Travelers 2008 Annual Report Download - page 74

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.
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.),
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