Summary
The Hartford Financial Services Group, Inc. (The Hartford) disclosed significant ongoing litigation concerning its Blanket Casualty Treaty (BCT) reinsurance program, primarily involving asbestos and pollution claims. The company is engaged in a dispute with its upper-layer reinsurers, predominantly from the London Market, over the payment of approximately $117 million related to a $1.15 billion asbestos settlement reached in December 2003 with MacArthur Company. The core of the dispute lies in how losses from multiple claims against a single insured should be defined as a single "accident" under the BCT to access the upper layers of reinsurance coverage. In a recent development, on December 13, 2005, the Connecticut Superior Court granted a motion for summary judgment in favor of the reinsurer defendants regarding the MacArthur settlement claims. The Hartford has appealed this decision and intends to pursue it vigorously. The potential impact of this litigation is substantial; if the Superior Court's decision is upheld on appeal, The Hartford may be unable to recover not only the MacArthur settlement portion but also other current and future asbestos and pollution-related billings under the BCT. The company has recorded $586 million in gross reinsurance recoveries for these types of losses under the BCT and has an allowance of $335 million for uncollectible reinsurance recoverables as of December 31, 2005. An inability to collect these recoveries could have a material adverse effect on the company's consolidated results of operations or cash flows.
Key Highlights
- 1The Hartford is involved in significant litigation with its reinsurers under the Blanket Casualty Treaty (BCT) over asbestos and pollution claims.
- 2The dispute centers on the definition of an "accident" under the BCT and how multiple claims against a single insured should be treated for reinsurance purposes.
- 3The Connecticut Superior Court ruled in favor of reinsurer defendants on December 13, 2005, regarding The Hartford's claim for $117 million from the MacArthur asbestos settlement.
- 4The Hartford has appealed the Superior Court's decision and intends to pursue the appeal rigorously.
- 5An unfavorable outcome could prevent The Hartford from recovering $586 million in gross reinsurance recoveries related to asbestos and pollution losses under the BCT.
- 6The company has an allowance of $335 million for uncollectible reinsurance recoverables as of December 31, 2005, for older casualty liabilities.
- 7Failure to collect these reinsurance recoveries could materially and adversely affect The Hartford's financial results and cash flows.