Progressive 2004 Annual Report Download - page 22

APP.-B-22
12) Commitments and Contingencies
The Company has certain noncancelable operating lease commitments and service contracts with terms greater than one year. The
minimum commitments under these agreements at December 31, 2004, are as follows:
(millions)
Operating Service
Year Leases Contracts Total
2005 $ 87.5 $ 58.1 $ 145.6
2006 74.2 20.3 94.5
2007 57.9 4.1 62.0
2008 36.4 1.6 38.0
2009 20.4 1.3 21.7
Thereafter 31.7 1.2 32.9
Some of the agreements have options to renew at the end of the contract periods. The expense incurred by the Company for the agree-
ments disclosed above, as well as other operating leases that may be cancelable or have terms less than one year, was:
(millions)
Operating Service
Year Leases Contracts Total
2004 $ 116.0 $ 89.4 $ 205.4
2003 101.6 80.1 181.7
2002 71.0 77.5 148.5
During 2004, the Company incurred $11.4 million of guaranty fund assessments, compared to $12.2 million in 2003 and $21.2 million in
2002. At December 31, 2004 and 2003, the Company had $10.7 million and $10.1 million, respectively, reserved for future assessments
on current insolvencies. Management believes that any assessment in excess of its current reserves will not materially affect the Company’s
financial condition, cash flows or results of operations.
As of December 31, 2004, the Company had open investment funding commitments of $7.3 million; the Company had no uncollateralized
lines or letters of credit as of December 31, 2004 or 2003.
During 2004, the Company settled a federal collective action lawsuit involving worker classification issues under the federal Fair Labor
Standards Act (FLSA) and five state class actions, which were consolidated with the federal case. All of such lawsuits challenged the
Company’s classification of its claims representatives as “exempt” under the FLSA and/or various state laws. In October 2004, the Company
reached an agreement under which it funded an account for all potential claims of class member claims representatives and eligible
claims representative trainees. This settlement did not have a material effect on the Company’s financial condition, cash flows or results
of operations.
In July 2002, the Company settled a nationwide class action lawsuit challenging one of the Company’s claim adjustment practices,
known as the charging of “betterment.” Specifically, it was alleged that the Company made improper adjustments for depreciation and
physical condition in the adjustment of first party physical damage claims. This settlement has received trial court approval and the claims
process was completed in early 2003.
In July 2002, the Company reached a nationwide settlement of a class action lawsuit challenging the Company’s alternative commission
programs. Under these programs, independent insurance agents were able to offer the Company’s insurance products at different commission
levels. The settlement resulted in the payment of approximately $60 million, including the costs of settlement and attorneys’ fees. The
claims process for that settlement was completed in early 2003. During 2004, the Company settled two groups of individual cases, one in
Alabama and one in Mississippi, which were filed by individuals who opted out of the nationwide class action settlement, within the reserve
amount established in prior years for these groups of cases.
The Company is defending one putative class action lawsuit alleging that the Company’s rating practices at renewal are improper. The
Company prevailed in a similar putative class action in December 2004. The Company does not consider a loss from this case to be probable
and estimable, and is unable to estimate a range of loss, if any, at this time.
The Company is defending one national putative class action lawsuit brought on behalf of medical providers disputing the legality of the
Company’s practice of paying first party medical benefits pursuant to a preferred provider agreement. The Company does not consider a
loss to be probable and estimable, and is unable to estimate a range of loss, if any, at this time.