Note 12. Commitments and Contingencies

Future minimum annual rental commitments as of December 31, 2011 under various noncancellable operating leases for our office facilities, which expire at various dates through 2020, are as follows:

		September 30,
	Year Ended
In thousands	December 31,
2012	$	9,243
2013		9,163
2014		7,845
2015		7,741
2016		6,194
Thereafter		9,067

Total minimum operating lease payments	$	49,253

We are also liable for additional payments to the landlords for certain annual cost increases. Rent expense for the years ended December 31, 2011, 2010 and 2009 was $10.4 million, $9.3 million and $8.6 million, respectively.

In the ordinary course of conducting business, the Company’s subsidiaries are involved in various legal proceedings, either indirectly as insurers for parties or directly as defendants. Most of these proceedings consist of claims litigation involving the Company’s subsidiaries as either (a) liability insurers defending or providing indemnity for third party claims brought against insureds or (b) insurers defending first party coverage claims brought against them. The Company accounts for such activity through the establishment of unpaid loss and loss adjustment reserves. The Company’s management believes that the ultimate liability, if any, with respect to such ordinary-course claims litigation, after consideration of provisions made for potential losses and cost of defense, will not be material to the Company’s consolidated financial condition, results of operations, or cash flows.

The Company’s subsidiaries are also from time to time involved with other legal actions, some of which assert claims for substantial amounts. These actions include claims asserting extra contractual obligations, such as claims involving allegations of bad faith in the handling of claims or the underwriting of policies. In general, the Company believes it has valid defenses to these cases. The Company’s management expects that the ultimate liability, if any, with respect to future extra-contractual matters will not be material to its consolidated financial position. Nonetheless, given the large or indeterminate amounts sought in certain of these matters, and the inherent unpredictability of litigation, an adverse outcome in such matters could, from time to time, have a material adverse outcome on the Company’s consolidated results of operations or cash flows in a particular fiscal quarter or year.

In October 2010, Equitas represented by Resolute Management Services Limited (“Resolute”), commenced a lawsuit in the Supreme Court of the State of New York (the “Court Proceeding”) and separate arbitration proceedings (the “Arbitration” and collectively with the Court Proceeding, the “Resolute Proceedings”) against Navigators Management Company, Inc. (“NMC”) a wholly-owned subsidiary of the Company. The arbitration demand and complaint in the Resolute Proceedings allege that NMC failed to make timely payments to Resolute under certain reinsurance agreements in connection with subrogation recoveries received by NMC with respect to several catastrophe losses that occurred in the late 1980’s and early 1990’s. Resolute alleges that it suffered damages of approximately $7.5 million as a result of the alleged delays in payment. The relative proportion of total damages sought in the Court Proceeding and Arbitration are approximately 55% and 45%, respectively. The Company believes that the claims of Resolute are without merit and it intends to vigorously contest the claims.

On October 25, 2011, an order was issued in the Court Proceeding denying NMC’s motion for summary judgment and granting Resolute’s cross-motion for partial summary judgment (the “Partial Summary Judgment Order”). The Partial Summary Judgment Order found that NMC had breached its obligations under the reinsurance agreements at issue in the Court Proceeding and further found that Resolute was entitled to damages for unpaid interest at the statutory rate of 9%. On December 2, 2011, a Stipulation and Order was entered with the Court in favor of Resolute in the amount of $4.7 million with respect to the Partial Summary Judgment Order. Navigators disagrees with and is appealing the Partial Summary Judgment Order. As a result of the entry of the Partial Summary Judgment Order on December 2, 2011, however, Navigators established an interest expense accrual of $4.7 million pending the resolution of the appeal.

The Arbitration is in the dispositive motion phase and involves contracts and/or factual situations that are distinct from those in the Court Proceeding. Navigators intends to continue to vigorously contest the claims in the Arbitration.

While it is too early to predict with any certainty the ultimate outcome of the Resolute Proceedings, the Company believes that the ultimate outcome would not be expected to have a significant adverse effect on its results of operations, financial condition or liquidity, although an adverse resolution of the Resolute Proceedings could have a material adverse effect on the Company’s results of operations in a particular fiscal quarter or year.

Wherever a member of Lloyd’s is unable to pay its debts to policyholders, such debts may be payable by the Lloyd’s Central Fund. If Lloyd’s determines that the Central Fund needs to be increased, it has the power to assess premium levies on current Lloyd’s members up to 3% of a member’s underwriting capacity in any one year. We do not believe that any assessment is likely in the foreseeable future and, therefore, have not provided any allowance for such an assessment.