8-KMaterial Agreements

American Water Works Company, Inc. 8-K Report, Material Agreement (Oct 31, 2016)

Filed October 31, 2016For Securities:AWK

Summary

American Water Works Company, Inc. (AWK) has announced a significant development regarding the settlement of claims stemming from the January 2014 chemical spill in West Virginia. On October 31, 2016, the U.S. District Court for the Southern District of West Virginia approved preliminary settlement principles between its subsidiary, West Virginia-American Water Company (WVAWC), and the plaintiffs' class. This proposed settlement aims to resolve all litigation and potential claims against the American Water Defendants related to the Freedom Industries chemical spill. The aggregate pre-tax settlement amount is $126 million. WVAWC will contribute $65 million, with the remainder covered by the company's general liability insurance carriers. Notably, two insurance carriers have not yet agreed to participate, and American Water intends to vigorously pursue coverage from them, including litigation against at least one. The company expects to record a $65 million pre-tax charge ($39 million after-tax) in the third quarter of 2016, net of insurance receivables, impacting earnings. WVAWC will not seek rate recovery from regulators for approximately $4 million in direct response costs or for amounts paid under the settlement.

Key Highlights

  • 1American Water's subsidiary, WVAWC, has reached an agreement in principle to settle claims related to the 2014 Freedom Industries chemical spill.
  • 2The proposed aggregate pre-tax settlement amount is $126 million.
  • 3WVAWC will contribute $65 million to the settlement; the remaining $61 million is expected to be covered by the Company's general liability insurance carriers.
  • 4Two insurance carriers have not agreed to participate in the settlement, and American Water is pursuing legal action to secure coverage from them.
  • 5The Company anticipates recording a $65 million pre-tax charge ($39 million after-tax) in Q3 2016, net of insurance receivables.
  • 6WVAWC has agreed not to seek rate recovery from the Public Service Commission of West Virginia for approximately $4 million in direct response costs or for settlement contributions.
  • 7The court has given parties 30 days to finalize terms, with a trial continuance to December 5, 2016, pending potential preliminary approval.

Frequently Asked Questions

The proposed aggregate pre-tax settlement amount is $126 million. West Virginia-American Water Company (WVAWC) will contribute $65 million, and the remaining $61 million is expected to be funded by American Water Works Company's general liability insurance carriers.

No, WVAWC has agreed not to seek rate recovery from the Public Service Commission of West Virginia for approximately $4 million in direct response costs incurred in 2014 and for any amounts it pays under this settlement.

The Company intends to record a pre-tax charge of $65 million ($39 million after-tax) in the third quarter of 2016, net of expected insurance receivables. This charge will impact reported earnings.

Two insurance carriers have not yet agreed to participate in the settlement. American Water Works Company and WVAWC intend to vigorously pursue their rights to insurance coverage from these non-participating carriers, including initiating litigation. However, there is no assurance of ultimately obtaining full reimbursement from these policies.