3M 2012 Annual Report Download - page 109
Download and view the complete annual report
Please find page 109 of the 2012 3M annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.103
As a result of the greater cost of resolving claims of persons with more serious injuries, including mesothelioma and other
malignancies, the Company increased its accruals in 2012 for respirator mask/asbestos liabilities by $71 million. During
2012, the Company made payments for fees and settlements of $45 million related to the respirator mask/asbestos
litigation. As of December 31, 2012, the Company had accruals for respirator mask/asbestos liabilities of $126 million
(excluding Aearo accruals). The Company cannot estimate the amount or range of amounts by which the liability may
exceed the accrual the Company has established because of the (i) inherent difficulty in projecting the number of claims
that have not yet been asserted, particularly with respect to the Company's respiratory products that themselves did not
contain any harmful materials, (ii) the complaints nearly always assert claims against multiple defendants where the
damages alleged are typically not attributed to individual defendants so that a defendant’s share of liability may turn on the
law of joint and several liability, which can vary by state, (iii) the multiple factors described above that the Company
considers in estimating its liabilities, and (iv) the several possible developments described above that may occur that could
affect the Company’s estimate of liabilities.
As of December 31, 2012, the Company’s receivable for insurance recoveries related to the respirator mask/asbestos
litigation was $87 million. In 2012, the Company increased its receivables for expected insurance recoveries by $39 million
related to this litigation. The Company estimates insurance receivables based on an analysis of its numerous policies,
including their exclusions, pertinent case law interpreting comparable policies, its experience with similar claims, and
assessment of the nature of the claim and remaining coverage, and records an amount it has concluded is likely to be
recovered.
Various factors could affect the timing and amount of recovery of this receivable, including (i) delays in or avoidance of
payment by insurers; (ii) the extent to which insurers may become insolvent in the future, and (iii) the outcome of
negotiations with insurers and legal proceedings with respect to respirator mask/asbestos liability insurance coverage. The
difference between the accrued liability and insurance receivable represents in part the time delay between payment of
claims on the one hand and receipt of insurance reimbursements on the other hand. Because of the lag time between
settlement and payment of a claim, no meaningful conclusions may be drawn from quarterly or annual changes in the
amount of receivables for expected insurance recoveries or changes in the number of claimants.
As previously reported, on January 5, 2007 the Company was served with a declaratory judgment action filed on behalf of
two of its insurers (Continental Casualty and Continental Insurance Co. – both part of the Continental Casualty Group)
disclaiming coverage for respirator mask/asbestos claims. The action, pending in the District Court in Ramsey County,
Minnesota, seeks declaratory judgment regarding coverage provided by the policies and the allocation of covered costs
among the policies issued by the various insurers. The action named, in addition to the Company, over 60 of the Company’s
insurers. This action is similar in nature to an action filed in 1994 with respect to breast implant coverage, which ultimately
resulted in the Minnesota Supreme Court’s ruling of 2003 that was largely in the Company’s favor. The plaintiff insurers have
served an amended complaint that names some additional insurers and deletes others. A significant number of the insurer
defendants named in the amended complaint have been dismissed because of settlements they have reached with 3M
regarding the matters at issue in the lawsuit. The case is currently in the discovery phase. Trial is scheduled to begin in the
summer of 2013. During 2012, the Company reached settlements with several insurers, including Continental Casualty and
Continental Insurance Co. mentioned above, that will result in payments totaling approximately $87 million ($72 million of
which has been received in 2012) to the Company over the next year.
Respirator Mask/Asbestos Litigation – Aearo Technologies
On April 1, 2008, a subsidiary of the Company purchased the stock of Aearo Holding Corp., the parent of Aearo
Technologies (“Aearo”). Aearo manufactured and sold various products, including personal protection equipment, such as
eye, ear, head, face, fall and certain respiratory protection products.
As of December 31, 2012, Aearo and/or other companies that previously owned and operated Aearo’s respirator business
(American Optical Corporation, Warner-Lambert LLC, AO Corp. and Cabot Corporation (“Cabot”)) are named defendants,
with multiple co-defendants, including the Company, in numerous lawsuits in various courts in which plaintiffs allege use of
mask and respirator products and seek damages from Aearo and other defendants for alleged personal injury from
workplace exposures to asbestos, silica-related, or other occupational dusts found in products manufactured by other
defendants or generally in the workplace.
As of December 31, 2012, the Company, through its Aearo subsidiary, has recorded $28 million as the best estimate of the
probable liabilities for product liabilities and defense costs related to current and future Aearo-related asbestos and silica-
related claims. Responsibility for legal costs, as well as for settlements and judgments, is currently shared in an informal
arrangement among Aearo, Cabot, American Optical Corporation and a subsidiary of Warner Lambert and their insurers (the
“Payor Group”). Liability is allocated among the parties based on the number of years each company sold respiratory
products under the “AO Safety” brand and/or owned the AO Safety Division of American Optical Corporation and the alleged
years of exposure of the individual plaintiff. Aearo’s share of the contingent liability is further limited by an agreement entered
into between Aearo and Cabot on July 11, 1995. This agreement provides that, so long as Aearo pays to Cabot an annual