Contingencies | 9 Months Ended |
Sep. 30, 2014 |
Commitments and Contingencies Disclosure [Abstract] | ' |
Contingencies | ' |
Contingencies |
We categorize the product liability losses that our various subsidiaries experience into two main categories: single incident and cumulative trauma. Single incident product liability claims are discrete incidents that are typically known to us when they occur and involve observable injuries and, therefore, more quantifiable damages. Therefore, MSA LLC, a subsidiary of MSA Safety, Inc. (formerly Mine Safety Appliances Company), maintains a reserve for single incident product liability claims based on expected settlement costs for pending claims and an estimate of costs for unreported claims derived from experience, sales volumes and other relevant information. This reserve for single incident product liability claims was $3.5 million at September 30, 2014 and $4.0 million at December 31, 2013. Single incident product liability expense during the nine months ended September 30, 2014 and September 30, 2013 was not significant. Subsidiaries single incident product liability exposures are evaluated on an ongoing basis and adjustments are made to the reserve as new information becomes available. |
Cumulative trauma product liability claims involve exposures to harmful substances (e.g., silica, asbestos and coal dust) that occurred many years ago and may have developed over long periods of time into diseases such as silicosis, asbestosis or coal worker’s pneumoconiosis. MSA LLC, a subsidiary of MSA Safety, Inc. (formerly Mine Safety Appliances Company), is presently named as a defendant in 3,096 lawsuits in which plaintiffs allege to have contracted certain cumulative trauma diseases related to exposure to silica, asbestos, and/or coal dust. These lawsuits mainly involve respiratory protection products allegedly manufactured and sold by MSA LLC or its predecessors. MSA LLC are unable to estimate total damages sought in these lawsuits as they generally do not specify the injuries alleged or the amount of damages sought, and potentially involve multiple defendants. |
MSA LLC regularly assesses opportunities to mitigate its product liability risk. |
Cumulative trauma product liability litigation is difficult to predict. In our experience, until late in a lawsuit, we cannot reasonably determine whether it is probable that any of MSA LLC's cumulative trauma lawsuits will ultimately result in a liability. This uncertainty is caused by many factors, including the following: cumulative trauma complaints generally do not provide information sufficient to determine if a loss is probable; cumulative trauma litigation is inherently unpredictable and information is often insufficient to determine if a lawsuit will develop into an actively litigated case; and even when a case is actively litigated, it is often difficult to determine if the lawsuit will be dismissed or otherwise resolved until late in the lawsuit. Moreover, even once it is probable that such a lawsuit will result in a loss, it is difficult to reasonably estimate the amount of actual loss that will be incurred. These amounts are highly variable and turn on a case-by-case analysis of the relevant facts, which are often not learned until late in the lawsuit. |
Because of these factors, MSA LLC's potential liability for such claims cannot be reliably determined until late in the lawsuit. MSA LLC, therefore, does not record cumulative trauma product liability losses when a lawsuit is filed, but rather, when it learns sufficient information to determine that it is probable that we will incur a loss and the amount of loss can be reasonably estimated. MSA LLC records expenses for defense costs associated with open cumulative trauma product liability lawsuits as incurred. |
Any amount or range of possible losses related to MSA LLC's resolution of pending and future cumulative trauma product liability claims that it may face, cannot be estimated because of the factors described above. As new information about cumulative trauma product liability cases and future developments becomes available, MSA LLC's potential exposures are reassessed. |
A summary of cumulative trauma product liability lawsuit activity follows: |
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| | Nine Months Ended September 30, 2014 | | Year Ended December 31, 2013 | | |
Open lawsuits, beginning of period | | 2,840 | | | 2,609 | | | |
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New lawsuits | | 437 | | | 489 | | | |
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Settled and dismissed lawsuits | | (181 | ) | | (258 | ) | | |
Open lawsuits, end of period | | 3,096 | | | 2,840 | | | |
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Nearly half of the open lawsuits at September 30, 2014 have had a de minimus level of activity over the last 5 years. It is possible that these cases could become active again at any point due to changes in circumstances. |
With some common contract exclusions, we maintain insurance for cumulative trauma product liability claims. We have purchased insurance policies for the policy years from 1952-1986 from over 20 different insurance carriers that provide coverage for cumulative trauma product liability losses, and in many instances, related defense costs (the "Occurrence-Based Policies"). In the normal course of business, we make payments to settle product liability claims and for related defense costs. We record receivables for the amounts that are covered by insurance. Since December 31, 2013, the insurance receivable increased by $22.9 million as a result of these settlements and defense costs. |
The available limits of these policies are many times our recorded insurance receivable balance. |
Various factors could affect the timing and amount of recovery of our insurance receivables, including the outcome of negotiations with insurers, legal proceedings with respect to product liability insurance coverage and the extent to which insurers may become insolvent in the future. |
Our insurance receivables at September 30, 2014 totaled $147.7 million, of which $2.0 million is reported in other current assets and $145.7 million in other non-current assets. Our insurance receivables at December 31, 2013 totaled $124.8 million, all of which is reported in other non-current assets. |
A summary of insurance receivable balances and activity related to cumulative trauma product liability losses follows: |
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(In millions) | | Nine Months Ended September 30, 2014 | | Year Ended December 31, 2013 |
Balance beginning of period | | $ | 124.8 | | | $ | 130 | |
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Additions | | 25.1 | | | 34 | |
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Collections and settlements | | (2.2 | ) | | (39.2 | ) |
Balance end of period | | 147.7 | | | 124.8 | |
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Additions to insurance receivables in the above table represent insured cumulative trauma product liability losses and related defense costs. Uninsured cumulative trauma product liability losses during the nine months ended September 30, 2014 and 2013 were $2.3 million and $1.4 million, respectively. Collections primarily represent agreements with insurance companies to pay amounts due that are applicable to cumulative trauma claims. In cases where the payment stream covers multiple years, the present value of the payments is recorded as a note receivable (current and long term) in the balance sheet within prepaid expenses and other current assets and other noncurrent assets. |
Our aggregate cumulative trauma product liability losses and administrative and defense costs for the three years ended December 31, 2013, totaled approximately $104.2 million, substantially all of which was insured. |
MSA LLC believes that the increase in its insurance receivable balance that it has experienced since 2005 is primarily due to disagreements among its insurance carriers, and consequently with MSA LLC, as to when their individual obligations to pay us are triggered and the amount of each insurer’s obligation, as compared to other insurers. MSA LLC believes that its insurers do not contest that they have issued policies to our subsidiaries or that these policies cover cumulative trauma product liability claims. We believe that successful resolution of insurance litigation with various insurance carriers in recent years demonstrates that we have strong legal positions concerning MSA LLC's rights to coverage. |
The collectability of MSA LLC's insurance receivables is regularly evaluated and the amounts recorded are probable of collection. These conclusions are based on analysis of the terms of the underlying insurance policies, experience in successfully recovering cumulative trauma product liability claims from our insurers under other policies, the financial ability of the insurance carriers to pay the claims, understanding and interpretation of the relevant facts and applicable law and the advice of MSA LLC's legal counsel, who believe that the insurers are required to provide coverage based on the terms of the policies. |
Although it is impossible to predict the ultimate outcome of current open claims, based on current information, our experience in handling these matters, and our substantial insurance program, we do not believe that these claims will have a material adverse effect on our future financial condition or liquidity. |
The Company regularly reviews MSA LLC's cumulative trauma product liability claims to determine if the liability for such claims is probable and estimable. Our cumulative claims experience, including recent claims trends, and the development of enhanced data analytics have led us to undertake a review with the assistance of a third party advisor. This review, anticipated to be completed in late 2014 or early 2015, employs new methods for analyzing and evaluating the claims in order to help us assess whether a reasonable estimate of the liability for these claims and associated costs can be made. |
It is possible that the estimated costs of these claims, net of expected insurance recoveries, may be material to our results of operations in the period when recorded. |
MSA LLC is currently involved in insurance coverage litigations with a number of our insurance carriers regarding its Occurrence-Based Policies. |
In 2009, MSA LLC (as Mine Safety Appliances Company) sued The North River Insurance Company (North River) in the United States District Court for the Western District of Pennsylvania, alleging that North River breached one of its insurance policies by failing to pay amounts owed to MSA LLC and that it engaged in bad-faith claims handling. MSA LLC believes that North River’s refusal to indemnify it under the policy for product liability losses and legal fees paid by MSA LLC is wholly contrary to Pennsylvania law and MSA LLC is vigorously pursuing the legal actions necessary to collect all due amounts. Motions for summary judgment on certain issues will be submitted to the court at the earliest possible date. A trial date has not yet been scheduled. |
In 2010, North River sued MSA LLC (as Mine Safety Appliances Company) in the Court of Common Pleas of Allegheny County, Pennsylvania seeking a declaratory judgment concerning their responsibilities under three additional policies. MSA LLC asserted claims against North River for breaches of contract for failures to pay amounts owed to MSA LLC. MSA LLC also allege that North River engaged in bad-faith claims handling. MSA LLC believes that North River’s refusal to indemnify us under these policies for product liability losses and legal fees paid by MSA LLC is wholly contrary to Pennsylvania law and MSA LLC is vigorously pursuing the legal actions necessary to collect all due amounts. Summary judgment on certain issues is pending with the court. A trial date has not yet been scheduled. |
In July 2010, MSA LLC (as Mine Safety Appliances Company) filed a lawsuit in the Superior Court of the State of Delaware seeking declaratory and other relief from the majority of its excess insurance carriers concerning the future rights and obligations of MSA LLC and its excess insurance carriers under various insurance policies. The reason for this insurance coverage action is to secure a comprehensive resolution of its rights under the insurance policies issued by the insurers. The case is currently in discovery. |
MSA LLC has resolved claims against certain of its insurance carriers on some of their policies, including the Occurrence-Based Policies through negotiated settlements. When a settlement is reached, MSA LLC dismisses the settling carrier from relevant above noted lawsuit(s). Assuming satisfactory resolution, once disputes are resolved with each of the remaining carriers responsible for the Occurrence-Based Policies, MSA LLC anticipates having commitments to provide future payment streams which should be sufficient to satisfy its current receivables due from insurance carriers. In addition, MSA LLC likely will retain some coverage through coverage-in-place agreements, although that coverage may not be immediately accessible. When these insurance coverage matters are fully resolved, MSA LLC (and its coverage-in-place carriers, where applicable) will be responsible for expenses related to cumulative trauma product liability claims. |