Travelers 2009 Annual Report Download - page 113

The Company has been, and continues to be, involved in litigation involving insurance coverage
issues pertaining to environmental claims. The Company believes that some court decisions have
interpreted the insurance coverage to be broader than the original intent of the insurers and
policyholders. These decisions often pertain to insurance policies that were issued by the Company
prior to the mid-1980s. These decisions continue to be inconsistent and vary from jurisdiction to
jurisdiction. Environmental claims when submitted rarely indicate the monetary amount being sought by
the claimant from the policyholder, and the Company does not keep track of the monetary amount
being sought in those few claims which indicate a monetary amount.
The resolution of environmental exposures by the Company generally occurs by settlement on a
policyholder-by-policyholder basis as opposed to a claim-by-claim basis. Generally, the Company strives
to extinguish any obligations it may have under any policy issued to the policyholder for past, present
and future environmental liabilities and extinguish any pending coverage litigation dispute with the
policyholder. This form of settlement is commonly referred to as a ‘‘buy-back’’ of policies for future
environmental liability. In addition, many of the agreements have also extinguished any insurance
obligation which the Company may have for other claims, including but not limited to asbestos and
other cumulative injury claims. The Company and its policyholders may also agree to settlements which
extinguish any liability arising from known specified sites or claims. These agreements also include
appropriate indemnities and hold harmless provisions to protect the Company. The Company’s general
purpose in executing these agreements is to reduce the Company’s potential environmental exposure
and eliminate the risks presented by coverage litigation with the policyholder and related costs.
In establishing environmental reserves, the Company evaluates the exposure presented by each
policyholder and the anticipated cost of resolution, if any. In the course of this analysis, the Company
generally considers the probable liability, available coverage, relevant judicial interpretations and
historical value of similar exposures. In addition, the Company considers the many variables presented,
such as the nature of the alleged activities of the policyholder at each site; the allegations of
environmental harm at each site; the number of sites; the total number of potentially responsible
parties at each site; the nature of environmental harm and the corresponding remedy at each site; the
nature of government enforcement activities at each site; the ownership and general use of each site;
the overall nature of the insurance relationship between the Company and the policyholder, including
the role of any umbrella or excess insurance the Company has issued to the policyholder; the
involvement of other insurers; the potential for other available coverage, including the number of years
of coverage; the role, if any, of non-environmental claims or potential non-environmental claims in any
resolution process; and the applicable law in each jurisdiction. Conventional actuarial techniques are
not used to estimate these reserves.
In its review of environmental reserves, the Company considers: past settlement payments;
changing judicial and legislative trends; its reserves for the costs of litigating environmental coverage
matters; the potential for policyholders with smaller exposures to be named in new clean-up actions for
both on- and off-site waste disposal activities; the potential for adverse development; the potential for
additional new claims beyond previous expectations; and the potential higher costs for new settlements.
The duration of the Company’s investigation and review of these claims and the extent of time
necessary to determine an appropriate estimate, if any, of the value of the claim to the Company vary
significantly and are dependent upon a number of factors. These factors include, but are not limited to,
the cooperation of the policyholder in providing claim information, the pace of underlying litigation or
claim processes, the pace of coverage litigation between the policyholder and the Company and the
willingness of the policyholder and the Company to negotiate, if appropriate, a resolution of any
dispute pertaining to these claims. Because these factors vary from claim-to-claim and
policyholder-by-policyholder, the Company cannot provide a meaningful average of the duration of an
environmental claim. However, based upon the Company’s experience in resolving these claims, the
duration may vary from months to several years.
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