Contingencies

Fuel Tech is subject to various claims and contingencies related to, among other things, workers compensation, general liability (including product liability), and lawsuits. The Company records liabilities where a contingent loss is probable and can be reasonably estimated. If the reasonable estimate of a probable loss is a range, the Company records the most probable estimate of the loss or the minimum amount when no amount within the range is a better estimate than any other amount. The Company discloses a contingent liability even if the liability is not probable or the amount is not estimable, or both, if there is a reasonable possibility that a material loss may have been incurred.

During the second quarter of 2016, the Company received a notice from a contractor that performed installation work on one of the Company's APC projects regarding $3.9 million in purported expenses beyond the contractually agreed cap on expenses. We believe that the claims alleged with regards to the additional expenses are without merit, and we intend to vigorously defend against them. The Company did not accrue an amount as of September 30, 2016 related to the alleged claims. As of September 30, 2016, the Company initiated the process, as required by the Company's contract with the subcontractor, to submit the dispute into mediation. If the parties are not able to agree upon terms within the mediation phase, the Company would seek resolution to the matter in court. A future adverse ruling or settlement could result in charges that could have a material adverse effect on the company's consolidated balance sheet, results of operations or cash flows in the period in which they are recorded.

Fuel Tech issues a standard product warranty with the sale of its products to customers. Our recognition of warranty liability is based primarily on analyses of warranty claims experienced in the preceding years as the nature of our historical product sales for which we offer a warranty are substantially unchanged. This approach provides an aggregate warranty accrual that is historically aligned with actual warranty claims experienced.

Changes in the warranty liability for the nine months September 30, 2016 and 2015, are summarized below:



	Nine Months Ended September 30,
	2016			2015
Aggregate product warranty liability at beginning of period	$	268		$	268
Net aggregate expense (benefit) related to product warranties	(109		)	8
Aggregate reductions for payments	—			(8		)
Aggregate product warranty liability at end of period	$	159		$	268