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Federal Judge Orders Travelers to Pay $445 Million in Asbestos Claim Settlement Fund

Source: The Hartford Courant

Posted on 20 Dec 2010

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A federal judge has ruled that Travelers must pay at least $445 million into special claims funds set up over six years ago to compensate those injured by asbestos manufactured by its client, Johns Manville Corp.

That figure may rise considerably, too, if interest is added -- a legal question which U.S. Bankruptcy Court Judge Burton Lifland said he will take up if the insurer and plaintiffs in the settlement fail to resolve through mediation the amount of interest due.

Travelers says it's weighing an appeal and that the settlement has been reserved on its balance sheets since 2004 -- meaning any payments should have a negligible effect on its operations.

Still, the decision is a major milestone toward ultimate resolution of the dispute in which victims and insurance companies have fought for decades.

Lifland said the decision -- which follows more than 25 years of legal wrangling in some instances, including a related decision by the U.S. Supreme Court -- will "hopefully... end this Sisyphean cycle... that has gone on for too long, especially for those asbestos victims who have yet to be fully compensated."

At issue is a settlement agreement reached in 2004 with Travelers and a large number of plaintiffs who had sued the insurer in various state courts over claims stemming from its relationship to Johns Manville.

Travelers was the primary insurer for Johns Manville, a major manufacturer of asbestos-containing insulation and other products. The manufacturer declared bankruptcy in 1982, and in 1986, a federal bankruptcy court barred lawsuits against the insurer for asbestos liability.

At least 26 different state lawsuits continued, however. In 2004, Travelers settled with the plaintiffs by agreeing to pay at least $445 million to administer and fund their asbestos-related claims. In exchange, the settlement released Travelers from future lawsuits.

That settlement was never paid, as more legal complications followed. Another insurer, Chubb, sued Travelers over the related asbestos settlements.

That lawsuit, in turn, led to more legal wrangling -- including an appeal to the Supreme Court, which OK'd the $445 million settlement in June 2009 -- and an ongoing delay by Travelers in making those payments.

In the latest ruling, filed Thursday, Lifland said that Travelers has been legally obligated to pay the $445 million since June 2009, and therefore that total may be subject to interest.

The last year has been up and down for Travelers in the ongoing, 30-year-old saga over asbestos claims --a significant amount of which Travelers inherited through its 2004 merger with St. Paul Cos.

Earlier this year, Travelers won a $262 million judgment against a group of reinsurers that refused to pay claims related to another asbestos settlement -- in that case, for the asbestos manufacturer Western-MacArthur.

"We're in the process of reviewing the opinion and considering our next steps -- including whether we will appeal," Travelers Spokesman Shane K. Boyd said. "The court decision was one outcome we knew was possible. At the time of the settlement, we reserved the settlement amount for future payments, if and when the conditions were satisfied. Accordingly the payment of the settlement amount would not have significant impact on our results or operations."