Travelers 2012 Annual Report Download - page 252

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
16. CONTINGENCIES, COMMITMENTS AND GUARANTEES (Continued)
for the Third Circuit. Each of those appeals has been dismissed. Accordingly, the settlement will
proceed in accordance with the district court’s final approval order and the Company’s involvement in
these class actions is concluded.
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 17, 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 denied summary judgment for American Re-Insurance Company, a subsidiary of Munich Re
(American Re), and three other reinsurers. By order dated October 22, 2010, the trial court corrected
certain clerical errors and made certain clarifications to the August 17, 2010 order. On October 25,
2010, judgment was entered against American Re and the other three insurers, awarding USF&G
$420 million, comprising $251 million ceded under the terms of the disputed reinsurance contract plus
interest of 9% amounting to $169 million as of that date. The judgment, including the award of
interest, was appealed by the reinsurers to the New York Supreme Court, Appellate Division, First
Department. On January 24, 2012, the Appellate Division affirmed the judgment. 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, and on March 12, 2012, the Appellate Division granted the reinsurers’
motion. On February 7, 2013, the Court of Appeals issued an opinion that largely affirmed the
summary judgment in USF&G’s favor, while modifying in part the summary judgment with respect to
two discrete issues and remanding the case to the trial court for determination of those issues. The
Company believes it has a meritorious position on each of these issues and intends to pursue its claim
vigorously. At December 31, 2012, the claim totaled $470 million, comprising $251 million of
reinsurance recoverable plus interest which had grown to $219 million as of that date. Interest will
continue to accrue at 9% until the claim is paid. The $251 million of reinsurance recoverable owed to
USF&G under the terms of the disputed reinsurance contract has been reported as part of reinsurance
recoverables in the Company’s consolidated balance sheet. The interest that would be owed as part of
any judgment ultimately entered in favor of USF&G is treated for accounting purposes as a gain
contingency in accordance with FASB Topic 450, Contingencies, and accordingly has not been
recognized in the Company’s consolidated financial statements.
In an unrelated action, The Travelers Indemnity Company is one of the Settlement Class plaintiffs
and a class member in a class action lawsuit captioned Safeco Insurance Company of America, et al. v.
American International Group, Inc. et al. (U.S. District Court, N.D. Ill.) in which the defendants are
alleged to have engaged in the under-reporting of workers’ compensation premium in connection with
a workers’ compensation reinsurance pool in which several subsidiaries of the Company participate. On
July 26, 2011, the court granted preliminary approval of a class settlement pursuant to which the
defendants agreed to pay $450 million to the class. The settlement includes a plan of allocation of the
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