Travelers 2008 Annual Report Download - page 75

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
of government agencies and authorities, including, among others, state attorneys general, state
insurance departments, the U.S. Attorney for the Southern District of New York and the U.S.
Securities and Exchange Commission (SEC). The areas of pending inquiry addressed to the Company
include its relationship with brokers and agents and the Company’s involvement with ‘‘non-traditional
insurance and reinsurance products.’’ The Company and its affiliates may receive additional subpoenas
and requests for information with respect to these matters.
The Company cooperated with these subpoenas and requests for information. In addition, outside
counsel, with the oversight of the Company’s board of directors, conducted an internal review of
certain of the Company’s business practices. This review was commenced after the announcement of
litigation brought in October 2004 by the New York Attorney General’s office against a major broker.
The Company completed its review. With respect to the identified finite products purchased and sold,
the Company concluded that no adjustment to previously issued financial statements was required. Any
authority with open inquiries or investigations could ask that additional work be performed or reach
conclusions different from the Company’s.
In 2005, four putative class action lawsuits were brought against a number of insurance brokers
and insurers, including the Company and/or certain of its affiliates, by plaintiffs who allegedly
purchased insurance products through one or more of the defendant brokers. The plaintiffs alleged that
various insurance brokers conspired with each other and with various insurers, including the Company
and/or certain of its affiliates, to artificially inflate premiums, allocate brokerage customers and rig bids
for insurance products offered to those customers. To the extent they were not originally filed there,
the federal class actions were transferred to the U.S. District Court for the District of New Jersey and
were consolidated for pre-trial proceedings with other class actions under the caption In re Insurance
Brokerage Antitrust Litigation. On August 1, 2005, various plaintiffs, including the four named plaintiffs
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