Contingencies

12 Months Ended

Dec. 31, 2019

Commitments and Contingencies Disclosure [Abstract]

CONTINGENCIES

The Company's environmental and product liability contingencies are discussed separately below. In the normal course of business, the Company is also party to various other commercial and legal claims, actions and complaints, including matters involving warranty claims, intellectual property claims, general liability and various other risks. It is not possible to predict with certainty whether or not the Company will ultimately be successful in any of these other commercial and legal matters or, if not, what the impact might be. The Company's management does not expect that an adverse outcome in any of these other commercial and legal claims, actions and complaints will have a material adverse effect on the Company's results of operations, financial position or cash flows, although it could be material to the results of operations in a particular quarter.

Environmental

The Company and certain of its current and former direct and indirect corporate predecessors, subsidiaries and divisions have been identified by the United States Environmental Protection Agency and certain state environmental agencies and private parties as potentially responsible parties (“PRPs”) at various hazardous waste disposal sites under the Comprehensive Environmental Response, Compensation and Liability Act (“Superfund”) and equivalent state laws. The PRPs may currently be liable for the cost of clean-up and other remedial activities at 14 and 28 such sites as of December 31, 2019 and 2018, respectively. Responsibility for clean-up and other remedial activities at a Superfund site is typically shared among PRPs based on an allocation formula.

The Company believes that none of these matters, individually or in the aggregate, will have a material adverse effect on its results of operations, financial position or cash flows. Generally, this is because either the estimates of the maximum potential liability at a site are not material or the liability will be shared with other PRPs, although no assurance can be given with respect to the ultimate outcome of any such matter.

The Company has an accrual for environmental liabilities of $3 million and $9 million as of December 31, 2019 and December 31, 2018, respectively. This accrual is based on information available to the Company (which in most cases includes: an estimate of allocation of liability among PRPs; the probability that other PRPs, many of whom are large, solvent public companies, will fully pay the cost apportioned to them; currently available information from PRPs and/or federal or state environmental agencies concerning the scope of contamination and estimated remediation and consulting costs; and remediation alternatives). The decrease in both the number of sites and accrual was primarily the result of divestitures completed during 2019 including Morse TEC and non-core pipes and thermostat product lines. Refer to Note 19, "Recent Transactions," to the Consolidated Financial Statements for more information.

Asbestos-related Liability

Like many other industrial companies that have historically operated in the United States, the Company, or parties that the Company is obligated to indemnify, has been named as one of many defendants in asbestos-related personal injury actions. Morse TEC, a former wholly-owned subsidiary of the Company, was the obligor for the Company's recorded asbestos-related liabilities and the policyholder of the related insurance assets. On October 30, 2019, the Company transferred 100% of its equity interests to Enstar. As a result of the transaction, the Company removed Morse TEC's asbestos-related liabilities, related insurance assets and associated deferred tax assets from the Consolidated Balance Sheet. Refer to Note 19 "Recent Transactions," to the Consolidated Financial Statements for more information.

The Company’s asbestos-related claims activity during the years ended December 31, 2019 and 2018 is as follows:



	2019		2018
Beginning claims January 1	8,598		9,225
New claims received	1,667		1,932
Dismissed claims	(967	)	(2,189	)
Settled claims	(237	)	(370	)
Derecognized claims	(9,061	)	—
Ending claims December 31	—		8,598

During the years ended December 31, 2019 and 2018, the Company paid $38 million and $46 million, respectively, in asbestos-related claim resolution costs and associated defense costs. Asbestos-related claim resolution costs and associated defense costs are reflected in the Company's operating cash flows.

Prior to the derecognition of Morse TEC, the Company reviewed its own experience in handling asbestos-related claims and trends affecting asbestos-related claims in the U.S. tort system generally for the purposes of assessing the value of pending asbestos-related claims and the number and value of those that may be asserted in the future, as well as potential recoveries from the Company’s insurance carriers with respect to such claims and defense costs.

As part of its review and assessment of asbestos-related claims, the Company utilized a third-party actuary to further assist in the analysis of potential future asbestos-related claim resolution costs and associated defense costs. The actuary’s work utilized data and analysis resulting from the Company’s claim review process, including input from national coordinating counsel and local counsel, and included the development of an estimate of the potential value of asbestos-related claims asserted but not yet resolved as well as the number and potential value of asbestos-related claims not yet asserted. In developing the estimate of liability for potential future claims, the actuary projected a potential number of future claims based on the Company’s historical claim filings and patterns and compared that to anticipated levels of unique plaintiff asbestos-related claims asserted in the U.S. tort system against all defendants. The actuary also utilized assumptions based on the Company’s historical proportion of claims resolved without payment, historical claim resolution costs for those claims that result in a payment, and historical defense costs. The liabilities were estimated by multiplying the pending and projected future claim filings by projected payments rates and average claim resolution amounts and then adding an estimate for defense costs.

The Company determined based on the factors described above, including the analysis and input of the actuary, its best estimate of the aggregate liability both for asbestos-related claims asserted but not yet resolved and potential asbestos-related claims not yet asserted, including estimated defense costs. This liability reflected the actuarial central estimate, which was intended to represent an expected value of the most probable outcome. As of December 31, 2019 and 2018, the Company estimates that its aggregate liability for such claims, including defense costs, is as follows:



(in millions)	2019			2018
Beginning asbestos liability as of January 1	$	805		$	828
Actuarial revaluation	—			23
Claim resolution costs and defense related costs	(37		)	(46		)
Derecognized liability	(768		)	—
Ending asbestos liability as of December 31	$	—		$	805

The Company's estimate of asbestos-related claim resolution costs and associated defense costs was not discounted to present value and included an estimate of liability for potential future claims not yet asserted through December 31, 2064 with a runoff through 2074. The Company believed that December 31, 2074 was a reasonable assumption as to the last date on which it was likely to have resolved all asbestos-related claims, based on the nature and useful life of the Company’s products and the likelihood of incidence of asbestos-related disease in the U.S. population generally.

During the year ended December 31, 2018, the Company recorded an increase to its asbestos-related liabilities of $23 million as a result of actuarial valuation changes. This increase was the result of higher future defense costs resulting from recent trends in the ratio of defense costs to claim resolution costs. During the year ended December 31, 2017, the Company, with the assistance of counsel and its third party actuary, reviewed the Company's claims experience against external data sources and concluded no actuarial valuation adjustment to the liability in 2017 was necessary.

The Company’s estimate of the claim resolution costs and associated defense costs for asbestos-related claims asserted but not yet resolved and potential claims not yet asserted was its reasonable best estimate of such costs. Such estimate was subject to numerous uncertainties. The balances recorded for asbestos-related claims were based on the best available information and assumptions that the Company believed to be reasonable, but those assumptions may change over time. The Company concluded that it was reasonably possible that it may incur additional losses through 2074 for asbestos-related claims, in addition to amounts recorded, of up to approximately $100 million as of December 31, 2018.

The Company had certain insurance coverage applicable to asbestos-related claims. The rights to this insurance were transferred with Morse TEC upon the sale of its membership interests. Prior to the derecognition, the coverage was the subject of litigation that remained pending at the time of the derecognition.

As of December 31, 2018, the Company estimated that it had $386 million in aggregate insurance coverage available with respect to asbestos-related claims, and their associated defense costs. The Company had recorded this insurance coverage as a long-term receivable for asbestos-related claim resolution costs and associated defense costs that have been incurred, less cash and notes received, and remaining limits as a deferred insurance asset with respect to liabilities recorded for potential future costs for asbestos-related claims. The Company had determined the amount of that estimate by taking into account the remaining limits of the insurance coverage, the number and amounts of potential claims from co-insured parties, potential remaining recoveries from insolvent insurance carriers, the impact of previous insurance settlements, and coverage available from solvent insurance carriers not party to the coverage litigation. The Company’s estimated remaining insurance coverage relating to asbestos-related claims and their associated defense costs was the subject of disputes with its insurance carriers. The Company believed that its insurance receivable was probable of collection when recorded notwithstanding those disputes based on, among other things, the arguments made by the insurance carriers in litigation proceedings and evaluation of those arguments by the Company and its counsel, the case law applicable to the issues in dispute, the rulings to date by the court, the absence of any credible evidence alleged by the insurance carriers that they were not liable to indemnify the Company, and the fact that the Company had recovered a substantial portion of its insurance coverage, $271 million through December 31, 2018, from its insurance carriers under similar policies. However, the resolution of the insurance coverage disputes, and the number and amounts of claims on our insurance from co-insured parties, could have increased or decreased the amount of such insurance coverage available to the Company as compared to the Company’s estimate.

The amounts recorded in the Consolidated Balance Sheets respecting asbestos-related claims are as follows:



	December 31,
(in millions)	2019		2018
Assets:
Other long-term asbestos-related insurance receivables	$	—	$	303
Deferred asbestos-related insurance asset	—		83
Total insurance assets	$	—	$	386
Liabilities:
Accounts payable and accrued expenses	$	—	$	50
Other non-current liabilities	—		755
Total accrued liabilities	$	—	$	805

On July 31, 2018, the Division of Enforcement of the Securities and Exchange Commission ("SEC") informed the Company that it is conducting an investigation related to the Company's historical accounting for asbestos-related claims not yet asserted. The Company is fully cooperating with the SEC in connection with its investigation.