Dow Chemical 2015 Annual Report Download - page 118

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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 October 2013, Union Carbide requested ARPC to review its historical asbestos claim and resolution activity and determine
the appropriateness of updating its December 2012 study. In response to that request, ARPC reviewed and analyzed data
through September 30, 2013. In December 2013, 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 2012 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.
In October 2014, Union Carbide requested ARPC to review its historical asbestos claim and resolution activity and determine
the appropriateness of updating its December 2012 study. In response to that request, ARPC reviewed and analyzed data
through September 30, 2014. The resulting study, completed by ARPC in December 2014, estimates that the undiscounted cost
of disposing of pending and future claims against Union Carbide and Amchem, excluding future defense and processing costs,
to be between $540 million and $640 million through 2029 based on the data as of September 30, 2014. As in earlier studies,
ARPC provided longer periods of time in its December 2014 study, but also reaffirmed that forecasts for shorter periods of time
are more accurate than those for longer periods of time.
In December 2014, based on ARPC's December 2014 study and Union Carbides's own review of the asbestos claim and
resolution activity, Union Carbide determined that an adjustment to the accrual was required due to the increase in
mesothelioma claim activity compared with what had been forecasted in the December 2012 study. Accordingly, Union Carbide
increased its asbestos-related liability for pending and future claims by $78 million, included in "Asbestos-related charge" in the
consolidated statements of income. At December 31, 2014, the asbestos-related liability for pending and future claims was
$513 million, with approximately 22 percent of the recorded liability related to pending claims and approximately 78 percent
related to future claims.
In October 2015, Union Carbide requested ARPC to review its historical asbestos claim and resolution activity and determine
the appropriateness of updating its December 2014 study. In response to that request, ARPC reviewed and analyzed data
through September 30, 2015. In December 2015, ARPC stated that an update of its study would not provide a more likely
estimate of future events than the estimate reflected in the December 2014 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 would be required. At December 31, 2015, the asbestos-related liability
for pending and future claims was $437 million. At December 31, 2015, approximately 21 percent of the recorded liability
related to pending claims and approximately 79 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
Agreement, to which Union Carbide and many of its liability insurers are signatory parties, as well as other insurance
settlements, with due consideration given to applicable deductibles, retentions and policy limits, and taking into account the
solvency and historical payment experience of various insurance carriers. The Wellington Agreement and other agreements with
insurers are designed to facilitate an orderly resolution and collection of Union Carbide’s insurance policies and to resolve
issues that the insurance carriers may raise.
In September 2003, Union Carbide filed a comprehensive insurance coverage case, now proceeding in the Supreme Court of
the State of New York, County of New York, seeking to confirm its rights to insurance for various asbestos claims and to
facilitate an orderly and timely collection of insurance proceeds (the “Insurance Litigation”). The Insurance Litigation was filed
against insurers that are not signatories to the Wellington Agreement and/or do not otherwise have agreements in place with
Union Carbide regarding their asbestos-related insurance coverage, in order to facilitate an orderly resolution and collection of
such insurance policies and to resolve issues that the insurance carriers may raise. Since the filing of the case, Union Carbide