Dow Chemical 2012 Annual Report Download - page 131

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Asbestos-Related Matters of Union Carbide Corporation
Introduction
Union Carbide Corporation (“Union Carbide”), a wholly owned subsidiary of the Company, is and has been involved in a large
number of asbestos-related suits filed primarily in state courts during the past three decades. These suits principally allege
personal injury resulting from exposure to asbestos-containing products and frequently seek both actual and punitive damages.
The alleged claims primarily relate to products that Union Carbide sold in the past, alleged exposure to asbestos-containing
products located on Union Carbide’s premises, and Union Carbide’s responsibility for asbestos suits filed against a former
Union Carbide subsidiary, Amchem Products, Inc. (“Amchem”). In many cases, plaintiffs are unable to demonstrate that they
have suffered any compensable loss as a result of such exposure, or that injuries incurred in fact resulted from exposure to
Union Carbide’s products.
Union Carbide expects more asbestos-related suits to be filed against Union Carbide and Amchem in the future, and will
aggressively defend or reasonably resolve, as appropriate, both pending and future claims.
Estimating the Liability
Based on a study completed by Analysis, Research & Planning Corporation (“ARPC”) in January 2003, Union Carbide
increased its December 31, 2002 asbestos-related liability for pending and future claims for the 15-year period ending in 2017
to $2.2 billion, excluding future defense and processing costs. Since then, Union Carbide has compared current asbestos claim
and resolution activity to the results of the most recent ARPC study at each balance sheet date to determine whether the accrual
continues to be appropriate. In addition, Union Carbide has requested ARPC to review Union Carbide’s historical asbestos
claim and resolution activity each year since 2004 to determine the appropriateness of updating the most recent ARPC study.
In November 2010, Union Carbide requested ARPC to review Union Carbide’s historical asbestos claim and resolution
activity and determine the appropriateness of updating its most recent study completed in December 2008. In response to that
request, ARPC reviewed and analyzed data through October 31, 2010. The resulting study, completed by ARPC in December
2010, stated that the undiscounted cost of resolving pending and future asbestos-related claims against Union Carbide and
Amchem, excluding future defense and processing costs, through 2025 was estimated to be between $744 million and
$835 million. As in its earlier studies, ARPC provided estimates for a longer period of time in its December 2010 study, but
also reaffirmed its prior advice that forecasts for shorter periods of time are more accurate than those for longer periods of time.
In December 2010, based on ARPC’s December 2010 study and Union Carbide’s own review of the asbestos claim and
resolution activity, Union Carbide decreased its asbestos-related liability for pending and future claims to $744 million, which
covered the 15-year period ending 2025, excluding future defense and processing costs. The reduction of $54 million was
shown as “Asbestos-related credit” in the consolidated statements of income and reflected in Corporate. At December 31, 2010,
the asbestos-related liability for pending and future claims was $728 million.
In November 2011, Union Carbide requested ARPC to review Union Carbide’s 2011 asbestos claim and resolution activity
and determine the appropriateness of updating its December 2010 study. In response to that request, ARPC reviewed and
analyzed data through October 31, 2011. In January 2012, ARPC stated that an update of its study would not provide a more
likely estimate of future events than the estimate reflected in its December 2010 study and, therefore, the estimate in that study
remained applicable. Based on Union Carbide’s own review of the asbestos claim and resolution activity and ARPC’s response,
Union Carbide determined that no change to the accrual was required. At December 31, 2011, the asbestos-related liability for
pending and future claims was $668 million.
In October 2012, Union Carbide requested ARPC to review its historical asbestos claim and resolution activity and
determine the appropriateness of updating its December 2010 study. In response to that request, ARPC reviewed and analyzed
data through September 30, 2012. In December 2012, based upon ARPC's December 2012 study and Union Carbide's own
review of the asbestos claim and resolution activity for 2012, it was determined that no adjustment to the accrual was required
at December 31, 2012. Union Carbide's asbestos-related liability for pending and future claims was $602 million at December
31, 2012.
At December 31, 2012, approximately 18 percent of the recorded liability related to pending claims and approximately 82
percent related to future claims. At December 31, 2011, approximately 18 percent of the recorded liability related to pending
claims and approximately 82 percent related to future claims.
Insurance Receivables
At December 31, 2002, Union Carbide increased the receivable for insurance recoveries related to its asbestos liability to
$1.35 billion, substantially exhausting its asbestos product liability coverage. The insurance receivable related to the asbestos
liability was determined by Union Carbide after a thorough review of applicable insurance policies and the 1985 Wellington