Travelers 2010 Annual Report Download - page 108

ENVIRONMENTAL CLAIMS AND LITIGATION
The Company continues to receive claims from policyholders who allege that they are liable for
injury or damage arising out of their alleged disposition of toxic substances. Mostly, these claims are
due to various legislative as well as regulatory efforts aimed at environmental remediation. For
instance, the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA),
enacted in 1980 and later modified, enables private parties as well as federal and state governments to
take action with respect to releases and threatened releases of hazardous substances. This federal
statute permits the recovery of response costs from some liable parties and may require liable parties to
undertake their own remedial action. Liability under CERCLA may be joint and several with other
responsible parties.
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. Where appropriate, these
agreements also include 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
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