Commitments and Contingencies

For further description of the Company’s litigation and contingencies, reference is made to Note 15, “Commitments and Contingencies” in the Notes to Consolidated Financial Statements in our 2015 Form 10-K.

Asbestos and Other Product Liability Contingencies

Claims activity since December 31 related to asbestos claims is as follows⁽¹⁾:



	Nine Months Ended
	September 30, 2016		September 25, 2015
	(Number of claims)
Claims unresolved, beginning of period	20,583		21,681
Claims filed⁽²⁾	4,022		3,711
Claims resolved⁽³⁾	(3,092	)	(3,260	)
Claims unresolved, end of period	21,513		22,132

⁽¹⁾Excludes claims filed by one legal firm that have been “administratively dismissed.”

⁽²⁾Claims filed include all asbestos claims for which notification has been received or a file has been opened.

⁽³⁾Claims resolved include all asbestos claims that have been settled, dismissed or that are in the process of being settled or dismissed based upon agreements or understandings in place with counsel for the claimants.

The Company’s Condensed Consolidated Balance Sheets included the following amounts related to asbestos-related litigation:



	September 30, 2016		December 31, 2015
	(In thousands)
Current asbestos insurance asset⁽¹⁾	$	27,259	$	28,872
Long-term asbestos insurance asset⁽²⁾	274,106		284,095
Long-term asbestos insurance receivable⁽²⁾	110,254		96,007
Accrued asbestos liability⁽³⁾	53,181		48,780
Long-term asbestos liability⁽⁴⁾	339,514		350,394

⁽¹⁾Included in Other current assets in the Condensed Consolidated Balance Sheets.

⁽²⁾Included in Other assets in the Condensed Consolidated Balance Sheets.

⁽³⁾Represents the current portion of reserves for probable and reasonably estimable asbestos-related liability cost that the Company believes its subsidiaries will pay through the next 15 years, overpayments by certain insurers and unpaid legal costs related to defending themselves against asbestos-related liability claims and legal action against the Company’s insurers, which is included in Accrued liabilities in the Condensed Consolidated Balance Sheets.

⁽⁴⁾Included in Other liabilities in the Condensed Consolidated Balance Sheets.

On September 12, 2016, the Delaware Supreme Court, after receiving responses from the New York Court of Appeals on questions certified to it, affirmed prior rulings that an “all sums” allocation applies to the subsidiary’s insurance policies and that the subsidiary has rights under the excess insurance policies issued to a former owner of the business. The Court also ruled on other matters including specific determinations of coverage for defense costs under the excess policies. The net result of the ruling is an adjustment to the Company’s expected future recoveries, resulting in an $8.2 million reduction to the net recoverable insurance asset recorded as a charge to the Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2016. The estimated future expected recovery rate may change over time as these claims are fully settled, which may result in periodic adjustments impacting our financial condition and results of operations.

Certain matters, including potential interest which could be awarded to the subsidiary, are subject to further rulings from the Delaware courts. While the outcome is uncertain, none of these matters is expected to have a material adverse effect on the financial condition, results of operations or cash flows of the Company.

The Delaware Supreme Court’s ruling is also expected to result in the receipt from excess insurers of approximately $88 million in unreimbursed costs funded by the subsidiary in defense and settlement of asbestos claims, although the timing of cash receipts remains uncertain. It also is expected to reduce significantly the extent to which the Company is required to fund future defense and settlement costs, compared to levels experienced prior to the ruling.

The estimated asbestos-related liabilities of the other subsidiary have been increased $8.0 million due to higher estimated settlement values per claim, and the related insurance asset has been increased $6.1 million, resulting in a net charge to Selling, general and administrative expense of $1.9 million for three and nine months ended September 30, 2016.

Management’s analyses are based on currently known facts and a number of assumptions. However, projecting future events, such as new claims to be filed each year, the average cost of resolving each claim, coverage issues among layers of insurers, the method in which losses will be allocated to the various insurance policies, interpretation of the effect on coverage of various policy terms and limits and their interrelationships, the continuing solvency of various insurance companies, the amount of remaining insurance available, as well as the numerous uncertainties inherent in asbestos litigation could cause the actual liabilities and insurance recoveries to be higher or lower than those projected or recorded which could materially affect the Company’s financial condition, results of operations or cash flow.

Other Litigation Matters

The Lincoln Electric Company and Lincoln Global, Inc. (collectively, “Lincoln Electric”) filed suit against The ESAB Group, Inc. and ESAB AB in the United States District Court, Eastern District of Texas, alleging infringement of certain patents allegedly owned by Lincoln Electric. The complaint, as amended, seeks undisclosed damages plus interest, an award of attorneys’ fees and expenses, and injunctive relief. The defendants answered the complaint, denying Lincoln Electric’s infringement allegations and asserting affirmative defenses, on October 20, 2015. The litigation is not expected to have a material adverse effect on the financial condition, results of operations or cash flow of the Company. The defendants are vigorously defending against the claims.

The Company is also involved in various other pending legal proceedings arising out of the ordinary course of the Company’s business. None of these legal proceedings are expected to have a material adverse effect on the financial condition, results of operations or cash flow of the Company. With respect to these proceedings and the litigation and claims described in the preceding paragraphs, management of the Company believes that it will either prevail, has adequate insurance coverage or has established appropriate accruals to cover potential liabilities. Any costs that management estimates may be paid related to these proceedings or claims are accrued when the liability is considered probable and the amount can be reasonably estimated. There can be no assurance, however, as to the ultimate outcome of any of these matters, and if all or substantially all of these legal proceedings were to be determined adverse to the Company, there could be a material adverse effect on the financial condition, results of operations or cash flow of the Company.