Contingent Liabilities

6 Months Ended

Jun. 30, 2011

CONTINGENT LIABILITIES [Abstract]

Commitments and Contingencies Disclosure [Text Block]

CONTINGENT LIABILITIES

Legal Proceedings

We are named as a defendant in various lawsuits relating to disputes arising from damages that occurred as a result of Hurricane Katrina in 2005. These lawsuits include actions seeking certification from the court to proceed as a class action suit and actions filed by individual policyholders. These cases involve, among other claims: disputes as to the amount of reimbursable claims in particular cases; the scope of insurance coverage under homeowners and commercial property policies due to flooding, civil authority actions, loss of use and business interruption; breach of the duty of good faith or violations of Louisiana insurance claims-handling laws or regulations (which cases involve claims for statutory damages and, in some cases, punitive or exemplary damages); the applicability of Louisiana's so-called “Valued Policy Law,” pursuant to which insurers must pay the total insured value of a structure that is totally destroyed if any portion of such damage was caused by a covered peril, even if the principal cause of the loss was an excluded peril; and the scope or enforceability of the water damage exclusion in the policies. We have established our loss and loss settlement expense reserves on the assumption that the application of the Valued Policy Law will not result in our having to pay damages for perils not otherwise covered. We believe that, in the aggregate, these reserves are adequate.

We intend to continue to defend the cases related to losses incurred as a consequence of Hurricane Katrina. There are approximately 69 individual policyholder cases pending and three class action cases pending as of June 30, 2011. Our evaluation of these claims and the adequacy of recorded reserves may change if we encounter adverse developments in the further defense of these claims. In the six-month periods ended June 30, 2011 and 2010, we incurred $5.8 million and $5.4 million of loss and loss settlement expenses from Hurricane Katrina claims and related litigation.

We are a defendant in two lawsuits filed in the Superior Court of Mercer County, New Jersey, Chancery Division, relating to our merger with Mercer Insurance Group. We have negotiated a settlement of both suits that is subject to court approval.  The obligation of United Fire and Mercer Insurance Group pursuant to settlement is not material.  If the court does not approve the settlement, we believe that the exposure faced by United Fire and Mercer Insurance Group is not material.

We consider all of our other litigation pending as of June 30, 2011, to be ordinary, routine, and incidental to our business