Casualty, Environmental and Other Reserves

Activity related to casualty, environmental and other reserves is as follows:



	Casualty			Separation			Environmental			Other
(Dollars in Millions)	Reserves			Liabilities			Reserves			Reserves^(b)			Total
Balance December 26, 2008	$	566		$	87		$	100		$	126		$	879
Charged to Expense	111			—			26			26			163
Change in Estimate^(a)	(127		)	—			—			—			(127		)
Payments	(91		)	(14		)	(29		)	(44		)	(178		)
Balance December 25, 2009	$	459		$	73		$	97		$	108		$	737
Charged to Expense	70			—			36			77			183
Change in Estimate^(a)	(49		)	—			—			—			(49		)
Payments	(105		)	(13		)	(26		)	(49		)	(193		)
Balance December 31, 2010	$	375		$	60		$	107		$	136		$	678
Charged to Expense	68			—			23			46			137
Payments	(71		)	(12		)	(47		)	(44		)	(174		)
Balance December 30, 2011	$	372		$	48		$	83		$	138		$	641


(a)	Changes in estimates in 2010 and 2009 are the result of continued safety improvements and decreasing claim trends for both personal injury and occupational injuries. See below for more detailed discussion regarding these changes in estimates.

(b)

Other reserve accruals were higher in 2010 due to an increase in freight rate reserves related to various rate disputes. These accruals were lower in 2009 primarily due to a reduction in freight loss and damage claims as a result of volume declines. These amounts are recorded as a reduction in revenue rather than expense because they represent liabilities for customer claims regarding the rates charged by the Company for its transportation services.

These reserves are considered critical accounting estimates due to the need for significant management judgments. They are provided for in the consolidated balance sheets as follows:



	December 30, 2011						December 31, 2010
(Dollars in Millions)	Current		Long-term		Total		Current		Long-term		Total
Casualty:
Personal Injury	$	93	$	168	$	261	$	78	$	176	$	254
Occupational	6		37		43		10		30		40
Asbestos	11		57		68		9		72		81
Total Casualty	$	110	$	262	$	372	$	97	$	278	$	375
Separation	10		38		48		16		44		60
Environmental	31		52		83		37		70		107
Other	32		106		138		26		110		136
Total	$	183	$	458	$	641	$	176	$	502	$	678

These liabilities are accrued when estimable and probable in accordance with the Contingencies Topic in the ASC. Actual settlements and claims received could differ. The final outcome of these matters cannot be predicted with certainty. Considering the legal defenses currently available, the liabilities that have been recorded and other factors, it is the opinion of management that none of these items, when finally resolved, will have a material effect on the Company's financial condition, results of operations or liquidity. Should a number of these items occur in the same period, however, they could have a material effect on the Company's financial condition, results of operations or liquidity in that particular period.

NOTE 5. Casualty, Environmental and Other Reserves, continued

Casualty

Casualty reserves represent accruals for personal injury, occupational injury and asbestos claims. During 2010, the Company increased its self-insured retention amount for these claims from $25 million to $50 million per injury for claims occurring on or after June 1, 2010. Currently, no individual claim is expected to exceed the self-insured retention amount. In accordance with the Contingencies Topic in the ASC, to the extent the value of an individual claim exceeds the self-insured retention amount, the Company would present the liability on a gross basis with a corresponding receivable for insurance recoveries. These reserves fluctuate based upon the timing of payments as well as changes in independent third-party estimates, which are reviewed by management. Actual results may vary from estimates due to the number, type and severity of the injury, costs of medical treatments and uncertainties in litigation. Most of the claims relate to CSXT unless otherwise noted below. Defense and processing costs, which historically have been insignificant and are anticipated to be insignificant in the future, are not included in the recorded liabilities.

During 2011, there were no significant changes in estimate recorded to adjust casualty reserves. During 2010, the Company reduced casualty reserves by $49 million, resulting in an after-tax effect on earnings from continuing operations and net earnings of $30 million and an after-tax effect on earnings per share of $0.03.

Personal Injury

Personal injury reserves represent liabilities for employee work-related and third-party injuries. Work-related injuries for CSXT employees are primarily subject to the Federal Employers’ Liability Act (“FELA”). In addition to FELA liabilities, employees of other CSX subsidiaries are covered by various state workers’ compensation laws, the Federal Longshore and Harbor Workers’ Compensation Program or the Maritime Jones Act.

CSXT retains an independent actuarial firm to assist management in assessing the value of personal injury claims. An analysis is performed by the independent actuarial firm quarterly and is reviewed by management. The methodology used by the actuary includes a development factor to reflect growth or reduction in the value of these personal injury claims. It is based largely on CSXT's historical claims and settlement experience.

During 2011, there were no significant changes in estimate of personal injury reserves. During 2010, the Company reduced personal injury reserves by $24 million due to a downward trend in the number of injuries. This downward trend was measured by the reduction of the CSXT's Federal Railroad Administration (“FRA”) personal injury rate. Adjustments in reserves are included in materials, supplies and other in the consolidated income statements.

Occupational & Asbestos

Occupational claims arise from allegations of exposures to certain materials in the workplace, such as solvents, soaps, chemicals (collectively referred to as “irritants”) and diesel fuels (like exhaust fumes) or allegations of chronic physical injuries resulting from work conditions, such as repetitive stress injuries, carpal tunnel syndrome and hearing loss.

NOTE 5. Casualty, Environmental and Other Reserves, continued

The Company is also party to a number of asbestos claims by employees alleging exposure to asbestos in the workplace. The heaviest possible exposure for employees resulted from work conducted in and around steam locomotive engines that were largely phased out beginning around the 1950s. Other types of exposures, however, including exposure from locomotive component parts and building materials, continued until these exposures were substantially eliminated by 1985. Additionally, the Company has retained liability for asbestos claims filed against its previously owned international container shipping business. Diseases associated with asbestos typically have long latency periods (amount of time between exposure to a disease and the onset of the disease) which can range from 10 to 40 years after exposure.

An analysis of occupational claims is performed quarterly by an independent third-party actuarial firm and reviewed by management. Management performs a quarterly review of asserted asbestos claims, and an analysis is performed annually by an independent third-party specialist and reviewed by management. The objective of the occupational and asbestos claims analyses performed by the third-party actuarial firm and specialist (the "third-party specialists") is to determine the number of incurred but not reported (“IBNR”) claims. With the exception of carpal tunnel, management has determined that seven years is the most probable time period in which unasserted claim filings and claim values can be estimated. Carpal tunnel claims use a three-year period to estimate the reserve due to the shorter latency period for these types of injuries.

The third party specialists analyze CSXT’s historical claim filings, settlement amounts, and dismissal rates to determine future anticipated claim filing rates and average settlement values for occupational and asbestos claims reserves. The potentially exposed population is estimated by using CSX’s employment records and industry data.From this analysis, the third-party specialists provide an estimate of the IBNR claims liability.

Undiscounted liabilities recorded related to occupational and asbestos claims were as follows:



	December		December
(Dollars in Millions)	2011		2010
Occupational:
Incurred but not reported claims	$	26	$	25
Asserted claims	17		15
Total liability	$	43	$	40

Asbestos:
Incurred but not reported claims	$	42	$	40
Asserted claims	26		41
Total liability	$	68	$	81

NOTE 5. Casualty, Environmental and Other Reserves, continued

A summary of occupational and asbestos claims activity is as follows:



	Fiscal Years
	2011		2010
Asserted Claims
Open Claims - Beginning of Year	1,376		3,782
New Claims Filed	224		250
Claims Settled	(370	)	(287	)
Claims Dismissed	(484	)	(2,369	)
Open Claims - End of Year	746		1,376

During 2011, there were no significant changes in estimate of occupational or asbestos reserves. During 2010, the Company reduced occupational reserves by $12 million primarily attributable to a decrease in the number of repetitive stress injury claims and lower settlement values for irritant claims. Also during 2010, the Company reduced its reserves for asbestos claims by $13 million, primarily related to claims that were determined to have no value due to lack of sufficient medical evidence. Adjustments in reserves are included in materials, supplies and other in the consolidated income statements.

Separation

Separation liabilities represent the estimated benefits provided to certain union employees as a result of implementing workforce reductions, improvements in productivity and certain other cost reductions at the Company's major transportation units since 1991. The majority of this liability is expected to be paid out over the next 5 to 10 years from general corporate funds and may fluctuate depending on the timing of payments and associated taxes.

Environmental

The Company is a party to various proceedings related to environmental issues, including administrative and judicial proceedings involving private parties and regulatory agencies. The Company has been identified as a potentially responsible party at approximately 246 environmentally impaired sites. Many of these are, or may be, subject to remedial action under the federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, or CERCLA, also known as the Superfund Law, or similar state statutes. Most of these proceedings arose from environmental conditions on properties used for ongoing or discontinued railroad operations. A number of these proceedings, however, are based on allegations that the Company, or its predecessors, sent hazardous substances to facilities owned or operated by others for treatment, recycling or disposal. In addition, some of the Company’s land holdings were leased to others for commercial or industrial uses that may have resulted in releases of hazardous substances or other regulated materials onto the property and could give rise to proceedings against the Company.

In any such proceedings, the Company is subject to environmental clean-up and enforcement actions under the Superfund Law, as well as similar state laws that may impose joint and several liability for clean-up and enforcement costs on current and former owners and operators of a site without regard to fault or the legality of the original conduct. These costs could be substantial.

NOTE 5. Casualty, Environmental and Other Reserves, continued

In accordance with the Asset Retirement and Environmental Obligations Topic in the ASC, the Company reviews its role with respect to each site identified at least quarterly, giving consideration to a number of factors such as:


•	type of clean-up required;


•	nature of the Company’s alleged connection to the location (e.g., generator of waste sent to the site or owner or operator of the site);


•	extent of the Company’s alleged connection (e.g., volume of waste sent to the location and other relevant factors); and


•	number, connection and financial viability of other named and unnamed potentially responsible parties at the location.

Based on the review process, the Company has recorded amounts to cover contingent anticipated future environmental remediation costs with respect to each site to the extent such costs are estimable and probable. The recorded liabilities for estimated future environmental costs are undiscounted. The liability includes future costs for remediation and restoration of sites as well as any significant ongoing monitoring costs, but excludes any anticipated insurance recoveries. Payments related to these liabilities are expected to be made over the next several years. Environmental remediation costs are included in materials, supplies and other on the consolidated income statement.

Currently, the Company does not possess sufficient information to reasonably estimate the amounts of additional liabilities, if any, on some sites until completion of future environmental studies. In addition, conditions that are currently unknown could, at any given location, result in additional exposure, the amount and materiality of which cannot presently be reliably estimated. Based upon information currently available, however, the Company believes its environmental reserves are adequate to fund remedial actions to comply with present laws and regulations.

Other

Other reserves of $138 million and $136 million for 2011 and 2010, respectively, include liabilities for various claims, such as longshoremen disability claims, freight claims and claims for property, automobile and general liability. Freight claims represent claims for both freight loss and damage and freight rate disputes. Liabilities for freight rate disputes are recorded as a reduction of revenue.