Cigna 2012 Annual Report Download - page 146

PART II
ITEM 8 Financial Statements and Supplementary Data
additional restrictions on the use of prescription drug formularies services business, including payments to providers and benefit level
and rulings from pending purported class action litigation, that disputes. Such legal matters include benefit claims, breach of contract
could result in adjustments to or the elimination of the average claims, tort claims, disputes regarding reinsurance arrangements,
wholesale price of pharmaceutical products as a benchmark in employment related suits, employee benefit claims, wage and hour
establishing certain rates, charges, discounts, guarantees and fees for claims, and intellectual property and real estate related disputes.
various prescription drugs; Litigation of income tax matters is accounted for under FASB’s
accounting guidance for uncertainty in income taxes. Further
additional privacy legislation and regulations that interfere with the information can be found in Note 20. The outcome of litigation and
proper use of medical information for research, coordination of other legal matters is always uncertain, and unfavorable outcomes that
medical care and disease and disability management; are not justified by the evidence can occur. The Company believes
additional variations among state laws mandating the time periods that it has valid defenses to the legal matters pending against it and is
and administrative processes for payment of health care provider defending itself vigorously.
claims; When the Company (in the course of its regular review of pending
legislation that would exempt independent physicians from litigation and legal matters) has determined that a material loss is
antitrust laws; and reasonably possible, the matter is disclosed including an estimate or
range of loss or a statement that such an estimate cannot be made. In
changes in federal tax laws, such as amendments that could affect
many proceedings, however, it is inherently difficult to determine
the taxation of employer provided benefits.
whether any loss is probable or even possible or to estimate the
The employee benefits industry remains under scrutiny by various amount or range of any loss. In accordance with applicable accounting
state and federal government agencies and could be subject to guidance, when litigation and regulatory matters present loss
government efforts to bring criminal actions in circumstances that contingencies that are both probable and estimable, the Company
could previously have given rise only to civil or administrative accrues the estimated loss by a charge to income. The amount accrued
proceedings. represents the Company’s best estimate of the probable loss. If only a
Guaranty fund assessments. The Company operates in a regulatory range of estimated losses can be determined, the Company accrues an
environment that may require the Company to participate in amount within the range that, in the Company’s judgment, reflects
assessments under state insurance guaranty association laws. The the most likely outcome; if none of the estimates within that range is a
Company’s exposure for certain obligations of insolvent insurance better estimate than any other amount, the Company accrues at the
companies to policyholders and claimants to assessments is based on low end of the range. In cases that the Company has accrued an
its share of business it writes in the relevant jurisdictions. For the years estimated loss, the accrued amount may differ materially from the
ended December 31, 2012, 2011, and 2010, charges related to ultimate amount of the relevant costs.
guaranty fund assessments were not material to the Company’s results The Company increased its reserves by $124 million pre-tax
of operations. ($81 million after-tax) during 2012, primarily relating to
The Company is aware of an insurer that is in rehabilitation, an developments in the Amara matter as discussed below, resulting in
intermediate action before insolvency. On May 3, 2012, the state pre-tax reserves for these matters of $189 million ($123 million
court denied the regulator’s amended petitions for liquidation and set after-tax) as of December 31, 2012. Due to numerous uncertain
forth specific requirements and a deadline for the regulator to develop factors presented in these cases, it is not possible to estimate an
a plan of rehabilitation without liquidating the insurer. On May 14, aggregate range of loss (if any) for these matters at this time.
2012 the regulator filed a post-trial motion requesting the court to Except as otherwise noted, the Company believes that the legal
reconsider its decision. On September 28, 2012, an Order of actions, proceedings and investigations currently pending against it
Judgment was entered finalizing the court’s opinion that the insurer is should not have a material adverse effect on the Company’s results of
not insolvent and remains in rehabilitation. The regulator has operations, financial condition or liquidity based upon current
appealed the court’s decision. If the state court’s decision is reversed knowledge and taking into consideration current accruals. However,
and the insurer is declared insolvent and placed in liquidation, the in light of the uncertainties involved in these matters, there is no
Company and other insurers may be required to pay a portion of assurance that their ultimate resolution will not exceed the amounts
policyholder claims through guaranty fund assessments from various currently accrued by the Company and that an adverse outcome in
states in which the Company’s insurance subsidiaries write premiums. one or more of these matters could be material to the Company’s
Based on current information available, in the event of a reversal of the results of operation, financial condition or liquidity for any particular
state court decision and liquidation of the insurer, the Company has period.
estimated that potential future assessments could result in future
Amara cash balance pension plan litigation. On December 18,
charges totaling approximately $60 million after-tax. The Company
2001, Janice Amara filed a class action lawsuit, captioned Janice C.
will continue to monitor the outcome of the court’s deliberations.
Amara, Gisela R. Broderick, Annette S. Glanz, individually and on
behalf of all others similarly situated v. Cigna Corporation and Cigna
E. Litigation and Other Legal Matters
Pension Plan, in the United States District Court for the District of
The Company is routinely involved in numerous claims, lawsuits, Connecticut against Cigna Corporation and the Cigna Pension Plan
regulatory and IRS audits, investigations and other legal matters on behalf of herself and other similarly situated participants in the
arising, for the most part, in the ordinary course of managing a health Cigna Pension Plan affected by the 1998 conversion to a cash balance
124 CIGNA CORPORATION - 2012 Form 10-K
•
•
•
•
•