Travelers 2011 Annual Report Download - page 250

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
15. CONTINGENCIES, COMMITMENTS AND GUARANTEES (Continued)
and insurers, including the Company, on behalf of a putative nationwide class of policyholders. The
complaint included causes of action under the Sherman Act, the Racketeer Influenced and Corrupt
Organizations Act (RICO), state common law and the laws of the various states prohibiting antitrust
violations. The complaint sought monetary damages, including punitive damages and trebled damages,
permanent injunctive relief, restitution, including disgorgement of profits, interest and costs, including
attorneys’ fees. All defendants moved to dismiss the complaint for failure to state a claim. After giving
plaintiffs multiple opportunities to replead, the court dismissed the Sherman Act claims on August 31,
2007 and the RICO claims on September 28, 2007, both with prejudice, and declined to exercise
supplemental jurisdiction over the state law claims. The plaintiffs appealed the district court’s decisions
to the U.S. Court of Appeals for the Third Circuit. On August 16, 2010, the Third Circuit affirmed the
district court’s dismissal of all Sherman Act and RICO claims against certain defendants, including the
Company, except for Sherman Act and RICO claims involving the sale of excess casualty insurance
through a single defendant broker, as well as all state law claims, which they remanded to the district
court for further proceedings. On October 1, 2010, defendants, including the Company, filed renewed
motions to dismiss the remanded claims. On March 18, 2011, the Company and certain other
defendants entered into an agreement with the plaintiffs to settle the lawsuit. The settlement, under
which the Company agreed to pay $6.75 million, is subject to court approval. Preliminary approval of
the settlement was granted on June 27, 2011. On September 14, 2011, the court conducted a final
fairness hearing and the settling parties await the court’s decision.
Other—In addition to those described above, the Company is involved in other lawsuits, including
lawsuits alleging extra-contractual damages relating to insurance contracts or reinsurance agreements,
that do not arise under insurance contracts or reinsurance agreements. Based upon currently available
information, the Company does not believe it is reasonably possible that any such lawsuit or related
lawsuits would be material to the Company’s results of operations or have a material adverse effect on
the Company’s financial position or liquidity.
Gain Contingencies
On August 20, 2010, in a reinsurance dispute in New York state court captioned United States
Fidelity & Guaranty Company v. American Re-Insurance Company, et al., the trial court granted summary
judgment for United States Fidelity and Guaranty Company (USF&G), a subsidiary of the Company,
and on October 25, 2010, entered judgment against American Re-Insurance Company, a subsidiary of
Munich Re (American Re) and three other reinsurers, awarding USF&G $251 million plus
pre-judgment interest in the amount of $169 million. The judgment, including the award of interest,
was appealed to the New York Supreme Court, Appellate Division, First Department. On January 24,
2012, the Appellate Division affirmed the judgment, which, as of that date, totaled $467 million,
comprising the judgment of $251 million and interest of $216 million (including post-judgment interest).
Post-judgment interest continues to accrue (without compounding) at the rate of 9% until the judgment
is paid. On January 30, 2012, the reinsurers filed a motion with the Appellate Division seeking
permission to appeal its decision to the New York Court of Appeals. Whether the Appellate Division
grants permission to appeal is within its discretion. The $251 million awarded by the court represents
the amount owed to USF&G under the terms of the disputed reinsurance agreements and is reported
as part of reinsurance recoverables in the Company’s consolidated balance sheet. The interest awarded
by the Court, including post-judgment interest, is treated for accounting purposes as a gain contingency
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