Travelers 2008 Annual Report Download - page 248

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
15. CONTINGENCIES, COMMITMENTS AND GUARANTEES (Continued)
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.
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. Briefing of the appeal was
completed on April 11, 2008, and oral argument was held on May 20, 2008. 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.
As previously disclosed, as part of industry-wide investigations that commenced in October 2004,
the Company and its affiliates received subpoenas and written requests for information from a number
236