Commitments and Contingencies

3 Months Ended

Mar. 31, 2013

Commitments and Contingencies [Abstract]

Commitments and Contingencies

7.           Commitments and Contingencies

We are a defendant in various lawsuits and claims arising in the normal course of business.  Management believes it has valid defenses in these cases and is defending them vigorously.  While the results of litigation cannot be predicted with certainty, management believes the final outcome of such litigation will not have a material adverse effect on our financial position or results of operations.

Lumbermens Mutual Casualty Company

In 2003, facing continued capital constraints and a series of downgrades from various rating agencies, our former workers' compensation insurance carrier for the two-year period ended September 2003, Lumbermens Mutual Casualty Company, formerly known as Kemper, ("Lumbermens Mutual") made the decision to substantially cease underwriting operations and voluntarily entered into "run-off."  In July 2012, Lumbermens Mutual announced that an agreed order of rehabilitation had been entered against it in Cook County, Illinois.  Under the order, the Director of the Illinois Department of Insurance was vested with control over Lumbermens Mutual property and decision-making.  The Director publicly announced that claims will continue to be paid during the rehabilitation process, and he intends to use the period before an order of liquidation is entered to work with state guaranty associations to prepare for the orderly transition of claim handling responsibilities to such funds once such an order is entered.  On March 18,2013, the Director filed a verified complaint seeking an order of liquidation against Lumbermens Mutual that also seeks a declaration of insolvency. The court has not yet ruled on the March 18, 2013 complaint.

Guaranty associations are non-profit organizations created by statute for the purpose of protecting policyholders from severe financial losses and preventing delays in claim payment due to the insolvency of an insurer.  They do this by assuming responsibility for the payment of claims that would otherwise have been paid by the insurer had it not become insolvent.  Each state has one or more guaranty association(s), with each association handling certain types of insurance.  Insurance companies are required to be members of the state guaranty association as a condition of being licensed to do business in the state.

The guaranty associations in some states, including Texas, may assert that state law allows them to recover the amount of benefits paid by the guaranty association along with associated administration and defense costs from an insured with a net worth exceeding certain specified levels.  If an Order of Liquidation is entered and if one or more guaranty associations were to seek recovery from us for open claims with Lumbermens Mutual, we may be required to repay those amounts.  While we are not certain when or if Lumbermens Mutual will be placed into liquidation or whether any state guaranty association will ultimately assert a claim against us, we intend to vigorously assert any and all available defenses to any such claim.  We estimate the outstanding claims that may be subject to such contentions from state guaranty associations to range from $2.9 million to $5.0 million as of March 31, 2013.  In the event state guaranty associations attempt to seek recovery from us and are successful, we would be required to pay such claims, which would reduce net income and could have a material adverse effect on net income in the reported period.