American Home Shield 2008 Annual Report Download - page 104

Table of Contents
Notes to the Consolidated Financial Statements (Continued)
Note 10. Commitments and Contingencies (Continued)
The Company carries insurance policies on insurable risks at levels which it believes to be appropriate, including workers' compensation, auto and
general liability risks. The Company purchases insurance from third-party insurance carriers. These policies typically incorporate significant deductibles or
self-insured retentions. The Company is required to pay all claims that fall within the retention limits. As of December 31, 2008 and 2007, the Company had
accrued self-insured claims of $146 million and $159 million, respectively. During the year ended December 31, 2008, the Successor period from July 25,
2007 to December 31, 2007, the Predecessor period from January 1, 2007 to July 24, 2007 and the year ended December 31, 2006, the Company recorded
provisions for uninsured claims totaling $36 million, $21 million, $29 million and $53 million, respectively, and the Company paid claims totaling
$49 million, $23 million, $33 million and $61 million, respectively. In determining the Company's accrual for self-insured claims, the Company uses
historical claims experience to establish both the current year accrual and the underlying provision for future losses. This actuarially determined provision and
related accrual include both known claims, as well as incurred but not reported claims. The Company adjusts its estimate of accrued self-insured claims when
required to reflect changes based on factors such as changes in health care costs, accident frequency and claim severity.
Accruals for warranty claims in the American Home Shield business are made based on the Company's claims experience and actuarial projections.
Termite damage claim accruals are recorded based on both the historical rates of claims incurred within a contract year and the cost per claim. Current activity
could differ causing a change in estimates. The Company has certain liabilities with respect to existing or potential claims, lawsuits and other proceedings.
The Company accrues for these liabilities when it is probable that future costs will be incurred and such costs can be reasonably estimated. Any resulting
adjustments, which could be material, are recorded in the period the adjustments are identified.
As part of the ARS and AMS sale agreements, the Company continues to be obligated to third parties with respect to operating leases for which the
Company has been released as being the primary obligor, as well as certain real estate leased and operated by the buyers. The Company's obligations under
these agreements may be limited in terms of time and or amount, and in some cases, the Company may have recourse against the buyers for any potential
future payments made by the Company. At the present time, the Company does not believe it is probable that the buyers will default on their obligations
subject to guarantee. The fair value of the Company's obligations related to these guarantees is not significant and no liability has been recorded.
The Company has guarantees on certain bonds issued by divested companies, primarily performance type bonds. The maximum payments the Company
could be required to make if the buyers of the divested companies are unable to fulfill their obligations is approximately $0.7 million at December 31, 2008.
Substantially all of the bonds are scheduled to expire in 2009, but may be extended depending on the completion of the related projects. The Company
believes that if it were to incur a loss on any individual bond guarantee, the likelihood of which the Company believes is remote, such loss would not have a
material effect on the Company's business, financial condition, annual results of operations or cash flows.
In the ordinary course of conducting its business activities, the Company becomes involved in judicial, administrative and regulatory proceedings
involving both private parties and governmental authorities. These proceedings include general and commercial liability and employment actions as well as
environmental proceedings. The Company does not expect any of these proceedings to
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