Travelers 2008 Annual Report Download - page 247

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
15. CONTINGENCIES, COMMITMENTS AND GUARANTEES (Continued)
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, a final 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. 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.
SPC, which is not covered by the bankruptcy court rulings or the settlements described above, is a
party to pending direct action cases in Texas state court asserting common law claims. All such cases
that are still pending and in which SPC has been served are currently on the inactive docket in Texas
state court. If any of those cases becomes active, SPC intends to litigate those cases vigorously.
235