Travelers 2015 Annual Report Download - page 102

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 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 and relevant judicial interpretations. 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 methods 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.
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