Invacare 2009 Annual Report Download - page 28

• obtain a license from the holder of the infringed intellectual property right alleged to have been
infringed, which license may not be available on commercially reasonable terms, if at all; or
• redesign or rename the company’s products, which may not be possible, and could be costly and time
consuming and could result in lost revenues and market share.
The results of legal proceedings are difficult to predict and the company cannot provide any assurance that
an action or proceeding will not be commenced against the company, or that the company will prevail in any
such action or proceeding. An unfavorable resolution of any legal action or proceeding could materially and
adversely affect the company’s business, results of operations, liquidity or financial condition or its reputation.
Product liability claims may harm the company’s business, particularly if the number of claims increases
significantly or the company’s product liability insurance proves inadequate.
The manufacture and sale of home health care devices and related products exposes the company to a
significant risk of product liability claims. From time to time, the company has been, and is currently, subject to a
number of product liability claims alleging that the use of the company’s products has resulted in serious injury
or even death.
Even if the company is successful in defending against any liability claims, these claims could nevertheless
distract the company’s management, result in substantial costs, harm the company’s reputation, adversely affect
the sales of all the company’s products and otherwise harm the company’s business. If there is a significant
increase in the number of product liability claims, the company’s business could be adversely affected.
The company’s captive insurance company, Invatection Insurance Company, currently has a policy year that
runs from September 1 to August 31 and insures annual policy losses of $10,000,000 per occurrence and
$13,000,000 in the aggregate of the company’s North American product liability exposure. The company also
has additional layers of external insurance coverage insuring up to $75,000,000 in annual aggregate losses arising
from individual claims anywhere in the world that exceed the captive insurance company policy limits or the
limits of the company’s per country foreign liability limits as applicable. There can be no assurance that the
company’s current insurance levels will continue to be adequate or available at affordable rates.
Product liability reserves are recorded for individual claims based upon historical experience, industry
expertise and indications from the third-party actuary. Additional reserves, in excess of the specific individual
case reserves, are provided for incurred but not reported claims based upon actuarial valuations at the time such
valuations are conducted. Historical claims experience and other assumptions are taken into consideration to
estimate the ultimate reserves. For example, the actuarial analysis assumes that historical loss experience is an
indicator of future experience, that the distribution of exposures by geographic area and nature of operations for
ongoing operations is expected to be very similar to historical operations with no dramatic changes and that the
government indices used to trend losses and exposures are appropriate. Estimates made are adjusted on a regular
basis and can be impacted by actual loss awards and settlements on claims. While actuarial analysis is used to
help determine adequate reserves, the company is responsible for the determination and recording of adequate
reserves in accordance with accepted loss reserving standards and practices.
In addition, as a result of a product liability claim or if the company’s products are alleged to be defective,
the company may have to recall some of its products, may have to incur significant costs or may suffer harm to
its business reputation.
The company’s debt may limit the company’s flexibility in operating its business.
The company’s has substantial outstanding indebtedness. This indebtedness requires a significant portion of
cash flow from operations to be dedicated to the payment of principal and or interest, thus reducing the company’s
ability to use its cash flow to fund its operations, capital expenditures and future business opportunities. The
company’s indebtedness also may limit the company’s ability to react to changes in the economy or its industry.
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