Commitment and Contingencies

Capital Lease Obligations

During the third quarter of 2017, we entered into capital leases for certain of our tractors in our marketing segment. The following table summarizes our principal contractual commitments outstanding under our capital leases at December 31, 2017 for the next five years, and in total thereafter (in thousands):



2018	$	398
2019	398
2020	398
2021	398
2022	255
Thereafter	—
Total minimum lease payments	1,847
Less: Amount representing interest	(158		)
Present value of capital lease obligations	1,689
Less current portion of capital lease obligations	(338		)
Total long-term capital lease obligations	$	1,351

Operating Lease Obligations

We lease certain property and equipment under noncancellable and cancelable operating leases. Our significant lease agreements consist of (i) arrangements with independent truck owner-operators for use of their equipment and driver services; (ii) leased office space; and (iii) certain lease and terminal access contracts in order to provide tank storage and dock access for our crude oil marketing business. Currently, our significant lease agreements have terms that range from one to eight years.

Lease expense is charged to operating costs and expenses on a straight-line basis over the period of expected economic benefit. Contingent rental payments are expensed as incurred. We are generally required to perform routine maintenance on the underlying leased assets. Maintenance and repairs of leased assets resulting from our operations are charged to expense as incurred. Rental expense was as follows for the periods indicated (in thousands):



	Year Ended December 31,
	2017		2016		2015

Rental expense	$	12,073	$	11,314	$	11,168

At December 31, 2017, rental obligations under non-cancelable operating leases and terminal arrangements with terms in excess of one year for the next five years and thereafter are payable as follows (in thousands):



	2018		2019		2020		2021		2022		Thereafter		Total

Operating leases	$	2,758	$	463	$	68	$	63	$	32	$	23	$	3,407

Insurance Policies

Under our automobile and workers’ compensation insurance policies that were in place through September 30, 2017, we pre-funded our estimated losses, and therefore, we could either receive a return of premium paid or be assessed for additional premiums up to pre-established limits. Additionally, in certain instances, the risk of insured losses was shared with a group of similarly situated entities through an insurance captive. We have appropriately recognized estimated expenses and liabilities related to these policies for losses incurred but not reported to us or our insurance carrier. The amount of pre-funded insurance premiums left to cover potential future losses totaled as follows at the dates indicated (in thousands):



	December 31,
	2017		2016

Pre-funded premiums for losses incurred but not reported	$	988	$	2,657

If the potential insurance claims do not further develop, the pre-funded premiums will be returned to us as a premium refund.

Effective October 1, 2017, we changed the structure of our automobile and workers’ compensation insurance policies. We have exited the group captive and now establish a liability for expected claims incurred but not reported on a monthly basis as we move forward. As claims are paid, the liability is relieved. At December 31, 2017, our accrual for automobile and workers’ compensation claims was $0.5 million.

We maintain a self-insurance program for managing employee medical claims. A liability for expected claims incurred but not reported is established on a monthly basis. As claims are paid, the liability is relieved. We also maintain third party insurance stop-loss coverage for annual aggregate medical claims exceeding $4.5 million. Medical accrual amounts were as follows at the dates indicated (in thousands):



	December 31,
	2017		2016

Accrued medical claims	$	1,329	$	1,411

Litigation

AREC was named as a defendant in a number of Louisiana lawsuits involving alleged environmental contamination from prior drilling operations. Such suits typically allege improper disposal of oilfield wastes in earthen pits, with one matter involving allegations that drilling operations in 1986 contributed to the formation of a sinkhole in 2012 (the “Sinkhole Cases”). The Sinkhole Cases, while arising from a singular event, include a number of different lawsuits brought in Louisiana State Court and one consolidated action in the United States District Court for the Eastern District of Louisiana. In addition to the Sinkhole Cases, AREC is also currently involved in two other suits. These suits are styled LePetit Chateau Deluxe v. Adams Resources Exploration Corporation dated March 2004 filed in Acadia Parish, Louisiana, and Henning Management, LLC v. Adams Resources Exploration Corporation dated November 2013 filed in Jefferson Davis Parish, Louisiana. Each suit involves multiple industry defendants with substantially larger proportional interest in the properties. In the LePetit Chateau Deluxe matter, all the larger defendants have settled the case.

The plaintiffs in each of these matters are seeking unspecified compensatory and punitive damages. While we do not believe that these claims will result in a material adverse effect on us, significant attorney fees may be incurred to address claims related to these suits. At December 31, 2016, we had $0.5 million accrued for future legal costs for these matters. During May 2017, AREC was dismissed without prejudice as a party to the suit with Henning Management. We also determined that the likelihood of future claims from other remaining litigation was remote. As such, we released the $0.5 million accrual for future legal settlements related to these matters. At December 31, 2017, we had no remaining accruals for legal costs for these matters.

From time to time as incidental to our operations, we may become involved in various lawsuits and/or disputes. Primarily as an operator of an extensive trucking fleet, we are a party to motor vehicle accidents, worker compensation claims and other items of general liability as would be typical for the industry. We are presently unaware of any claims against us that are either outside the scope of insurance coverage or that may exceed the level of insurance coverage and could potentially represent a material adverse effect on our financial position or results of operations.

Guarantees

AE issues parent guarantees of commitments associated with the activities of its subsidiary companies. The guarantees generally result from subsidiary commodity purchase obligations, subsidiary operating lease commitments and subsidiary banking transactions. The nature of these arrangements is to guarantee the performance of the subsidiary in meeting their respective underlying obligations. The parent would only be called upon to perform under the guarantee in the event of a payment default by the applicable subsidiary company. In satisfying such obligations, the parent would first look to the assets of the defaulting subsidiary company.

At December 31, 2017, parental guaranteed obligations were approximately $48.2 million. Currently, neither AE nor any of its subsidiaries has any other types of guarantees outstanding that require liability recognition.