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Commitments and Contingencies | 12 Months Ended
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Dec. 31, 2017
Commitments and Contingencies Disclosure [Abstract] |
Commitments and Contingencies | COMMITMENTS AND CONTINGENCIES From time to time, we are involved in litigation, claims, government inquiries, investigations and proceedings, including but not limited to those relating to environmental exposures, intellectual property matters, personal injury claims, regulatory matters, commercial and government contract issues, employment and employee benefit matters, commercial or contractual disputes, and securities matters. Although the ultimate outcome of any legal matter cannot be predicted with certainty, based on present information including our assessment of the merits of the particular claim, as well as our current reserves and insurance coverage, we do not expect that such legal proceedings will have any material adverse impact on our financial statements, unless otherwise noted below. However, there can be no assurance that an adverse outcome in any of the proceedings described below will not result in material fines, penalties or damages, changes to the Company's business practices, loss of (or litigation with) customers or a material adverse effect on our financial statements. Asbestos Matters Subsidiaries of ITT, including ITT LLC and Goulds Pumps LLC, have been sued, along with many other companies in product liability lawsuits alleging personal injury due to asbestos exposure. These claims generally allege that certain products sold by our subsidiaries prior to 1985 contained a part manufactured by a third party (e.g., a gasket) which contained asbestos. To the extent these third-party parts may have contained asbestos, it was encapsulated in the gasket (or other) material and was non-friable. As of December 31, 2017, there were 26 thousand pending active claims against ITT subsidiaries, including Goulds Pumps, filed in various state and federal courts alleging injury as a result of exposure to asbestos. Activity related to these asserted asbestos claims during the period was as follows:
(in thousands) | 2017 |  |  | 2016 |  |  | 2015 |
Pending claims – Beginning | 30 |  |  | 37 |  |  | 62 |
New claims | 4 |  |  | 4 |  |  | 4 |
Settlements | (2 | ) |  | (1 | ) |  | (1 | )
Dismissals | (6 | ) |  | (10 | ) |  | (28 | )
Pending claims – Ending | 26 |  |  | 30 |  |  | 37 |
Frequently, plaintiffs are unable to identify any ITT LLC or Goulds Pumps LLC products as a source of asbestos exposure. Our experience to date is that a majority of resolved claims are dismissed without any payment from ITT subsidiaries. Management believes that a large majority of the pending claims have little or no value. In addition, 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. ITT expects more asbestos-related suits will be filed in the future, and ITT will aggressively defend or seek a reasonable resolution, as appropriate. Estimating the Liability and Related Asset The Company records an asbestos liability, including legal fees, for costs estimated to be incurred to resolve all pending claims, as well as unasserted claims estimated to be filed against the Company over the next 10 years. The asbestos liability has not been discounted to present value due to an inability to reliably forecast the timing of future cash flows. The methodology used to estimate our asbestos liability for pending claims and claims estimated to be filed over the next 10 years relies on and includes the following:
• | interpretation of a widely accepted forecast of the population likely to have been exposed to asbestos in the workplace;
• | widely accepted epidemiological studies estimating the number of people likely to develop mesothelioma and lung cancer from exposure to asbestos;
• | the Company’s historical experience with the filing of non-malignant claims against it and the historical relationship between non-malignant and malignant claims filed against the Company;
• | analysis of the number of likely asbestos personal injury claims to be filed against the Company based on such epidemiological and historical data and the Company’s recent claims experience;
• | analysis of the Company’s pending cases, by disease type;
• | analysis of the Company’s recent experience to determine the average settlement value of claims, by disease type;
• | analysis of the Company's recent experience in the ratio of settled claims to total resolved claims, by disease type;
• | analysis of the Company’s defense costs in relation to its indemnity costs and agreements in place with external counsel;
• | adjustment for inflation in the average settlement value of claims and defense costs estimated to be paid in the future; and
• | analysis of the Company’s recent experience with regard to the length of time to resolve asbestos claims.
Asbestos litigation is a unique form of litigation. Frequently, the plaintiff sues a large number of defendants and does not state a specific claim amount. After filing of the complaint, the plaintiff engages defendants in settlement negotiations to establish a settlement value based on certain criteria, including the number of defendants in the case. Rarely do the plaintiffs seek to collect all damages from one defendant. Rather, they seek to spread the liability, and thus the payments, among many defendants. As a result, the Company is unable to estimate the maximum potential exposure to pending claims and claims estimated to be filed over the next 10 years. The forecast period used to estimate our potential liability to pending and projected asbestos claims is a judgment based on a number of factors, including the number and type of claims filed, recent experience with pending claims activity and whether that experience is expected to continue into the future, the jurisdictions where claims are filed, the effect of any legislative or judicial developments, and the likelihood of any comprehensive asbestos legislation at the federal level. These factors have both positive and negative effects on the dynamics of asbestos litigation in the tort system and, accordingly, our estimate of the asbestos exposure. Developments related to asbestos tend to be long-cycle, changing over multi-year periods. Accordingly, we monitor these and other factors and periodically assess whether an alternative forecast period is appropriate. The Company retains a consulting firm to assist management in estimating the potential liability for pending asbestos claims and for claims estimated to be filed over the next 10 years based on the methodology described above. Our methodology determines a point estimate based on our assessment of the value of each underlying assumption, rather than a range of reasonably possible outcomes. Projecting future asbestos costs is subject to numerous variables and uncertainties that are inherently difficult to predict. In addition to the uncertainties surrounding the key assumptions discussed above, additional uncertainty related to asbestos claims and estimated costs arises from the long latency period prior to the manifestation of an asbestos-related disease, changes in available medical treatments and changes in medical costs, changes in plaintiff behavior resulting from bankruptcies of other companies that are or could be co-defendants, uncertainties surrounding the litigation process from jurisdiction to jurisdiction and from case to case, and the impact of potential legislative or judicial changes. At December 31, 2017, approximately 23% of the recorded asbestos liability relates to pending claims, with the remainder relating to claims estimated to be filed over the next 10 years. We record a corresponding undiscounted asbestos-related asset that represents our best estimate of probable recoveries from our insurers for the estimated asbestos liabilities. In developing this estimate, the Company considers coverage-in-place and other agreements with its insurers, as well as a number of additional factors. These additional factors reviewed include the financial viability of our insurance carriers and any related solvency issues, the method by which losses will be allocated to the various insurance policies and the years covered by those policies, the extent to which settlement and defense costs will be reimbursed by the insurance policies and interpretation of the various policy and contract terms and limits and their interrelationships, and various judicial determinations relevant to our insurance programs. The timing and amount of reimbursements will vary due to a time lag between when ITT pays an amount to defend or settle a claim and when a reimbursement is received from an insurer, differing policy terms and certain gaps in our insurance coverage as a result of uninsured periods, insurer insolvencies, and prior insurance settlements. Approximately 77% of our estimated receivables are due from insurers that had credit ratings of A- or better from A.M. Best as of December 31, 2017. In addition, the Company retains an insurance consulting firm to assist management in estimating probable recoveries for pending asbestos claims and for claims estimated to be filed over the next 10 years based on the analysis of policy terms, the likelihood of recovery provided by external legal counsel, and incorporating risk mitigation judgments where policy terms or other factors are not certain. The aggregate amount of insurance available to the Company for asbestos-related claims was acquired over many years and from many different carriers. Amounts deemed not recoverable generally are due from insurers that are insolvent, or result from disagreements with the insurers over policy terms, coverage limits or coverage disputes. Such limitations in our insurance coverage are expected to result in projected payments to claimants substantially exceeding the probable insurance recovery. The Company has negotiated with certain of its insurers to reimburse the Company for a portion of its indemnity and defense costs through "coverage-in-place" agreements or policy buyout agreements. The agreements are designed to facilitate the collection of ITT’s insurance portfolio, to mitigate issues that insurers may raise regarding their responsibility to respond to claims, and to promote an orderly exhaustion of the policies. As of December 31, 2017, approximately 42% of our asbestos-related assets were related to coverage-in-place agreements and buyout agreements with insurers. After reviewing our portfolio of insurance policies, with consideration given to applicable deductibles, retentions and policy limits, the solvency and historical payment experience of various insurance carriers, existing insurance settlements, and the advice of outside counsel with respect to the applicable insurance coverage law relating to the terms and conditions of its insurance policies, ITT believes that its recorded receivable for insurance recoveries is probable of collection. Estimating our exposure to pending asbestos claims and those that may be filed in the future is subject to significant uncertainty and risk as there are multiple variables that can affect the timing, severity, quality, quantity and resolution of claims. Any predictions with respect to the variables impacting the estimate of the asbestos liability and related asset are subject to even greater uncertainty as the projection period lengthens. In light of the uncertainties and variables inherent in the long-term projection of the Company’s asbestos exposures, although it is probable that the Company will incur additional costs for asbestos claims filed beyond the next 10 years which could be material to the financial statements, we do not believe there is a reasonable basis for estimating those costs at this time. The asbestos liability and related receivables reflect management’s best estimate of future events. However, future events affecting the key factors and other variables for either the asbestos liability or the related receivables could cause actual costs or recoveries to be materially higher or lower than currently estimated. Due to these uncertainties, as well as our inability to reasonably estimate any additional asbestos liability for claims which may be filed beyond the next 10 years, it is difficult to predict the ultimate cost of resolving all pending and unasserted asbestos claims. We believe it is possible that future events affecting the key factors and other variables within the next 10 years, as well as the cost of asbestos claims filed beyond the next 10 years, net of expected recoveries, could have a material adverse effect on our financial statements. Settlement Agreements During 2016 and 2015, ITT entered into settlement agreements with insurers to settle responsibility for multiple insurance claims. Under the terms of the settlements, the insurers agreed to a payment or specified series of payments to a QSF, resulting in a net loss of $2.1 and a benefit of $8.9, respectively. Defense Strategy Cost Adjustment During 2015, the Company changed its asbestos defense strategy and retained a single firm to defend the Company in all asbestos litigation. This long-term strategy streamlined the Company’s management of cases and significantly reduced defense costs. Our agreement with the defense firm was initially limited to a certain set of claims and the remaining claims were expected to transition within the next four years; however, the Company was able to transition the remaining claims during the second quarter of 2016 as a result of one of the settlements described above. Based on the terms of the agreement, the Company adjusted its asbestos liability and related assets and recognized a net benefit of $4.9 and $100.7 in 2016 and 2015, respectively, for the revised estimate of the cost to defend pending claims and claims expected to be filed over the next 10 years. Statements of Operations Charges The table below summarizes the total net asbestos charge for the years ended December 31, 2017, 2016 and 2015.
| 2017 |  |  | 2016 |  |  | 2015 |
Asbestos provision | $ | 56.5 |  |  | $ | 59.0 |  |  | $ | 63.0 |
Asbestos remeasurement, net | (76.4 | ) |  | (81.8 | ) |  | (44.8 | )
Defense cost adjustment | — |  |  | (4.9 | ) |  | (100.7 | )
Settlement agreements | — |  |  | 2.1 |  |  | (8.9 | )
Asbestos-related benefit, net | $ | (19.9 | ) |  | $ | (25.6 | ) |  | $ | (91.4 | )
Changes in Financial Position The following table provides a rollforward of the estimated asbestos liability and related assets for the years ended December 31, 2017 and 2016.
| 2017 |  | 2016
| Liability |  |  | Asset |  |  | Net |  |  | Liability |  |  | Asset |  |  | Net |
Balance as of January 1 | $ | 954.3 |  |  | $ | 380.6 |  |  | $ | 573.7 |  |  | $ | 1,042.8 |  |  | $ | 412.0 |  |  | $ | 630.8 |
Asbestos provision | 67.1 |  |  | 10.6 |  |  | 56.5 |  |  | 68.8 |  |  | 9.8 |  |  | 59.0 |
Asbestos remeasurement | (66.4 | ) |  | 10.0 |  |  | (76.4 | ) |  | (75.9 | ) |  | 5.9 |  |  | (81.8 | )
Settlement agreements | — |  |  | — |  |  | — |  |  | — |  |  | (2.1 | ) |  | 2.1 |
Defense cost adjustment | — |  |  | — |  |  | — |  |  | (4.9 | ) |  | — |  |  | (4.9 | )
Net cash activity and other | (77.8 | ) |  | (32.5 | ) |  | (45.3 | ) |  | (76.5 | ) |  | (45.0 | ) |  | (31.5 | )
Balance as of December 31 | $ | 877.2 |  |  | $ | 368.7 |  |  | $ | 508.5 |  |  | $ | 954.3 |  |  | $ | 380.6 |  |  | $ | 573.7 |
Current portion | 77.1 |  |  | 64.7 |  |  |  |  | 76.8 |  |  | 66.0 |  |  |
Noncurrent portion | 800.1 |  |  | 304.0 |  |  |  |  | 877.5 |  |  | 314.6 |  |  |
Environmental Matters In the ordinary course of business, we are subject to federal, state, local, and foreign environmental laws and regulations. We are responsible, or are alleged to be responsible, for ongoing environmental investigation and site remediation. These sites are in various stages of investigation and/or remediation and in many of these proceedings our liability is considered de minimis. We have received notification from the U.S. Environmental Protection Agency, and from similar state and foreign environmental agencies, that a number of sites formerly or currently owned and/or operated by ITT, and other properties or water supplies that may be or have been impacted from those operations, contain disposed or recycled materials or wastes and require environmental investigation and/or remediation. These sites include instances where we have been identified as a potentially responsible party under federal and state environmental laws and regulations. Accruals for environmental matters are recorded on a site-by-site basis when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated. The following table provides a rollforward of the estimated current and long-term environmental liability for the years ended December 31, 2017 and 2016.
| 2017 |  |  | 2016 |
Balance as of January 1 | $ | 76.6 |  |  | $ | 82.6 |
Changes in estimates for pre-existing accruals(a) | 8.8 |  |  | 5.9 |
Net cash activity | (11.7 | ) |  | (11.9 | )
Foreign currency | 0.2 |  |  | — |
Balance as of December 31 | $ | 73.9 |  |  | $ | 76.6 |
(a) | Changes in estimates for pre-existing accruals includes environmental-related costs of $3.7 and a reversal of prior accruals of $0.7 reported within results of discontinued operations for the years ended December 31, 2017 and 2016, respectively.
Environmental-related assets represent estimated recoveries from insurance providers and other third parties. In the fourth quarter of 2015, ITT entered into a settlement agreement with one of our insurance providers whereby the provider agreed to pay the net present value of the remaining limits of the policy amounting to approximately $34.2. In the first quarter of 2016, the Company received $2.0 in cash and $32.2 was deposited into a QSF which can be drawn upon only to pay future environmental expenses associated with remediation sites covered under the policy, including sites owned by a former subsidiary of the Company. The Company recorded $23.0 of deferred income related to the settlement representing the excess of QSF monies over the probable liabilities associated with the covered remediation sites. During the first quarter of 2017, ITT entered into a settlement agreement with a former subsidiary to settle all claims covered by the environmental QSF. The former subsidiary no longer has rights to the funds in the QSF. The settlement resulted in a reduction to both our environmental-related asset and the corresponding deferred income liability balance of $5.2. During the second quarter of 2017, the QSF was amended resulting in income of $3.8. The total environmental-related asset as of December 31, 2017 and 2016 was $24.5 and $33.4, respectively. The following table illustrates the reasonably possible high range of estimated liability, and number of active sites for environmental matters.
| 2017 |  |  | 2016 |
High end range | $ | 126.3 |  |  | $ | 127.6 |
Number of active environmental investigation and remediation sites | 36 |  |  | 39 |
As actual costs incurred at identified sites in future periods may vary from our current estimates given the inherent uncertainties in evaluating environmental exposures, management believes it is possible that the outcome of these uncertainties may have a material adverse effect on our financial statements. Other Matters The Company received a civil subpoena from the Department of Defense, Office of the Inspector General, in the second quarter of 2015 as part of an investigation being led by the Civil Division of the U.S. Department of Justice (DOJ). The subpoena and related investigation involve certain connector products manufactured by the Company’s Connect & Control Technologies segment that are purchased or used by the U.S. government. In addition, in the third quarter of 2017, the Company learned that the Criminal Division of DOJ is also investigating this matter. The Company is cooperating with the government and has produced documents responsive to the subpoena to the Civil Division. Based on its current analysis following discussions with DOJ to resolve the civil matter, the Company has accrued $5 as its current best estimate of the minimum amount of probable loss. It is reasonably possible that any actual loss related to this matter may be higher than this amount, but at this time management is unable to estimate a range of potential loss in excess of the amount accrued.

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