The Corporation and its subsidiaries are involved in various claims and lawsuits incidental to their businesses and are also subject to asbestos litigation as described below.

Claims have been asserted alleging personal injury from exposure to asbestos-containing components historically used in some products manufactured by predecessors of Air & Liquid (the “Asbestos Liability”). Air & Liquid and, in some cases, the Corporation, are defendants (among a number of defendants, often in excess of 50) in cases filed in various state and federal courts.

The following table reflects approximate information about the claims for the Asbestos Liability against Air & Liquid and the Corporation for the years ended December 31, 2022 and 2021. The majority of the settlement and defense costs were reported and paid by insurer carriers. Because claims are often filed and can be settled or dismissed in large groups, the amount and timing of settlements, as well as the number of open claims, can fluctuate significantly from period to period.


	2022			2021
Total claims pending at the beginning of the period		6,097			5,891
New claims served		1,200			1,233
Claims dismissed		(634	)		(605	)
Claims settled		(404	)		(422	)
Total claims pending at the end of the period(1)		6,259			6,097
Administrative closures(2)		(3,109	)		(2,941	)
Total active claims pending at the end of the period(2)		3,150			3,156
Gross settlement and defense costs paid (in 000’s)	$	19,834		$	23,215
Average gross settlement and defense costs per claim resolved (in 000’s) (3)	$	19.11		$	22.60

(1)

Included as “open claims” are approximately 655 and 661 claims in 2022 and 2021, respectively, classified in various jurisdictions as “inactive” or transferred to a state or federal judicial panel on multi-district litigation.

(2)

Administrative closures include (i) those claims that were filed six or more years ago; (ii) claims that were previously classified in various jurisdictions as “inactive;” and (iii) claims that were transferred to a state or federal judicial panel on multi-district litigation. Collectively, these claims are unlikely to result in any liability to the Corporation.

(3)

Claims resolved do not include claims that were administratively closed.

The Corporation and Air & Liquid are parties to a series of settlement agreements (“Settlement Agreements”) with insurer carriers that have coverage obligations for the Asbestos Liability (the “Settling Insurers”). Under the Settlement Agreements, the Settling Insurers accept financial responsibility, subject to the terms and conditions of the respective agreements, including overall coverage limits, for pending and future claims for the Asbestos Liability. The Settlement Agreements encompass the majority of insurance policies that provide coverage for claims for the Asbestos Liability.

The Settlement Agreements include acknowledgments that Howden North America, Inc. (“Howden”) is entitled to coverage under policies covering the Asbestos Liability for claims arising out of the historical products manufactured or distributed by Buffalo Forge, a former subsidiary of the Corporation (the “Products”), which was acquired by Howden. The Settlement Agreements do not provide for any prioritization on access to the applicable policies or any sub-limits of liability as to Howden or the Corporation and Air & Liquid and, accordingly, Howden may access the coverage afforded by the Settling Insurers for any covered claim arising out of the Products. In general, access by Howden to the coverage afforded by the Settling Insurers for the Products will erode coverage under the Settlement Agreements available to the Corporation and Air & Liquid for the Asbestos Liability.

At December 31, 2006, with the assistance of a nationally recognized expert in the valuation of asbestos liabilities, the Corporation recorded its initial reserve for the Asbestos Liability. Since then, the Corporation and the expert have reviewed the Asbestos Liability and the underlying assumptions on a regular basis to determine whether any adjustment to the Asbestos Liability or the underlying assumptions were necessary. When warranted, the Asbestos Liability was adjusted to consider the current trends and new information that became available and, if reasonably estimable, to extend the valuation of asbestos liabilities further into the future. In 2018, the valuation was extended to include claims projected to be asserted through the estimated final date by which the Corporation expects to have settled all asbestos-related claims.

In conjunction with the regular updates of the estimated Asbestos Liability, the Corporation also develops an estimate of defense costs expected to be incurred with settling the Asbestos Liability and probable insurance recoveries for the Asbestos Liability and defense costs. In developing the estimate of probable defense costs, the Corporation considers several factors including, but not limited to, current and historical defense-to-indemnity cost ratios and expected defense-to-indemnity costs ratios. In developing the estimate of probable insurance recoveries, the Corporation considers the expert’s projection of settlement costs for the Asbestos Liability and management’s projection of associated defense costs. In addition, the Corporation consults with its outside legal counsel on insurance matters and a nationally recognized insurance consulting firm that it retains to assist with certain policy allocation matters. The Corporation also considers a number of other factors including the Settlement Agreements in effect, policy exclusions, policy limits, policy provisions regarding coverage for defense costs, attachment points, gaps in the coverage, policy exhaustion, the nature of the underlying claims for the Asbestos Liability, estimated erosion of insurance limits on account of claims against Howden arising out of the Products, prior impairment of policies, insolvencies among certain of the insurance carriers, and creditworthiness of the remaining insurer carriers based on publicly available information. Based on these factors, the Corporation estimates the probable insurance recoveries for the Asbestos Liability and defense costs for the corresponding time frame of the Asbestos Liability.

In 2021, primarily as a result of identified changes in claim data and availability of new information, the Corporation engaged Gnarus Advisors LLC (“Gnarus”) to update the estimated Asbestos Liability. The methodology used by Gnarus in its updated projection was substantially the same methodology employed previously, which has been accepted by numerous courts, and included the following factors:

Based on this analysis, the Corporation recorded an increase to its estimated Asbestos Liability of $23,333 for claims pending or projected to be asserted through the estimated final date by which the Corporation expects to have settled all asbestos-related claims. The increase is primarily attributable to recent claim experience, including a higher expected proportion of mesothelioma claims which typically have a higher settlement value, offset by a lower defense-to-indemnity cost ratio (reduced to 70% from 80% based on experience and future expectations) and elimination of an inflationary factor based on historical experience over the past 10+ years which provided no evidence that inflationary pressures influenced settlement averages. In addition, the Corporation increased its estimated insurance receivable by $16,672 for the estimated insurance recoveries attributable to the claims for which the Asbestos Liability reserve has been established and the portion of defense costs covered by the Settlement Agreements. The difference between the increase to the Asbestos Liability and the increase to the insurance receivable of $6,661 is recorded as a charge for asbestos-related costs in the consolidated statement of operations for 2021.

In 2022, the Corporation revised its defense-to-indemnity cost ratio (reduced from 70% to 65%) based on continuing favorable experience and future expectations, which reduced the Asbestos Liability by $6,905 and insurance receivable by $4,679 with the difference recorded as a credit for asbestos-related costs in the consolidated statement of operations of $2,226 for 2022.

The following table summarizes activity relating to asbestos-related liabilities for the years ended December 31, 2022 and 2021.


	2022			2021
Asbestos liability, beginning of the year	$	180,314		$	180,196
Settlement and defense costs paid		(19,834	)		(23,215	)
Change in estimated liability		(6,905	)		23,333
Asbestos liability, end of the year	$	153,575		$	180,314

The following table summarizes activity relating to insurance recoveries for the years ended December 31, 2022 and 2021.


	2022			2021
Insurance receivable – asbestos, beginning of the year	$	121,297		$	117,937
Settlement and defense costs paid by insurance carriers		(10,708	)		(13,312	)
Change in estimated coverage		(4,679	)		16,672
Insurance receivable – asbestos, end of the year	$	105,910		$	121,297

The balance of the insurance receivable does not assume any recovery from insolvent carriers. A substantial majority of the insurance recoveries deemed probable is from insurance companies rated A – (excellent) or better by A.M. Best Corporation. There can be no assurance, however, that there will not be insolvencies among the relevant insurance carriers, or that the assumed percentage recoveries for certain carriers will prove correct.

The amounts recorded for the Asbestos Liability and insurance receivable rely on assumptions that are based on currently known facts and strategy. The Corporation’s actual expenses or insurance recoveries could be significantly higher or lower than those recorded if assumptions used in the Corporation’s or the experts’ calculations vary significantly from actual results. Key variables in these assumptions are identified above and also include the number and nature of new claims to be filed each year, the average cost of disposing of each new claim, average annual defense costs, compliance by relevant parties with the terms of the Settlement Agreements, and the solvency risk with respect to the relevant insurance carriers. Other factors that may affect the Asbestos Liability and ability to recover under the Corporation’s insurance policies include uncertainties surrounding the litigation process from jurisdiction to jurisdiction and from case to case, reforms that may be made by state and federal courts, and the passage of state or federal tort reform legislation.

The Corporation intends to continue to evaluate the Asbestos Liability and related insurance receivable, as well as the underlying assumptions, on a regular basis to determine whether any adjustments to the estimates are required. Due to the uncertainties surrounding asbestos litigation and insurance, these regular reviews may result in the Corporation adjusting its current reserve; however, the Corporation is currently unable to estimate such future adjustments. Adjustments, if any, to the Corporation’s estimate of the Asbestos Liability and/or insurance receivable could be material to the operating results for the periods in which the adjustments to the liability or receivable are recorded and to the Corporation’s consolidated financial position and liquidity.