Defendant Asbestos and Environmental Liabilities

12 Months Ended

Dec. 31, 2019

Liability for Asbestos and Environmental Claims [Abstract]

DEFENDANT ASBESTOS AND ENVIRONMENTAL LIABILITIES

11. DEFENDANT ASBESTOS AND ENVIRONMENTAL LIABILITIES

We acquired DCo on December 30, 2016, and Morse TEC on October 30, 2019, as described in Note 3 - "Acquisitions". DCo and Morse TEC hold liabilities associated with personal injury asbestos claims and environmental claims arising from their legacy manufacturing operations. These companies continue to process asbestos personal injury claims in the normal course of business. Defendant asbestos liabilities on our consolidated balance sheets include amounts for loss payments and defense costs for pending and future asbestos-related claims, determined using standard actuarial techniques for asbestos exposures. Defendant environmental liabilities include estimated clean-up costs associated with the acquired companies' former operations based on engineering reports.

Insurance balances recoverable on our consolidated balance sheets include estimated insurance recoveries relating to these liabilities. The recorded asset represents our assessment of the capacity of the insurance agreements to indemnify our subsidiaries for the anticipated defense and loss payments for pending claims and projected future claims. The recognition of these recoveries is based on an assessment of the right to recover under the respective contracts and on the financial strength of the insurers. The recorded asset does not represent the limits of our insurance coverage, but rather the amount we would expect to recover if the accrued and projected loss and defense costs were paid in full.

Included within insurance balances recoverable and defendant asbestos and environmental liabilities are the fair value adjustments that were initially recognized upon acquisition. These fair value adjustments are amortized in proportion to the actual payout of claims and recoveries. The carrying value of the asbestos and environmental liabilities, insurance recoveries, future estimated expenses and the fair value adjustments related to DCo and Morse TEC as of December 31, 2019 and 2018 was as follows:

	2019			2018
Defendant asbestos and environmental liabilities:
Defendant asbestos liabilities	$	1,100,593		$	265,975
Defendant environmental liabilities	10,279			2,152
Estimated future expenses	51,637			19,843
Fair value adjustments	(314,824		)	(84,650		)
Defendant asbestos and environmental liabilities	847,685			203,320
Insurance balances recoverable:
Insurance recoveries related to defendant asbestos and environmental liabilities	549,593			183,676
Fair value adjustments	(100,738		)	(47,868		)
Insurance balances recoverable	448,855			135,808
Net liabilities relating to defendant asbestos and environmental exposures	$	398,830		$	67,512

The table below provides a consolidated reconciliation of the beginning and ending liability for defendant asbestos and environmental exposures for the years ended December 31, 2019, 2018 and 2017:

	2019		2018		2017
Balance as at January 1	203,320		219,164		234,020
Less: Insurance balances recoverable	135,808		122,326		133,032
Net balance as at January 1	67,512		96,838		100,988
Total net paid claims	(13,708	)	(6,351	)	(6,927	)
Amounts recorded in other income (expense):
Net change in actuarial estimates	(4,263	)	(23,221	)	2,800
Amortization of fair value adjustments	13,500		246		(23	)
Total other expense (income)	9,237		(22,975	)	2,777
Acquired on purchase of subsidiaries	335,789		—		—
Net balance as at December 31	398,830		67,512		96,838
Plus: Insurance balances recoverable	448,855		135,808		122,326
Balance as at December 31	847,685		203,320		219,164

Methodologies for determining liabilities

Defendant Asbestos Liabilities

DCo and Morse TEC review, on an ongoing basis, their 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 DCo and Morse TEC’s insurance carriers with respect to such claims and defense costs. The actuarial analysis for these asbestos-related exposures utilizes data resulting from the claim review process, including input from national coordinating counsel and local counsel, and includes 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 actuarial analysis projects the potential number of future claims based on DCo and Morse TEC’s historical claim filings and epidemiological studies. The actuarial analysis also utilizes assumptions based on the DCo and Morse TEC’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 are then 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.

DCo and Morse TEC determine, based on the factors described above, including the actuarial analysis, that their 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, was $1,100.6 million and $266.0 million as of December 31, 2019 and 2018, respectively. This liability reflects the actuarial central estimate, which is intended to represent an expected value of the most probable outcome.

Defendant Environmental Liabilities

As a result of our acquisition of DCo and Morse TEC, we have been identified by the United States Environmental Protection Agency and certain U.S. state environmental agencies and private parties as potentially responsible parties ("PRP") at various hazardous waste disposal sites under the Comprehensive Environmental Response, Compensation and Liability Act ("Superfund") and equivalent U.S. state laws. The PRPs may currently be liable for the cost of clean-up and other remedial activities at 22 such sites. Responsibility for clean-up and other remedial activities at a Superfund site is typically shared among PRPs based on an allocation formula.

We have a liability for defendant environmental liabilities of $10.3 million and $2.2 million as of December 31, 2019 and 2018, respectively. The estimate for defendant environmental liabilities is based on information available to us, including an estimate of the allocation of liability among PRPs, the probability that other PRPs will 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.