read this note from the recent 10 and weep if you are long.
Note 8. Commitments and Contingencies
Asbestosis litigation. Since 1976, our subsidiary, Dresser Industries,
Inc. and its former divisions or subsidiaries have been involved in litigation
resulting from allegations that third parties sustained injuries and damage from
the inhalation of asbestos fibers contained in some products manufactured by
Dresser, its former divisions or subsidiaries, or by companies acquired by
Dresser.
Dresser has entered into agreements with insurance carriers which
cover, in whole or in part, indemnity payments, legal fees and expenses for
specific categories of claims. Dresser is in negotiation with insurance carriers
for coverage for the remaining categories of claims. Because these agreements
are governed by exposure dates, payment type and the product involved, the
covered amount varies by individual claim. In addition, lawsuits are pending
against several carriers seeking to recover additional amounts related to these
claims.
Our Engineering and Construction Group is also involved in litigation
resulting from allegations that third parties sustained injuries and damage from
the inhalation of asbestos fibers contained in some of the materials which, in
the past, were used in various construction and renovation projects where it is
alleged that our Brown & Root subsidiary, now named Kellogg Brown & Root, Inc.,
was involved. The insurance coverage for Kellogg Brown & Root for the periods in
issue was written by Highlands Insurance Company. Highlands was a subsidiary of
Halliburton prior to its spin-off to our shareholders in early 1996. Our
negotiations with Highlands concerning insurance coverage have not produced an
agreement on the amount of coverage for asbestos and defense costs. On April 5,
2000, Highlands filed suit in Delaware Chancery Court alleging that, as part of
the spin-off in 1996, Halliburton assumed liability for all asbestos claims
filed against Halliburton after the spin-off. Highlands also alleges that,
Halliburton did not adequately disclose to Highlands the existence of
Halliburton's subsidiaries' potential asbestos liability. We believe that
Highland's Delaware lawsuit is without merit and that Highlands is contractually
obligated to provide to us insurance coverage for the asbestos claims filed
against Kellogg Brown & Root. We intend to assert our right to the insurance
coverage vigorously. On April 24, 2000, Halliburton filed suit against Highlands
in Harris County, Texas, alleging that Highlands has breached its contractual
obligation to provide insurance coverage. We have asked the Harris County Court
to order that Highlands is obligated to provide coverage for asbestos claims
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pursuant to guaranteed cost policies issued by Highlands to our Kellogg Brown &
Root subsidiary prior to the spin-off.
Since 1976, approximately 260,900 claims have been filed against
various current and former divisions and subsidiaries. About 23,000 of these
claims relate to Kellogg Brown & Root and the balance of these claims relate to
Dresser and its former divisions or subsidiaries. Approximately 153,900 of these
claims have been settled or disposed of. Claims continue to be filed, with about
24,700 new claims filed in the first six months of 2000. We have established a
reserve estimating our liability for known asbestos claims. Our estimate is
based on our historical litigation experience, settlements and expected
recoveries from insurance carriers. Our expected insurance recoveries are based
on agreements with carriers or, where agreements are still under negotiation or
litigation, our estimate of recoveries. We believe that the insurance carriers
with which we have signed agreements will be able to meet their share of future
obligations under the agreements. Highlands has stated in its SEC filings that
if they lose this litigation with us and are required to pay the asbestos claims
against Kellogg Brown & Root, there could be a material adverse impact on their
financial position. However, based on Highlands statutory capital surplus of
$162 million as reported to the Texas Insurance Commission, we believe that
Highlands has the ability to pay substantially all of these asbestos claims and
that Highlands will be required to do so at the conclusion of the pending
litigation.
At June 30, 2000, there were about 107,000 open claims, including about
21,000 associated with recoveries we expect from Highlands. Open claims at June
30, 2000 also include 9,800 for which settlements are pending. This number of
claims compares with 107,700 open claims at the end of the prior year. The
accrued liabilities for these claims and corresponding billed and estimated
accrued receivables from carriers were as follows:
June 30 December 31
---------------- ----------------
Millions of dollars 2000 1999
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Accrued liability $ 75 $ 71
Receivables from insurance companies:
Highlands Insurance Company 40 28
Other insurance carriers 11 18
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Net asbestos liability $ 24 $ 25
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Additional receivables billed to insurance carriers for payments made on claims
were $8 million at June 30, 2000 and $9 million at December 31, 1999, none of
which were due from Highlands Insurance Company.
We recognize the uncertainties of litigation and the possibility that a
series of adverse court rulings or new legislation affecting the claims
settlement process could materially impact the expected resolution of asbestos
related claims. However, based upon:
- our historical experience with similar claims;
- the time elapsed since Dresser and its former divisions or
subsidiaries discontinued sale of products containing asbestos;
- the time elapsed since Kellogg Brown & Root used asbestos in any
construction process; and
- our understanding of the facts and circumstances that gave rise to
asbestos claims,
we believe that the pending asbestos claims will be resolved without material
effect on our financial position or results of operations.
Dispute with Global Industrial Technologies, Inc. Under an agreement
entered into at the time of the spin-off of Global Industrial Technologies,
Inc., formerly INDRESCO, Inc., from Dresser Industries, Inc., Global assumed
liability for all asbestos related claims filed against Dresser after July 31,
1992 relating to refractory products manufactured or marketed by the former
Harbison-Walker Refractories division of Dresser. Those business operations were
transferred to Global in the spin-off. These asbestos claims are subject to
agreements with Dresser insurance carriers that cover expense and indemnity
payments. However, the insurance coverage is incomplete and Global has to-date
paid the uncovered portion of those asbestos claims with its own funds.
Global now disputes that it assumed liability for any of these asbestos
claims which were based upon Dresser's negligence, the acts of Harbison-Walker
prior to its merger with Dresser in 1967, or punitive damages.
In order to resolve this dispute, Global invoked the dispute resolution
provisions of the 1992 agreement, which require binding arbitration. Global has
not claimed a specific amount of damages. We expect that Global's claim for
reimbursement will be in excess of $40 million. In addition, Global is seeking
relief from responsibility for pending claims based upon Dresser's negligence,
the pre-1967 acts of Harbison-Walker, punitive damages, and for all similar
future claims. On February 25, 2000, the arbitrator ruled that Global did assume
responsibility for claims based on Dresser's negligence and for punitive
damages. The arbitrator did not decide whether Global also assumed
responsibility for the pre-1967 acts of Harbison-Walker, but reserved his
decision pending further proceedings, although no timetable was set for those
proceedings.
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In 1999, Dresser brought suit against Global to enjoin it from suing
Dresser's insurance carrier, Continental Insurance Company, for specific
asbestos claims. Although a Texas court in Dallas entered a temporary
injunction, a Texas appellate court reversed that decision and the matter
remains pending before the trial court. Since then, in late 1999, Global sued
Continental in federal court in Pennsylvania seeking coverage under Dresser
insurance policies for claims we believe are covered by the pending arbitration.
Dresser was not named in the lawsuit, and Continental has responded to Global by
moving to dismiss that lawsuit because Dresser was not included. We believe that
the issues involving Continental should be resolved in the pending arbitration.
We believe that all of Global's claims and assertions are without merit and we
intend to vigorously defend against them.
Environmental. We are subject to numerous environmental legal and
regulatory requirements related to our operations worldwide. As a result of
those obligations, we are involved in specific environmental litigation and
claims, the clean-up of properties we own or have operated, and efforts to meet
or correct compliance-related matters.
Some of our subsidiaries and former operating entities are involved as
a potentially responsible party or PRP in remedial activities to clean-up
several "Superfund" sites under federal law and comparable state laws. Kellogg
Brown & Root, Inc., one of our subsidiaries, is one of nine PRPs named at the
Tri-State Mining District "Superfund" Site, which is also known as the Jasper
County "Superfund" Site. The site contains lead and zinc mine tailings produced
from mining activities that occurred from the 1800s through the mid-1950s in the
southwestern portion of Missouri. The PRPs have agreed to perform a Remedial
Investigation/Feasibility study at this site. Kellogg Brown & Root's share of
the cost of this study is not expected to be material. In addition to the
"Superfund" issues, the State of Missouri has indicated that it may pursue
natural resource damage claims against the PRPs. At present, Kellogg Brown &
Root cannot determine the extent of its liability, if any, for remediation costs
or natural resource damages.
We take a proactive approach in evaluating and addressing the
environmental impact of sites where we are operating or have maintained
operations. As a result we incur costs each year assessing and remediating
contaminated properties to avoid future liabilities, complying with legal and
regulatory requirements, and responding to claims by third parties.
Finally, we incur costs related to compliance with ever-changing
environmental legal and regulatory requirements in the jurisdictions where we
operate. It is very difficult to quantify the potential liabilities. Except for
our potential liability at the Jasper County "Superfund" site, we do not expect
these expenditures to have a material adverse effect on our consolidated
financial position or our results of operations.
Our accrued liabilities for environmental matters were $30 million as
of June 30, 2000 and December 31, 1999.
Other. We are a party to various other legal proceedings. However, we
believe any liabilities which may arise from these proceedings will not be
material to our consolidated financial position and results of operations. |
