COMMITMENTS AND CONTINGENCIES

Letter of Credit Lines and Contractual Obligations

The Company has a line of credit with a financial institution totaling $85 million for the issuance of letters of credit (the “Letter of Credit Line”). The Letter of Credit Line, which is renewed annually, matures on November 18, 2013.

In support of its risk management program, to ensure the Company’s performance or payment to third parties, $60 million in letters of credit were outstanding at December 31, 2012. The letters of credit primarily represent collateral for current and future automobile liability and workers’ compensation loss payments. In addition, $1 million of bank guarantees were outstanding at December 31, 2012 in support of certain foreign operations.

Minimum rental commitments under noncancelable operating leases, primarily real estate, in effect at December 31, 2012 are as follows:



Year Ending December 31,
2013	$	181,167
2014	140,261
2015	106,603
2016	72,070
2017	42,922
2018 and thereafter	130,243

Minimum lease payments	673,266
Noncancelable sub-lease income	—

Net minimum lease payments	$	673,266

Operating lease rental expense for 2012, 2011 and 2010 totaled $211 million, $218 million and $195 million, respectively. Rent expense associated with operating leases that include scheduled rent increases and tenant incentives, such as rent holidays, is recorded on a straight-line basis over the term of the lease.

The Company has certain noncancelable commitments to purchase products or services from various suppliers, mainly for consulting and other service agreements, and standing orders to purchase reagents and other laboratory supplies. At December 31, 2012, the approximate total future purchase commitments are $96 million, of which $39 million are expected to be incurred in 2013, $47 million are expected to be incurred in 2014 through 2015 and the balance thereafter.

Contingent Lease Obligations

The Company remains subject to contingent obligations under certain real estate leases that were entered into by certain predecessor companies of a subsidiary prior to the Company's acquisition of the subsidiary. While over the course of many years, the title to the properties and interest in the subject leases have been transferred to third parties and the subject leases have been amended several times by such third parties, the lessors have not formally released the subsidiary predecessor companies from their original obligations under the leases and therefore remain contingently liable in the event of default. The remaining terms of the lease obligations and the Company's corresponding indemnifications range from 11 to 35 years. The lease payments under certain leases are subject to market value adjustments and contingent rental payments and therefore, the total contingent obligations under the leases cannot be precisely determined but are likely to total several hundred million dollars. A claim against the Company would be made only upon the current lessee's default and after a series of claims and corresponding defaults by third parties that precede the Company in the order of liability. The Company also has certain indemnification rights from other parties to recover losses in the event of default on the lease obligations. The Company believes that the likelihood of its performance under these contingent obligations is remote and no liability has been recorded for any potential payments under the contingent lease obligations.

Settlement of California Lawsuit

On May 9, 2011, the Company announced an agreement in principle to settle, and on May 19, 2011, the Company finalized a settlement of, a qui tam case filed by a competitor under the California False Claims Act in California state court (the "California Lawsuit") related to the Company's billing practices to Medi-Cal, the California Medicaid program. While denying liability, in order to avoid the uncertainty, expense and risks of litigation, the Company agreed to resolve these matters for $241 million. As a result of the agreement in principle, the Company recorded a pre-tax charge to earnings in the first quarter of 2011 of $236 million (the "Medi-Cal charge"), which represented the cost to resolve the matters noted above and related claims, less amounts previously reserved for related matters. The Company funded the $241 million payment in the second quarter of 2011 with cash on hand and borrowings under its existing credit facilities.

Other Legal Matters

In addition to the matters described below, in the normal course of business, we have been named, from time to time, as a defendant in various legal actions, including arbitrations, class actions and other litigation, arising in connection with our activities as a provider of diagnostic testing, information and services. These legal actions may include lawsuits alleging negligence or other similar legal claims. These actions could involve claims for substantial compensatory and/or punitive damages or claims for indeterminate amounts of damages, and could have an adverse impact on our client base and reputation.

We are also involved, from time to time, in other reviews, investigations and proceedings by governmental agencies regarding our business, including, among other matters, operational matters, which may result in adverse judgments, settlements, fines, penalties, injunctions or other relief. The number of these reviews, investigations and proceedings has increased in recent years with regard to many firms in the healthcare services industry, including our Company.

In November 2009, the U.S. District Court for the Southern District of New York partially unsealed a civil complaint,

U.S. ex rel. Fair Laboratory Practices Associates v. Quest Diagnostics Incorporated, filed against the Company under the

whistleblower provisions of the federal False Claims Act. The complaint alleged, among other things, violations of the federal

Anti-Kickback Statute and the federal False Claims Act in connection with the Company's pricing of laboratory services. The

complaint seeks damages for alleged false claims associated with laboratory tests reimbursed by government payers, treble

damages and civil penalties. In March 2011, the district court granted the Company's motion to dismiss the relators' complaint

and disqualified the relators and their counsel from pursuing an action based on the facts alleged in the complaint; the relators

filed a notice of appeal. In July 2011, the government filed a notice declining to intervene in the action and the Court entered a final judgment in the Company's favor. The relators' appeal is pending.

In November 2010, a putative class action entitled Seibert v. Quest Diagnostics Incorporated, et al. was filed against

the Company and certain former officers of the Company in New Jersey state court, on behalf of the Company's sales people

nationwide who were over forty years old and who either resigned or were terminated after being placed on a performance

improvement plan. The complaint alleges that the defendants' conduct violates the New Jersey Law Against Discrimination

("NJLAD"), and seeks, among other things, unspecified damages. The defendants removed the complaint to the United States

District Court for the District of New Jersey. The plaintiffs filed an amended complaint that adds claims under ERISA. The

Company filed a motion seeking to limit the application of the NJLAD to only those members of the purported class who

worked in New Jersey and to dismiss the individual defendants. The motion was granted. The only remaining NJLAD claim is

that of the named plaintiff; the ERISA claim remains in the case. Both parties have filed summary judgment motions, which are pending.

In 2010, a purported class action entitled In re Celera Corp. Securities Litigation was filed in the United States District

Court for the Northern District of California against Celera Corporation and certain of its directors and current and former

officers. An amended complaint filed in October 2010 alleges that from April 2008 through July 22, 2009, the defendants made

false and misleading statements regarding Celera's business and financial results with an intent to defraud investors. The

complaint was further amended in 2011 to add allegations regarding a financial restatement. The complaint seeks unspecified

damages on behalf of an alleged class of purchasers of Celera's stock during the period in which the alleged misrepresentations

were made. The Company's motion to dismiss the complaint was denied. The Company has filed a motion for reconsideration

of the court's denial of the Company's motion to dismiss.

In August 2011, the Company received a subpoena from the U.S. Attorney for the Northern District of Georgia seeking various business records, including records related to the Company's compliance program, certain marketing materials, certain product offerings, and test ordering and other policies. The Company is cooperating with the request.

In January 2012, a putative class action entitled Beery v. Quest Diagnostics Incorporated was filed in the United States

District Court for the District of New Jersey against the Company and a subsidiary, on behalf of all female sales representatives

employed by the defendants from February 17, 2010 to the present. The amended complaint alleges that the defendants

discriminate against these female sales representatives on account of their gender, in violation of the federal civil rights and

equal pay acts, and seeks, among other things, injunctive relief and monetary damages. The Company has filed motions to

dismiss the complaint, to strike the class allegations and to compel arbitration with the named plaintiffs.

In September 2009, the Company received a subpoena from the Michigan Attorney General's Office seeking

documents relating to the Company's pricing and billing practices as they relate to Michigan's Medicaid program. The

Company cooperated with the requests. In January 2012, the State of Michigan intervened as a plaintiff in a civil lawsuit,

Michigan ex rel. Hunter Laboratories LLC v. Quest Diagnostics Incorporated, et al., filed in Michigan Superior Court. The

suit, originally filed by a competitor laboratory, alleges that the Company overcharged Michigan's Medicaid program. The

Company's motion to dismiss the complaint was denied.

In March 2011, prior to the Company's acquisition of Celera, several putative class action lawsuits were filed by shareholders of Celera against the Company, Celera, and the directors of Celera in the Court of Chancery of Delaware and in California. The suits allege that Celera's directors breached their fiduciary duties in connection with the Company's proposed acquisition of Celera, and that the Company aided and abetted those alleged breaches. The parties reached a settlement, and the Court of Chancery of Delaware certified a settlement class and approved the settlement over the objection of a Celera shareholder, BVF Partners L.P. (“BVF”). Plaintiffs in two substantively similar lawsuits filed in the United States District Court for the Northern District of California were not party to the settlement agreement but the claims of those plaintiffs were released pursuant to Court of Chancery's order. On appeal of the Court of Chancery's decision, the Supreme Court of the State of Delaware affirmed the certification of the settlement class and approval of the settlement, but determined that BVF should have been afforded the right to “opt out” of the settlement and pursue its claims. The case has been remanded to the Court of Chancery for further proceedings.

In July 2012, a putative class action entitled Mt. Lookout Chiropractic Center Inc. v. Quest Diagnostics Incorporated, et al. was filed in the United States District Court for the District of New Jersey against the Company, two of its subsidiaries and others. The complaint alleges that the defendants violated the federal Telephone Consumer Protection Act by sending fax advertisements without permission and without the required opt-out notice, and seeks monetary damages and injunctive relief. The Company has filed an answer to the complaint.

In addition, the Company and certain of its subsidiaries have received subpoenas from state agencies. The Company

and the subsidiaries continue responding to subpoenas from state agencies in two states and cooperating with their requests.

The federal or state governments may bring claims based on new theories as to the Company's practices which

management believes to be in compliance with law. In addition, certain federal and state statutes, including the qui tam

provisions of the federal False Claims Act, allow private individuals to bring lawsuits against healthcare companies on behalf

of government or private payers. The Company is aware of certain pending individual or class action lawsuits, and has received

several subpoenas, related to billing practices filed under the qui tam provisions of the Civil False Claims Act and/or other

federal and state statutes, regulations or other laws. The Company understands that there may be other pending qui tam claims

brought by former employees or other "whistle blowers" as to which the Company cannot determine the extent of any potential

liability.

Management cannot predict the outcome of such matters. Although management does not anticipate that the ultimate

outcome of such matters will have a material adverse effect on the Company's financial condition, given the high degree of

judgment involved in establishing loss estimates related to these types of matters, the outcome of such matters may be material

to the Company's results of operations or cash flows in the period in which the impact of such matters is determined or paid.

These matters are in different stages. Some of these matters are in their early stages. Matters may involve responding to and cooperating with various government investigations and related subpoenas. As of December 31, 2012, the Company does not believe that any losses related to the Other Legal Matters described above are probable. While the Company believes that a reasonable possibility exists that losses may have been incurred related to the Other Legal Matters described above, based on the nature and status of these matters, potential losses, if any, cannot be estimated.

Reserves for Legal Matters

Reserves for legal matters, unrelated to those described above in "Other Legal Matters", totaled less than $5 million at both December 31, 2012 and 2011.

Reserves for General and Professional Liability Claims

As a general matter, providers of clinical testing services may be subject to lawsuits alleging negligence or other similar legal claims. These suits could involve claims for substantial damages. Any professional liability litigation could also have an adverse impact on the Company's client base and reputation. The Company maintains various liability insurance coverages for, among other things, claims that could result from providing, or failing to provide, clinical testing services, including inaccurate testing results, and other exposures. The Company's insurance coverage limits its maximum exposure on individual claims; however, the Company is essentially self-insured for a significant portion of these claims. Reserves for such matters, including those associated with both asserted and incurred but not reported claims, are established by considering actuarially determined losses based upon the Company's historical and projected loss experience. Such reserves totaled approximately $110 million and $127 million as of December 31, 2012 and 2011, respectively. Management believes that established reserves and present insurance coverage are sufficient to cover currently estimated exposures. Management cannot predict the outcome of any claims made against the Company. Although management does not anticipate that the ultimate outcome of any such proceedings or claims will have a material adverse effect on the Company's financial condition, given the high degree of judgment involved in establishing accruals for loss estimates related to these types of matters, the outcome may be material to the Company's results of operations or cash flows in the period in which the impact of such claims is determined or paid.