Travelers 2015 Annual Report Download - page 243

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
16. CONTINGENCIES, COMMITMENTS AND GUARANTEES (Continued)
Gain Contingency
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. That summary judgment was largely affirmed on appeal,
but the Court of Appeals remanded the case for trial on two discrete issues. On June 3, 2015, the trial
court entered orders on pretrial motions filed by all parties in advance of the August 3, 2015 trial date
and determined that the issues for trial will be limited to the two discrete issues remanded by the
Court of Appeals. The reinsurers appealed the trial court’s orders to the Appellate Division, First
Department and were granted a stay of the trial date pending the outcome of their appeal. On
August 12, 2015, USF&G filed a motion to dismiss the reinsurers’ appeal. On October 29, 2015, the
Appellate Division denied USF&G’s motion to dismiss the reinsurers’ appeal, but also unanimously
ruled in USF&G’s favor and affirmed the rulings limiting the issues for trial to the two discrete issues
remanded by the Court of Appeals. On October 30, 2015, the reinsurers appealed the Appellate
Division’s decision to the New York Court of Appeals. On November 9, 2015, the Clerk of the Court
of Appeals directed the parties to submit letter briefs addressing whether the Court of Appeals has
jurisdiction to decide the reinsurers’ appeal. On November 19, 2015, USF&G and the reinsurers filed
their respective letter briefs, and the parties await a decision from the Court of Appeals as to whether
the reinsurers’ appeal may proceed. At December 31, 2015, the claim totaled $509 million, comprising
$238 million of reinsurance recoverable plus interest amounting to $271 million as of that date. Interest
will continue to accrue at an annual rate of 9% until the claim is paid. The $238 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.
Resolution of Gain Contingency
In 2013, the Company favorably resolved 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.). The plaintiffs, including the Company, alleged that the defendants had engaged in the
under-reporting of workers’ compensation premium in connection with a workers’ compensation
reinsurance pool in which several subsidiaries of the Company participated. The Company received
two payments totaling approximately $93 million, comprising its allocation as a plaintiff class
member from the settlement fund, less approximately $2 million remitted to another insurer,
resulting in a net gain of $91 million that was reported in ‘‘Other revenues’’ in the Company’s
consolidated statement of income for the year ended December 31, 2013.
243