CRANE NXT Item 2.02 Results of Operations and Financial Condition.
On
The information furnished under Item 2.02 of this Current Report on Form 8-K, including Exhibit 99.1, is not deemed to be "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.
Item 8.01 Other Events
Information Regarding Claims and Costs in the Tort System
As of
29,138 29,056 29,089
New claims 2,975 2,620 2,848
Settlements (980) (885) (983)
Dismissals (1,175) (1,653) (1,898)
Ending claims 29,958 29,138 29,056
Of the 29,958 pending claims as of December 31, 2021 , approximately 18,000
claims were pending in New York of which approximately 16,000 are non-malignancy
claims that were filed over 15 years ago and have been inactive under New York
court orders.
We have tried several cases resulting in defense verdicts by the jury or
directed verdicts for the defense by the court. We further have pursued appeals
of certain adverse jury verdicts that have resulted in reversals in favor of the
defense. We have also tried several other cases resulting in plaintiff verdicts
which we paid or settled after unsuccessful appeals.
The gross settlement and defense costs incurred (before insurance recoveries and
tax effects) by us for the years ended December 31, 2021 , 2020 and 2019 totaled
$55.2 million , $50.9 million and $66.2 million , respectively. In contrast to the
recognition of settlement and defense costs, which reflect the current level of
activity in the tort system, cash payments and receipts generally lag the tort
system activity by several months or more, and may show some fluctuation from
period to period. Cash payments of settlement amounts are not made until all
releases and other required documentation are received by us, and reimbursements
of both settlement amounts and defense costs by insurers may be uneven due to
insurer payment practices, transitions from one insurance layer to the next
excess layer and the payment terms of certain reimbursement agreements. Our
total pre-tax payments for settlement and defense costs, net of funds received
from insurers, for the years ended December 31, 2021 , 2020 and 2019 totaled
$44.9 million , $31.1 million and $41.5 million , respectively. Detailed below are
the comparable amounts for the periods indicated.
(in millions)
For the year ended December 31, 2021 2020 2019
Settlement / indemnity costs incurred (a)
14.6 15.6 20.7
Total costs incurred $ 55.2 $ 50.9 $ 66.2
Settlement / indemnity payments $ 42.6 $ 24.7 $ 38.9
Defense payments 15.4 16.7 21.4
Insurance receipts (13.1) (10.3) (18.8)
Pre-tax cash payments, net $ 44.9 $ 31.1 $ 41.5
(a) Before insurance recoveries and tax effects.
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The amounts shown for settlement and defense costs incurred, and cash payments, are not necessarily indicative of future period amounts, which may be higher or lower than those reported. Cumulatively throughDecember 31, 2021 , we have resolved (by settlement or dismissal) approximately 143,000 claims. The related settlement cost incurred by us and our insurance carriers is approximately$720 million , for an average settlement cost per resolved claim of approximately$5,000 . The average settlement cost per claim resolved during the years endedDecember 31, 2021 , 2020 and 2019 was$18,800 ,$13,900 , and$15,800 , respectively. Because claims are sometimes dismissed in large groups, the average cost per resolved claim, as well as the number of open claims, can fluctuate significantly from period to period. In addition to large group dismissals, the nature of the disease and corresponding settlement amounts for each claim resolved will also drive changes from period to period in the average settlement cost per claim. Accordingly, the average cost per resolved claim is not considered in our periodic review of our estimated asbestos liability. For a discussion regarding the four most significant factors affecting the liability estimate, see "Effects on the Consolidated Financial Statements." Effects on the Consolidated Financial Statements We have retained an independent actuarial firm to assist management in estimating our asbestos liability in the tort system. The actuarial consultants review information provided by us concerning claims filed, settled and dismissed, amounts paid in settlements and relevant claim information such as the nature of the asbestos-related disease asserted by the claimant, the jurisdiction where filed and the time lag from filing to disposition of the claim. The methodology used by the actuarial consultants to project future asbestos costs is based on our recent historical experience for claims filed, settled and dismissed during a base reference period. Our experience is then compared to estimates of the number of individuals likely to develop asbestos-related diseases determined based on widely used previously conducted epidemiological studies augmented with current data inputs. Those studies were undertaken in connection with national analyses of the population of workers believed to have been exposed to asbestos. Using that information, the actuarial consultants estimate the number of future claims that would be filed against us and estimates the aggregate settlement or indemnity costs that would be incurred to resolve both pending and future claims based upon the average settlement costs by disease during the reference period. This methodology has been accepted by numerous courts. After discussions with us, the actuarial consultants augment our liability estimate for the costs of defending asbestos claims in the tort system using a forecast from us which is based upon discussions with our defense counsel. Based on this information, the actuarial consultants compile an estimate of our asbestos liability for pending and future claims using a range of reference periods based on claim experience and claims expected to be filed through the indicated forecast period. The most significant factors affecting the liability estimate are (1) the number of new mesothelioma claims filed against us, (2) the average settlement costs for mesothelioma claims, (3) the percentage of mesothelioma claims dismissed against us and (4) the aggregate defense costs incurred by us. These factors are interdependent, and no one factor predominates in determining the liability estimate. In our view, the forecast period used to provide the best estimate for asbestos claims and related liabilities and costs is a judgment based upon a number of trend factors, including the number and type of claims being filed each year; the jurisdictions where such claims are filed, and the effect of any legislation or judicial orders in such jurisdictions restricting the types of claims that can proceed to trial on the merits; and the likelihood of any comprehensive asbestos legislation at the federal level. In addition, the dynamics of asbestos litigation in the tort system have been significantly affected by the substantial number of companies that have filed for bankruptcy protection, thereby staying any asbestos claims against them until the conclusion of such proceedings, and the establishment of a number of post-bankruptcy trusts for asbestos claimants, which have been estimated to provide$36 billion for payments to current and future claimants. These trend factors have both positive and negative effects on the dynamics of asbestos litigation in the tort system and the related best estimate of our asbestos liability, and these effects do not move in a linear fashion but rather change over multi-year periods. Accordingly, management continues to monitor these trend factors over time and periodically assesses whether an alternative forecast period is appropriate. Each quarter, the actuarial consultants compile an update based upon our experience in claims filed, settled and dismissed as well as average settlement costs by disease category (mesothelioma, lung cancer, other cancer, and non-malignant conditions including asbestosis). In addition to this claims experience, we also consider additional quantitative and qualitative factors such as the nature of the aging of pending claims, significant appellate rulings and legislative developments, and their respective effects on expected future settlement values. As part of this process, we also consider trends in the tort system such as those enumerated above. Management considers all these factors in conjunction with the liability estimate of the actuarial consultants and determines whether a change in the estimate is warranted. Liability Estimate. InJune 2016 , theNew York State Court of Appeals issued its opinion in Dummitt v.Crane Co. , affirming a 2012 verdict for$4.9 million against us. In that opinion, the court ruled that in certain circumstances we are legally responsible for asbestos-containing materials made and sold by third parties that others attached post-sale to our equipment. This decision provided clarity regarding the nature of claims that may proceed to trial inNew York and greater predictability 3
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regarding future claim activity. We also reflected the impact of the Dummitt decision on our expected settlement values. Accordingly, onDecember 31, 2016 , we updated and extended our asbestos liability estimate through 2059, the generally accepted end point. Following our experience in the tort system post the Dummitt decision, we entered into several, increasingly similar, group settlements with various plaintiff firms and we expect this new trend of these types of group settlements to continue. Accordingly, effective as ofDecember 31, 2019 , we updated our estimate of the asbestos liability, including revised costs of settlement or indemnity payments and defense costs relating to currently pending claims and future claims projected to be filed against us through the same expected end point of 2059. Our estimate of the asbestos liability for pending and future claims through 2059 is based on the projected future asbestos costs resulting from our experience using a range of reference periods for claims filed, settled and dismissed. Based on this estimate, we recorded an additional liability of$255 million as ofDecember 31, 2019 . An aggregate liability of$712 million is recorded as ofDecember 31, 2019 to cover the estimated cost of asbestos claims now pending or subsequently asserted through 2059, of which approximately 85% is attributable to settlement and defense costs for future claims projected to be filed through 2059. The liability is reduced when cash payments are made in respect of settled claims and defense costs. The liability was$612 million and$670 million as ofDecember 31, 2021 and 2020, respectively. It is not possible to forecast when cash payments related to the asbestos liability will be fully expended; however, it is expected such cash payments will continue for a number of years past 2059, due to the significant proportion of future claims included in the estimated asbestos liability and the lag time between the date a claim is filed and when it is resolved. None of these estimated costs have been discounted to present value due to the inability to reliably forecast the timing of payments. The current portion of the total estimated liability atDecember 31, 2021 and 2020 is$62.3 million and$66.5 million , respectively and represents our best estimate of total asbestos costs expected to be paid during the twelve-month period. Such amount is based upon the actuarial model together with our prior year payment experience for both settlement and defense costs. We have made our best estimate of the costs through 2059. ThroughDecember 31, 2021 , our actual experience during the updated reference period for mesothelioma claims filed and dismissed generally approximated the assumptions in our liability estimate. In addition to this claims experience, we considered additional quantitative and qualitative factors such as the nature of the aging of pending claims, significant appellate rulings and legislative developments, and their respective effects on expected future settlement values. Based on this evaluation, we determined that no change in the estimate was warranted for the period endedDecember 31, 2021 . Insurance Coverage and Receivables. Prior to 2005, a significant portion of our settlement and defense costs were paid by our primary insurers. With the exhaustion of that primary coverage, we began negotiations with our excess insurers to reimburse us for a portion of our settlement and/or defense costs as incurred. To date, we have entered into agreements providing for such reimbursements, known as "coverage-in-place," with eleven of our excess insurer groups. Under such coverage-in-place agreements, an insurer's policies remain in force and the insurer undertakes to provide coverage for our present and future asbestos claims on specified terms and conditions that address, among other things, the share of asbestos claims costs to be paid by the insurer, payment terms, claims handling procedures and the expiration of the insurer's obligations. Similarly, under a variant of coverage-in-place, we have entered into an agreement with a group of insurers confirming the aggregate amount of available coverage under the subject policies and setting forth a schedule for future reimbursement payments to us based on aggregate indemnity and defense payments made. In addition, with ten of our excess insurer groups, we entered into agreements settling all asbestos and other coverage obligations for an agreed sum and received a total of$82.5 million in aggregate as a result of those settlements. Reimbursements from insurers for past and ongoing settlement . . . Item 9.01 Financial Statements and Exhibits. (a) None (b) None (c) None (d) Exhibits 99.1 Earnings Press Release datedJanuary 24, 2022 andCrane Co. Quarterly Financial Data Supplement for the quarter endedDecember 31, 2021 . 104 Cover Page Interactive Data File (embedded within the Inline XBRL document) 6
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