Travelers 2013 Annual Report Download - page 115

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 through settlements
with policyholders as opposed to claimants. 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 number of sites; the
total number of potentially responsible parties at each site; the nature of the alleged 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. The evaluation of the exposure presented by a policyholder can change as information
concerning that policyholder and the many variables presented is developed. 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
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