Commitments and Contingencies | Note 3 . Commitments and Contingencies The Company carries insurance policies on insurable risks at levels that it believes to be appropriate, including workers’ compensation, auto and general liability risks. The Company purchases insurance policies from third-party insurance carriers, which typically incorporate significant deductibles or self-insured retentions. The Company is responsible for all claims that fall below the retention limits. In determining the Company’s accrual for self-insured claims, the Company uses historical claims experience to establish both the current year accrual and the underlying provision for future losses. This actuarially determined provision and related accrual include known claims, as well as incurred but not reported claims. The Company adjusts its estimate of accrued self-insured claims when required to reflect changes based on factors such as changes in health care costs, accident frequency and claim severity. A reconciliation of beginning and ending accrued self-insured claims, which are included in Accrued liabilities—Self-insured claims and related expenses and Other long-term obligations, primarily self-insured claims on the condensed consolidated statements of financial position, net of insurance recoverables, which are included in Prepaid expenses and other assets and Other assets on the condensed consolidated statements of financial position, is presented as follows: Accrued Self-insured (In millions) Claims, Net Balance as of December 31, 2015 $ 114 Provision for self-insured claims 13 Cash payments (13) Balance as of March 31, 2016 $ 114 Balance as of December 31, 2014 $ 104 Provision for self-insured claims 12 Cash payments (6) Balance as of March 31, 2015 $ 109 Accruals for home warranty claims in the American Home Shield business are made based on the Company’s claims experience and actuarial projections. Termite damage claim accruals in the Terminix business are recorded based on both the historical rates of claims incurred within a contract year and the cost per claim. Current activity could differ causing a change in estimates. The Company has certain liabilities with respect to existing or potential claims, lawsuits and other proceedings. The Company accrues for these liabilities when it is probable that future costs will be incurred and such costs can be reasonably estimated. Any resulting adjustments, which could be material, are recorded in the period the adjustments are identified. On March 29, 2016, Terminix International USVI, LLC (“TMX USVI”) and The Terminix International Company Limited Partnership (“TMX LP”), each an indirect, wholly-owned subsidiary of the Company, entered into a Plea Agreement (the “Plea Agreement”) in connection with the previously disclosed investigation initiated by the United States Department of Justice Environmental Crimes Section (the “DOJ”) into allegations that a local Terminix branch used methyl bromide as a fumigant at a resort in St. John, U.S. Virgin Islands. Together with the Plea Agreement, the DOJ charged TMX USVI and TMX LP with four misdemeanor violations of the Federal Insecticide, Fungicide, and Rodenticide Act related to improper applications of methyl bromide. Under the Plea Agreement, TMX USVI agreed to pay a total of $5 million in fines to the United States. TMX LP agreed to pay $3 million in fines and penalties to the United States and a $1 million community service payment to the National Fish and Wildlife Foundation for the purpose of engaging a third party to provide training to pesticide applicators in the U.S. Virgin Islands. TMX USVI also agreed to pay $1 million to the United States Environmental Protection Agency (the “EPA”) for costs incurred by the EPA for the response and clean-up of the affected units at the resort in St. John. Both TMX USVI and TMX LP agreed to a three -year probation period subject to conditions of probation. Furthermore, TMX USVI and TMX LP agreed to make good faith efforts to resolve past and future medical expenses for the affected family through separate civil proceedings. The Plea Agreement would not bind any other federal, state or local authority, but the EPA has stated that it does not intend to initiate any administrative enforcement action or refer the matter to the DOJ for any civil enforcement action once a plea agreement is approved by the court. The Company has recorded in the condensed consolidated statement of operations and comprehensive income charges of $10 million in connection with the Plea Agreement, of which $2 million was recorded in the three months ended March 31, 2016. At an initial appearance on April 20, 2016, the United States District Court of the U.S. Virgin Islands rejected the Plea Agreement, indicating that it was not satisfied with the assessment and distribution of the monetary sanctions set forth in the Plea Agreement. The parties continue to discuss the matter, including potential modifications to the Plea Agreement. The court scheduled a sentencing hearing on August 25, 2016, and indicated that a modified plea agreement or a withdrawal of the plea could be filed up to that date. A plea agreement and the payments thereunder would not resolve any related civil or administrative claims for damages or other relief related to the U.S. Virgin Islands matter. The amount and extent of any further potential penalties, fines, sanctions, costs and damages that the federal or other governmental authorities may yet impose, investigation or other costs and reputational harm, as well as the impact of any civil, criminal or other claims or judicial, administrative or regulatory proceedings resulting from or related to the U.S. Virgin Islands incident, which could be material, is not currently known or reasonably estimable, and any such penalties, fines, sanctions, costs or damages may not be covered under the Company’s general liability insurance program. In the three months ended March 31, 2015, the Company recorded in the condensed consolidated statement of operations and comprehensive income a charge of $3 million in connection with civil claims related to the U.S. Virgin Islands matter, an amount equal to the Company’s insurance deductible under its general liability insurance program, although no assurance can be given regarding the Company’s insurance coverage or recoveries in connection with such civil claims. On September 15, 2015, a lawsuit was filed in the Circuit Court of the 15 th Judicial Circuit in and for Palm Beach County, Florida, styled Carl Robert McCaughey, et al. v. Terminix International Company Limited Partnership, Sunland Pest Control Services, Inc., et al. (Case No. 32080796) . The lawsuit alleges that fumigation of a Florida family’s residence by Sunland, a subcontractor of Terminix, resulted in serious injuries to one of the family’s children, alleges claims for negligence and strict liability, and seeks an unspecified amount of monetary and punitive damages. The court has set a trial date in September 2016. The DOJ and other federal and state agencies are investigating the matter, and the DOJ has filed criminal charges against Sunland and two persons associated with Sunland. The Company continues to cooperate fully with all relevant governmental authorities. In the three months ended March 31, 2016, the Company recorded in the condensed consolidated statement of operations and comprehensive income a charge of $3 million in connection with civil claims related to the Palm Beach County, Florida matter, an amount equal to the Company’s insurance deductible under its general liability insurance program, although no assurance can be given regarding the Company’s insurance coverage or recoveries in connection with such civil claims. The amount and extent of any potential penalties, fines, sanctions, costs and damages that the federal or other governmental authorities may impose, investigation or other costs and reputational harm, as well as the impact of any civil, criminal or other claims or judicial, administrative or regulatory proceedings resulting from or related to this incident, which could be material, is not currently known or reasonably estimable, and any such penalties, fines, sanctions, costs or damages may not be covered under the Company’s general liability insurance program. In 2008, the Company amended its Profit Sharing and Retirement Plan, a tax qualified 401(k) defined contribution plan available to substantially all of its employees (the “401(k) Plan”), to implement a qualified automatic contribution arrangement (“QACA”) under the safe harbor provisions of the Internal Revenue Code of 1986, as amended (the “Code”). QACA plans, in general, require automatic enrollment of employees into the retirement plan absent an affirmative election that such employees do not wish to participate. Although the Company implemented processes to auto-enroll new hires after adopting the QACA plan in 2008, it discovered that it did not auto-enroll then existing employees who were not participating in the 401(k) Plan. In response, the Company implemented an auto-enrollment process for affected active employees, and it is preparing to submit to the IRS a voluntary correction proposal to remedy the issue for prior years. The Company’s current estimate of the cost of the correction ranges from $23 million to approximately $85 million. The Company recorded a charge of $23 million in the condensed consolidated statement of operations and comprehensive income in the fourth quarter of 2015. However, there can be no assurances as to the ultimate cost of the correction. In addition to the matters discussed above, in the ordinary course of conducting business activities, the Company and its subsidiaries become involved in judicial, administrative and regulatory proceedings involving both private parties and governmental authorities. These proceedings include insured and uninsured matters that are brought on an individual, collective, representative and class action basis, or other proceedings involving regulatory, employment, general and commercial liability, automobile liability, wage and hour, environmental and other matters. The Company has entered into settlement agreements in certain cases, including with respect to putative collective and class actions, which are subject to court or other approvals. If one or more of the Company’s settlements are not finally approved, the Company could have additional or different exposure, which could be material. Subject to the paragraphs above, the Company does not expect any of these proceedings to have a material effect on its reputation, business, financial position, results of operations or cash flows; however, the Company can give no assurance that the results of any such proceedings will not materially affect its reputation, business, financial position, results of operations and cash flows . |