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Contingencies | 9 Months Ended
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Sep. 30, 2020
Commitments and Contingencies Disclosure [Abstract] |
Contingencies | Contingencies Product liability We face an inherent business risk of exposure to product liability claims arising from the alleged failure of our products to prevent the types of personal injury or death against which they are designed to protect. Product liability claims are categorized as either single incident or cumulative trauma. Single incident product liability claims. Single incident product liability claims involve incidents of short duration that are typically known when they occur and involve observable injuries, which provide an objective basis for quantifying damages. The Company estimates its liability for single incident product liability claims based on expected settlement costs for asserted single incident product liability claims and an estimate of costs for single incident product liability claims incurred but not reported ("IBNR"). The estimate for IBNR claims is based on experience, sales volumes, and other relevant information. The reserve for single incident product liability claims, which includes asserted single incident product liability claims and IBNR single incident product liability claims, was $1.4 million and $3.1 million at September 30, 2020 and December 31, 2019, respectively. Single incident product liability expense was a benefit of $1.7 million during the nine months ended September 30, 2020 and $0.6 million during the nine months ended September 30, 2019. Single incident product liability exposures are evaluated on an annual basis, or more frequently if changing circumstances warrant. Adjustments are made to the reserve as appropriate. Cumulative trauma product liability claims. Cumulative trauma product liability claims involve exposures to harmful substances (e.g., silica, asbestos and coal dust) that occurred years ago and may have developed over long periods of time into diseases such as silicosis, asbestosis, mesothelioma, or coal worker’s pneumoconiosis. One of the Company's subsidiaries Mine Safety Appliances Company, LLC ("MSA LLC") was named as a defendant in 1,743 lawsuits comprised of 2,840 claims as of September 30, 2020. These lawsuits mainly involve respiratory protection products allegedly manufactured and sold by MSA LLC or its predecessors. The products at issue were manufactured many years ago and are not currently offered by MSA LLC. A summary of cumulative trauma product liability lawsuits and asserted cumulative trauma product liability claims activity is as follows:
|  | Nine Months Ended September 30, 2020 |  | Year Ended December 31, 2019
Open lawsuits, beginning of period |  | 1,605 |  |  | 1,481 |
New lawsuits |  | 273 |  |  | 346 |
Settled and dismissed lawsuits |  | (135) |  |  | (222) |
Open lawsuits, end of period |  | 1,743 |  |  | 1,605 |
|  | Nine Months Ended September 30, 2020 |  | Year Ended December 31, 2019
Asserted claims, beginning of period |  | 2,456 |  |  | 2,355 |
New claims |  | 528 |  |  | 486 |
Settled and dismissed claims |  | (144) |  |  | (385) |
Asserted claims, end of period |  | 2,840 |  |  | 2,456 |
More than half of the open lawsuits at September 30, 2020, have had a de minimis level of activity over the last 5 years. It is possible that these cases could become active again at any time due to changes in circumstances. Total cumulative trauma product liability reserve was $166.5 million at September 30, 2020, including $3.3 million for claims settled but not yet paid and related defense costs, and $167.5 million at December 31, 2019, including $3.0 million for claims settled but not yet paid and related defense costs. This reserve includes estimated amounts for asserted claims and IBNR claims. Those estimated amounts reflect asbestos, silica and coal dust claims expected to be resolved through the year 2069 and are not discounted to present value. The Company revised its estimates of MSA LLC's potential liability for cumulative trauma product liability claims for the year ended December 31, 2019 as a result of its annual review process described below. The reserve does not include amounts which will be spent to defend the claims covered by the reserve. Defense costs are recognized in the unaudited Condensed Consolidated Statement of Income as incurred. There was no change in trends or other activity during the quarter that required an interim remeasurement of the cumulative trauma product liability reserve as of September 30, 2020. At September 30, 2020, $17.7 million of the total reserve for cumulative trauma product liability claims is recorded in the Insurance and product liability line within other current liabilities in the unaudited Condensed Consolidated Balance Sheet and the remainder, $148.8 million, is recorded in the Product liability and other noncurrent liabilities line. At December 31, 2019, $17.4 million of the total reserve for cumulative trauma product liability claims is recorded in the Insurance and product liability line within other current liabilities in the unaudited Condensed Consolidated Balance Sheet and the remainder, $150.1 million, is recorded in the Product liability and other noncurrent liabilities line. Total cumulative trauma liability losses were $5.7 million for the nine months ended September 30, 2020, and $9.6 million for the nine months ended September 30, 2019, both primarily related to the defense of cumulative trauma product liability claims. Uninsured cumulative trauma product liability losses, which were included in Product liability expense on the unaudited Condensed Consolidated Statement of Income, were $4.9 million and $8.6 million for the nine months ended September 30, 2020 and September 30, 2019, respectively, and represent the total cumulative trauma liability losses net of any estimated insurance receivables as discussed below. To develop a reasonable estimate of MSA LLC’s potential exposure to cumulative trauma product liability claims, Management performs an annual review of MSA LLC’s cumulative trauma product liability claims in consultation with an outside valuation consultant and outside legal counsel. The review process takes into account developments in MSA LLC’s claims experience over the past year, developments in the tort system generally, and any other relevant information. Quarterly, management and outside legal counsel review whether significant new developments have occurred which could materially impact recorded amounts. Certain significant assumptions underlying the material components of the reserve for cumulative trauma product liability claims have been made based on MSA LLC's experience related to the following: •The types and severity, of illnesses alleged by claimants to give rise to their claims; •The venues in which claims are asserted; •The number of claims asserted against MSA LLC and the counsel asserting those claims; and •The percentage of claims resolved through settlement and the values of settlements paid to claimants. Additional assumptions include the following: •MSA LLC will continue to evaluate and handle cumulative trauma product liability claims in accordance with its existing defense strategy; •The number and effect of co-defendant bankruptcies will not materially change in the future; •No material changes in medical science occur with respect to cumulative trauma product liability claims; and •No material changes in law occur with respect to cumulative trauma product liability claims including no material state or federal tort reform actions. Cumulative trauma product liability litigation is inherently unpredictable and MSA LLC's expense with respect to cumulative trauma product liability claims could vary significantly in future periods. With respect to asserted claims, this is because it is unclear at the time of filing whether a claim will be actively litigated. Even when a case is actively litigated, it is often difficult to determine if the lawsuit will be dismissed without payment or settled, because of sufficiency of product identification, statute of limitations challenges, or other defenses. As a result, it is typically unclear until late into a lawsuit whether any particular claim will result in a loss and, if so, to what extent. Actual loss amounts for settled claims are highly variable and turn on a case-by-case analysis of the relevant facts. With respect to asserted or IBNR cumulative trauma product liability claims, MSA LLC’s expense in future periods may vary from the reserve currently established for several reasons. In particular, MSA LLC’s actual claims experience may differ in one or more respects from the significant assumptions listed above that were used by in establishing the reserve. Other factors that make MSA LLC's asserted and IBNR claims difficult to reasonably estimate include low volumes in the number of claims asserted and resolved (both in general and with respect to particular plaintiffs' counsel, as claims experience can vary significantly among different counsel), inconsistency of claims composition, uncertainty as to if and over what time periods claims might be asserted in the future, and other factors. Numerous uncertainties also exist with respect to factors not specific to MSA LLC, including potential legislative or judicial changes at the federal level or in key states concerning claims adjudication, future bankruptcy proceedings involving key co-defendants, payments from trusts established to compensate claimants, and/or changes in medical science relating to the diagnosis and treatment of claims. Because cumulative trauma product liability litigation is subject to the significant modeling assumptions and inherent uncertainties described above, and unfavorable rulings or developments could occur, there can be no certainty that MSA LLC may not ultimately incur charges in excess of presently recorded liabilities. The reserve for cumulative trauma product liability claims may be adjusted from time to time based on changes to the factors and assumptions described above. If future estimates of cumulative trauma product liability claims are materially different than the accrued liability, we will record an appropriate adjustment to the unaudited Condensed Consolidated Statement of Income. These adjustments could materially impact our consolidated financial statements in future periods. Insurance Receivable and Notes Receivable, Insurance Companies Many years ago, MSA LLC purchased insurance policies from various insurance carriers that, subject to common contract exclusions, provided coverage for cumulative trauma product liability losses (the "Occurrence-Based Policies"). While we continue to pursue reimbursement under certain remaining Occurrence-Based Policies, the vast majority of these policies have been exhausted, settled or converted into either (1) negotiated Coverage-in-Place Agreements, or (2) negotiated settlement agreements, with scheduled payment streams. As a result, MSA LLC is largely self-insured for cumulative trauma product liability claims, and additional amounts recorded as insurance receivables or notes receivables will be limited. When adjustments are made to amounts recorded in the cumulative trauma product liability reserve, we calculate amounts due to be reimbursed pursuant to the terms of the negotiated Coverage-In-Place Agreements, including cumulative trauma product liability losses and related defense costs, and we record the reimbursable amounts as insurance receivables. Insurance receivables at September 30, 2020, totaled $59.1 million, of which, $7.6 million is reported in Prepaid expenses and other current assets in the unaudited Condensed Consolidated Balance Sheet and $51.5 million is reported in Insurance receivable and other noncurrent assets. Insurance receivables at December 31, 2019, totaled $63.8 million, of which $7.6 million was reported in Prepaid expenses and other current assets in the unaudited Condensed Consolidated Balance Sheet and $56.2 million was reported in Insurance receivable and other noncurrent assets. The vast majority of the $59.1 million insurance receivable balance at September 30, 2020 is attributable to reimbursement believed to be due under the terms of signed Coverage-In-Place Agreements and a portion of the amount represents the estimated recovery of IBNR amounts. A summary of insurance receivables balance and activity related to cumulative trauma product liability losses is as follows:
(In millions) |  | Nine Months Ended September 30, 2020 |  | Year Ended December 31, 2019
Balance beginning of period |  | $ | 63.8 |  |  | $ | 71.7 |
Additions |  | 1.1 |  |  | 9.1 |
Collections and other adjustments |  | (5.8) |  |  | (17.0) |
Balance end of period |  | $ | 59.1 |  |  | $ | 63.8 |
In other cases, we have recorded formal notes receivables due from scheduled payment streams according to negotiated settlement agreements. Notes receivable from insurance companies at September 30, 2020, totaled $52.0 million, of which $3.8 million is reported in Notes receivable, insurance companies, current on the unaudited Condensed Consolidated Balance Sheet and $48.2 million is reported in Notes receivable, insurance companies, noncurrent. Notes receivable from insurance companies at December 31, 2019, totaled $56.0 million, of which $3.7 million was reported in Notes receivable, insurance companies, current on the unaudited Condensed Consolidated Balance Sheet and $52.3 million was reported in Notes receivable, insurance companies, noncurrent. A summary of notes receivables from insurance companies balance is as follows:
(In millions) |  | Nine Months Ended September 30, 2020 |  | Year Ended December 31, 2019
Balance beginning of period |  | $ | 56.0 |  |  | $ | 59.6 |
Additions |  | 1.1 |  |  | 1.5 |
Collections |  | (5.1) |  |  | (5.1) |
Balance end of period |  | $ | 52.0 |  |  | $ | 56.0 |
The collectibility of MSA LLC's insurance receivables and notes receivables is regularly evaluated and we believe that the amounts recorded are probable of collection. The determination that the recorded insurance receivables are probable of collection is based on the terms of the settlement agreements reached with the insurers, our history of collection, and the advice of MSA LLC's outside legal counsel. Various factors could affect the timing and amount of recovery of the insurance and notes receivables, including assumptions regarding various aspects of the composition and characteristics of future claims (which are relevant to calculating reimbursement under the terms of certain Coverage-In-Place Agreements) and the extent to which the issuing insurers may become insolvent in the future. Product Warranty The Company provides warranties on certain product sales. Product warranty reserves are established in the same period that revenue from the sale of the related products is recognized, or in the period that a specific issue arises as to the functionality of the Company's product. The determination of such reserves requires the Company to make estimates of product return rates and expected costs to repair or to replace the products under warranty. The amounts of the reserves are based on established terms and the Company's best estimate of the amounts necessary to settle future and existing claims on products sold as of the balance sheet date. If actual return rates and/or repair and replacement costs differ significantly from estimates, adjustments to recognize additional cost of sales may be required in future periods. The following table reconciles the changes in the Company's accrued warranty reserve:
(In thousands) |  | Nine Months Ended September 30, 2020 |  | Year Ended December 31, 2019
Beginning warranty reserve |  | $ | 12,715 |  |  | $ | 14,214 |
Warranty payments |  | (7,839) |  |  | (12,664) |
Provision for warranties |  | 6,777 |  |  | 11,165 |
Ending warranty reserve |  | $ | 11,653 |  |  | $ | 12,715 |
Warranty expense was $6.8 million and $8.8 million for the nine months ended September 30, 2020 and 2019, respectively, and is included in "Costs of products sold" on the unaudited Condensed Consolidated Statement of Income.

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