided and TPC
will have no obligation to pay the amounts due under the settlement agreements (other than certain
administrative expenses). In that case, the Company intends to litigate the direct action cases
vigorously. (For a description of these matters, see ‘‘Part I—Item 3, Legal Proceedings’’).
Because each policyholder presents different liability and coverage issues, the Company generally
reviews the exposure presented by each policyholder at least annually. In the course of this review, the
Company generally considers, among other factors: available insurance coverage, including the role of
any umbrella or excess insurance the Company has issued to the policyholder; limits and deductibles;
an analysis of the policyholder’s potential liability; the jurisdictions involved; past and anticipated future
claim activity and loss development on pending claims; past settlement values of similar claims;
allocated claim adjustment expense; potential role of other insurance; the role, if any, of non-asbestos
claims or potential non-asbestos claims in any resolution process; and applicable coverage defenses or
determinations, if any, including the determination as to whether or not an asbestos claim is a products/
completed operation claim subject to an aggregate limit and the available coverage, if any, for that
claim.
In the third quarter of 2008, the Company completed its annual in-depth asbestos claim review.
The trends observed over the past three reviews have been generally consistent. The trends include:
• more stable payment trends for a large proportion of policyholders;
• a decrease in the number of new claims received;
93