| Contingencies | Contingencies Product Liability The Company categorizes the product liability claims of its subsidiary MSA LLC into two main categories: single incident and cumulative trauma. Single incident product liability claims involve discrete incidents that are typically known to us when they occur and involve observable injuries, which provide an objective basis for quantifying damages. MSA LLC estimates its liability for single incident product liability claims based on expected settlement costs for reported claims and an estimate of costs for unreported claims (claims incurred but not reported or IBNR). The estimate for IBNR claims is based on experience, sales volumes, and other relevant information. The reserve for single incident product liability claims, which includes reported and IBNR claims, was $3.3 million at September 30, 2016 and $3.5 million at December 31, 2015 . Single incident product liability expense was $0.5 million during the nine months ended September 30, 2016 and $0.7 million during the nine months ended September 30, 2015. Single incident product liability exposures are evaluated on an ongoing basis and adjustments are made to the reserve as appropriate. 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 is presently named as a defendant in 1,928 lawsuits, some of which involve multiple plaintiffs, in which plaintiffs allege to have contracted certain cumulative trauma diseases. These lawsuits mainly involve respiratory protection products allegedly manufactured and sold by MSA LLC or its predecessors. The products at issue were manufactured many years ago and are not currently offered by MSA LLC. Although there is year over year variability in the number and quality of claims defended and resolved, MSA LLC’s aggregate total for cumulative trauma product liability claims (inclusive of settlements and defense costs) for the three years ended December 31, 2015, totaled approximately $156.1 million , substantially all of which was recorded as insurance receivables because the amounts are believed to be recoverable under insurance. A summary of cumulative trauma product liability lawsuit activity follows: Nine Months Ended September 30, 2016 Year Ended December 31, 2015 Open lawsuits, beginning of period 1,988 2,326 New lawsuits 279 340 Settled and dismissed lawsuits (339 ) (678 ) Open lawsuits, end of period 1,928 1,988 More than half of the open lawsuits at September 30, 2016 have had a de minimis 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. Cumulative trauma product liability litigation is inherently unpredictable. It has typically not been until very late in the legal process that it can be reasonably determined whether it is probable that any particular case will ultimately result in a liability. This uncertainty is caused by many factors. Complaints generally do not provide information sufficient to determine if a lawsuit will develop into an actively litigated case. 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 if it is probable that such a lawsuit will result in a loss; it is often difficult to estimate the amount of actual loss that will be incurred. These actual loss 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. In addition, there are uncertainties concerning the impact of bankruptcies of other companies that are co-defendants in claims, uncertainties surrounding the litigation process from jurisdiction to jurisdiction and from case to case, and uncertainties regarding the impact of potential changes in legislative or judicial standards. The uncertainties noted above relating to cumulative trauma product liability litigation are particularly acute in the case of incurred but not reported claims (“IBNR” claims), which by definition are potential claims that have not yet been filed. Management, after consultation with its valuation consultant and outside legal counsel, continues to be unable to reasonably estimate, and therefore has not recorded any liability for, MSA LLC’s cumulative trauma IBNR claims. However, in 2015 Management worked with its outside valuation consultant and outside legal counsel to develop a method to provide a reasonable estimate for certain reported claims by using appropriate assumptions based on MSA LLC’s particular circumstances. For those reported claims where MSA LLC believes a loss is probable, and it can make a reasonable estimate of such loss, it recorded a liability of $7.1 million as of December 31, 2015. This reserve amount pertains to certain reported claims where MSA LLC’s claims experience allowed it to make an estimate of potential liability, but does not take into account all the claims currently pending against MSA LLC. The change in ability to estimate in 2015 was driven by the maturation of MSA LLC’s defense efforts and additional claims experience. Certain groups of claims have not been included in the reserve due to a lack of claims experience with the applicable plaintiffs’ counsel, low volume of resolution, or lack of confidence in the consistency of claims composition, or other factors which rendered us unable to make a reasonable estimate. Therefore, while this reserve amount covers a substantial portion of MSA LLC’s currently reported claims, it does not purport to cover all of MSA LLC’s reported claims as discussed above. In addition, the reserve does not include amounts which will be spent to defend these claims. To arrive at the estimate, it was necessary to employ significant assumptions. In light of these significant assumptions, and all of the uncertainties inherent in cumulative trauma product liability litigation noted above, there can be no assurance that future experience with reported claims will follow MSA LLC’s past experience. Because litigation is subject to inherent uncertainties, and unfavorable rulings or developments could occur, there can be no certainty that MSA LLC may not ultimately incur charges in excess of presently recorded liabilities or that costs related to claims not included in the reserve will be consistent either with those for which MSA LLC has been able to make an estimate, and to reserve, or past outcomes. Actual liabilities could vary greatly and we will need to adjust the estimate from time to time based on relevant facts and circumstances. If actual experience is worse than projected, the estimate would increase, and these increases could potentially be material over time. At December 31, 2015, MSA LLC established a $7.1 million cumulative trauma product liability reserve for reported claims. In the second quarter of 2016, we reduced this reserve by $2.3 million for payments made and the reserve remains at $4.8 million as of September 30, 2016. The total cumulative trauma product liability reserve including the estimated reserve for reported claims and settlements that have not yet been paid totaled $9.0 million at September 30, 2016. This reserve is recorded in the insurance and product liability line within other current liabilities section of the condensed consolidated balance sheet. On February 26, 2016, a Kentucky state court jury in the James Couch claim rendered a verdict against MSA LLC of $7.2 million dollars (comprised of $3.2 million of an apportioned share of compensatory damages and $4.0 million in punitive damages). The Couch claim is a product liability lawsuit involving cumulative trauma exposure to coal dust. Management believes that the verdict against MSA LLC is contrary to Kentucky law and is appealing the verdict. The Company and its outside legal counsel have concluded that, based on their assessment of the appellate issues, a reversal of the adverse judgment is reasonably possible and, consequently, a loss contingency is not probable at this time and is not included in the $4.8 million product liability reserve. In the future, if the Company determines that losses with respect to this matter are probable, MSA LLC, consistent with its existing practices, will record an accrual and/or provide appropriate disclosures as required by ASC 450-20-50, Contingencies. In the event that MSA LLC’s appeal of the adverse verdict is unsuccessful or not fully successful, the loss could total the full amount of the verdict, plus additional amounts for post-judgment interest. If so, the $3.2 million compensatory portion of the verdict (and associated interest) would be added to the product liability reserve and the insurance receivable in the consolidated balance sheet. The $4.0 million punitive portion of the verdict (and associated interest) would be expensed because we do not have insurance to cover punitive damages in this case. Insurance Receivable and Notes Receivable, Insurance Companies MSA LLC purchased insurance policies for the policy years from 1952-1986 from over 20 different insurance carriers that, subject to some common contract exclusions, provide coverage for cumulative trauma product liability losses and, in many instances, related defense costs (the "Occurrence-Based Policies"). The available limits of these policies exceed the recorded insurance receivable balance. After 1986, MSA LLC’s insurance policies have significant per claim deductibles. Based on this, the Company does not expect to be materially reimbursed for any claims alleging exposures that occurred entirely after this date. In the normal course of business, MSA LLC makes payments to settle product liability claims and for related defense costs and records receivables for the amounts that are covered by insurance. Various factors could affect the timing and amount of recovery of the insurance receivable, including the outcome of negotiations with insurers, the outcome of the coverage litigation, and the extent to which insurers may become insolvent in the future. Insurance receivables at September 30, 2016 totaled $154.5 million , of which, $2.0 million is reported in prepaid expenses and other current assets and $152.5 million is reported in insurance receivable and other non-current assets. Insurance receivables at December 31, 2015 totaled $229.5 million , of which $2.0 million is reported in Prepaid expenses and other current assets and $227.5 million is reported in insurance receivable and other non-current assets. A summary of insurance receivable balances and activity related to cumulative trauma product liability losses follows: (In millions) Nine Months Ended September 30, 2016 Year Ended December 31, 2015 Balance beginning of period $ 229.5 $ 220.5 Additions 24.8 17.3 Collections and settlements converted to notes receivable (99.8 ) (8.3 ) Balance end of period $ 154.5 $ 229.5 Additions to insurance receivables in the above table represent insured cumulative trauma product liability losses and related defense costs. There were no uninsured cumulative trauma product liability losses during the three months ended September 30, 2016 and September 30, 2015. Collections and settlements primarily represent agreements with insurance companies to pay amounts due that are applicable to cumulative trauma claims. When there are contingencies embedded in these agreements, we apply payments to the undiscounted receivable in the period when the contingency is met. In some cases, settlements are converted to formal notes receivable from insurance companies. The notes receivable are recorded as a transfer from the insurance receivable balance to the note receivable, insurance companies (current and noncurrent) in the condensed consolidated balance sheet. In cases where the payment stream covers multiple years and there are no contingencies, the present value of the payments is recorded as a transfer from the insurance receivable balance to the note receivable, insurance companies (current and long-term) in the condensed consolidated balance sheet. Provided the remaining insurance receivable is recoverable through the insurance carriers, no gain or loss is recognized at the time of transfer from insurance receivable to notes receivable from insurance companies. Notes receivable from insurance companies at September 30, 2016 totaled $103.6 million , of which $40.5 million is reported in Notes receivable, insurance companies, current and $63.1 million is reported in Notes receivable, insurance companies, noncurrent. Notes receivable from insurance companies at December 31, 2015 totaled $8.7 million , of which $6.7 million is reported in Notes receivable, insurance companies, current and $1.9 million is reported in Notes receivable, insurance companies, noncurrent. A summary of notes receivable balances from insurance companies is as follows: (In millions) Nine Months Ended September 30, 2016 Year Ended December 31, 2015 Balance beginning of period $ 8.7 $ 16.2 Additions 94.9 0.5 Collections — (8.0 ) Balance end of period $ 103.6 $ 8.7 The collectability of MSA LLC's insurance receivables is regularly evaluated and we believe that 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 outside legal counsel. We believe that successful resolution of insurance litigation with various insurance carriers over the years, as well as the recent trial verdict favorable outcome, demonstrate that we have strong legal positions concerning MSA LLC's rights to coverage. The trial verdict is described below. Insurance Litigation MSA LLC is currently involved in insurance coverage litigation with a number of its 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. 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 alleged that North River engaged in bad-faith claims handling. On October 6, 2016, a Pennsylvania state court jury found that North River breached the three contracts at issue in the case, and that North River also violated common law standards of bad faith in handling MSA LLC's clams. As a result of the jury's findings, the court entered a verdict in favor of MSA LLC and against North River for $10.9 million dollars, the full amount of the contractual damages at issue in the case. The $10.9 million , which is comprised of previously recorded payments to settle product liability claims and related defense costs, is part of MSA LLC's insurance receivable. In addition to the claims decided by the jury, MSA LLC also presented a claim under Pennsylvania's bad faith statue, which is decided by the court. Following the jury verdict, the court also issued a verdict with respect to the statutory bad faith claim, finding that North River had acted in statutory bad faith. A hearing to determine the damages to be awarded as a result of the statutory bad faith violation is scheduled for December 2016. We believe the outcome of this proceeding in our favor demonstrates that we have strong legal positions concerning MSA LLC's rights to coverage. 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. Trial is scheduled for April 2017. Through negotiated settlements, MSA LLC has resolved claims against certain of its insurance carriers on certain policies. When a settlement is reached, MSA LLC dismisses the settling carrier from the relevant above noted lawsuit(s). Assuming satisfactory resolution, once disputes are resolved with each of the remaining carriers, MSA LLC anticipates having commitments to provide future payment streams which should be sufficient to satisfy its presently recorded insurance receivables due from insurance carriers. During September 2016, we resolved coverage litigation with AIG International ("AIG"), through a negotiated settlement. AIG has agreed to make various payments over a period of years. These payments may be applied to satisfy amounts which had previously been recorded as part of the insurance receivable. As part of this settlement, we dismissed all claims against AIG in the above-referenced coverage litigation in the Superior Court of the State of Delaware. The settlement was recorded as a reduction from the insurance receivable and did not have an impact on our operating results for the three or nine months ended September 30, 2016. During September 2016, we resolved coverage litigation with Transport ("Transport"), through a negotiated settlement. Transport has agreed to make various payments over a period of years. These payments may be applied to satisfy amounts which had previously been recorded as part of the insurance receivable. As part of this settlement, we dismissed all claims against Transport in the above-referenced coverage litigation in the Superior Court of the State of Delaware. The settlement was recorded as a reduction from the insurance receivable and did not have an impact on our operating results for the three or nine months ended September 30, 2016. We estimate that within the next 6 - 18 months, even if insurance coverage litigation is generally successful, MSA LLC will become largely self-insured for costs associated with cumulative trauma product liability claims. The exact point when this transition will happen is difficult to predict and subject to a number of variables, including the pace at which future cumulative trauma product liability costs are incurred and the results of litigation and negotiations with insurance carriers. After it becomes largely self-insured, MSA LLC may still obtain some insurance reimbursement from negotiated coverage-in-place agreements (although that coverage may not be immediately triggered or accessible) or from other sources of coverage. The precise amount of insurance reimbursement available at that time cannot be determined with specificity at this time. |
