NOTES TO THE FINANCIAL STATEMENTS 118

Note 18. Contingencies

Financial Treatment of Loss Contingencies

Loss contingencies are existing conditions, situations, or set of circumstances involving uncertainty as to possible loss 

to an entity. The uncertainty will ultimately be resolved when one or more future events occur or fail to occur. The reporting 

of loss contingencies depends on the likelihood that a future event or events will confirm the loss or impairment of an asset or 

the incurrence of a liability. When a loss contingency exists, the likelihood that the future event or events will confirm the

loss or the incurrence of a liability can range from probable to remote. SFFAS No. 5, Accounting for Liabilities of the 

Federal Government, identifies the probability classifications used to assess the range for the likelihood of loss as probable, 

reasonably possible, and remote. Loss contingencies where a past event or exchange transaction has occurred, and where a 

future outflow or other sacrifice of resources is assessed as probable and measurable are accrued in the financial statements. 

Loss contingencies that are assessed to be at least reasonably possible are disclosed in this note and loss contingencies that

are assessed as remote are not reported in the financial statements, nor disclosed in the notes. The following table provides 

criteria for how federal entities are to account for loss contingencies, based on the likelihood of the loss and measurability.

3

Likelihood of future 

outflow or other 

sacrifice of resources

Loss amount can be 

reasonably measured

Loss range can be 

reasonably measured

Loss amount or range 

cannot be reasonably 

measured

Probable

Future confirming 

event(s) are more likely 

to occur than not.4

Accrue the liability. 

Report on Balance Sheet 

and Statement of Net 

Cost.

Accrue liability of best 

estimate or minimum 

amount in loss range if 

there is no best estimate, 

and disclose nature of 

contingency and range of 

estimated liability.

Disclose nature of 

contingency and include 

a statement that an 

estimate cannot be 

made.

Reasonably possible

Possibility of future 

confirming event(s) 

occurring is more than 

remote and less than likely.

Disclose nature of 

contingency and 

estimated amount.

Disclose nature of 

contingency and 

estimated loss range.

Disclose nature of 

contingency and include 

a statement that an 

estimate cannot be 

made.

Remote

Possibility of future 

event(s) occurring is 

slight.

No action is required. No action is required. No action is required.

 

3 In addition, a third condition must be met to be a loss contingency: a past event or an exchange transaction must occur. 4 For pending or threatened litigation and unasserted claims, the future confirming event or events are considered “probable” if such events are likely to 

occur.
119 NOTES TO THE FINANCIAL STATEMENTS

The government is subject to loss contingencies that include insurance and litigation cases. These loss contingencies 

arise in the normal course of operations and their ultimate disposition is unknown. Based on information currently available,

however, it is management’s opinion that the expected outcome of these matters, individually or in the aggregate, will not 

have a material adverse effect on the financial statements, except for the insurance and litigation described in the following

section, which could have a material adverse effect on the financial statements.

Certain significant consolidation entities apply financial accounting and reporting standards issued by FASB, and such 

entities, as permitted by SFFAS No. 47, are consolidated into the U.S. government’s consolidated financial statements 

without conversion to financial and reporting standards issued by FASAB.5 Generally, under FASAB standards, a 

contingency is considered “probable” if the future event or events are more likely than not to occur. Under FASB standards, a

contingency is considered “probable” if the future event or events are likely to occur. “Likely to occur” is considered to be 

more certain than “more likely than not to occur.” Under both accounting frameworks, a contingency is considered 

“reasonably possible” if occurrence of the future event or events is more likely than remote, but less likely than “probable” 

(“probable” as defined within each corresponding accounting framework).

Insurance Contingencies

At the time an insurance policy is issued, a contingency arises. The contingency is the risk of loss assumed by the 

insurer, that is, the risk of loss from events that may occur during the term of the policy. The government has insurance 

contingencies that are reasonably possible in the amount of $185.4 billion as of September 30, 2018, and $253.1 billion as of

September 30, 2017. The major programs are identified below:

x PBGC reported $184.8 billion and $252.2 billion as of September 30, 2018, and 2017, respectively, for the estimated 

aggregate unfunded vested benefits exposure to the PBGC for private-sector single-employer and multiemployer 

defined benefit pension plans that are classified as a reasonably possible exposure to loss. The decrease in single 

employer program contingencies is primarily due to the decline in the number of companies with lower than 

investment grade bond ratings and/or credit scores, while the primary reason for the decrease in multiemployer 

program contingencies is due to 14 plans that are no longer classified as reasonably possible. Of these 14 plans, 12 

were removed due to improvements in the plans’ financial conditions, and the 2 remaining plans were reclassified to 

other categories. Please refer to the PBGC financial statements for further details.

x FDIC reported $0.3 billion and $0.6 billion as of September 30, 2018, and 2017, respectively, for identified 

additional risk in the financial services industry that could result in additional loss to the DIF should potentially 

vulnerable insured institutions ultimately fail. Actual losses, if any, will largely depend on future economic and 

market conditions.

Deposit Insurance

Deposit insurance covers all types of deposits received at insured financial institutions, including deposits in checking 

accounts, negotiable order of withdrawal accounts, savings accounts, money market deposit accounts, time deposits such as 

certificates of deposit, and official items issued by banks, such as cashier’s checks or money orders. The insurance covers the 

balance of depositors’ accounts, dollar-for-dollar, including principal and any accrued interest through the date of the insured 

financial institution’s closing, up to the insurance limit. As a result, the government has the following exposure from 

federally-insured financial institutions:

x FDIC has estimated insured deposits of $7,376.6 billion as of September 30, 2018, and $7,092.0 billion as of 

September 30, 2017, for the DIF.

x NCUA has estimated insured shares of $1,132.5 billion as of September 30, 2018, and $1,080.9 billion as of 

September 30, 2017, for the NCUSIF.

 

5 Significant consolidation entities that apply FASB standards without conversion to FASAB standards are FDIC, NCUA, PBGC, FCSIC, TVA, Smithsonian 

Institution, NRRIT, and USPS.
NOTES TO THE FINANCIAL STATEMENTS 120

Legal Contingencies

 Legal contingencies as of September 30, 2018, and 2017, are summarized in the table below:

 

2018 2017

Estimated Range of Loss Estimated Range of Loss

for Certain Cases 2 for Certain Cases 2

Accrued Accrued

(In billions of dollars) Liabilities 1 Lower End Upper End Liabilities 1 Lower End Upper End

Legal contingencies:

Probable ............................ 11.0 10.5 12.4 7.4 6.8 8.6

Reasonably possible ........... - 7.0 26.3 - 3.1 12.6

1 Accrued liabilities are recorded and presented in other liabilities on the Balance Sheet.

2 Does not reflect the total range of loss; many cases assessed as reasonably possible of an unfavorable outcome did not include

estimated losses that could be determined.

The government is party in various administrative proceedings, legal actions, and tort claims which may ultimately 

result in settlements or decisions adverse to the government.

Management and legal counsel have determined that it is “probable” that some of these actions will result in a loss to 

the government and the loss amounts are reasonably measurable. The estimated liabilities for “probable” cases against the 

government are $11.0 billion and $7.4 billion as of September 30, 2018, and 2017, respectively, and are included in “Other 

Liabilities” on the Balance Sheet. For example, the U.S. Supreme Court decision in Salazar v. Ramah Navajo Chapter, dated 

June 18, 2012, and subsequent cases related to contract support costs have resulted in increased claims against the Indian 

Health Service, which is a component within HHS. As a result of this decision, many tribes have filed claims. Some claims 

have been paid and others have been asserted but not yet settled. It is expected that some tribes will file additional claims for 

prior years.

There are also administrative claims and legal actions pending where adverse decisions are considered by management 

and legal counsel as “reasonably possible” with an estimate of potential loss or a range of potential loss. The estimated 

potential losses reported for such claims and actions range from $7.0 billion to $26.3 billion as of September 30, 2018, and 

from $3.1 billion to $12.6 billion as of September 30, 2017. For example, as of September 30, 2018, EPA has received 

approximately 403 total claims under the Federal Tort Claims Act from individuals and businesses situated on or near 

waterways affected by acid mine water released by Colorado’s Gold King Mine in August of 2015. The claims allege lost 

wages, loss of business income, agricultural and livestock losses, property damage, diminished property value, and personal 

injury. In addition, EPA has received claims from individuals under the Federal Tort Claims Act for alleged injuries and 

property damages caused by EPA’s alleged negligence related to the water health crisis in Flint, Michigan. The estimated 

losses related to the Gold King Mine and the water health crisis are $2.1 billion and $2.8 billion, respectively. EPA has 

determined there is a reasonably possible likelihood of unfavorable outcome for these cases. 

Numerous litigation cases are pending where the outcome is uncertain or it is reasonably possible that a loss has been 

incurred and where estimates cannot be made. There are other litigation cases where the plaintiffs have not made claims for 

specific dollar amounts, but the settlement may be significant. The ultimate resolution of these legal actions for which the 

potential loss could not be determined may materially affect the U.S. government’s financial position or operating results. An 

example of a specific case is summarized below:

x A number of plaintiffs filed claims in the U.S. Court of Federal Claims requesting that Treasury redeem matured 

savings bonds not possessed by the applicable states, but which have registered owners with last known addresses in 

those states. Treasury informed the applicable states it would not redeem these savings bonds since those states are 

not registered owners of the bonds. On August 20, 2015, the U.S. Court of Federal Claims partially dismissed one 

claim and denied the U.S. government’s motion to dismiss with respect to other claims. On August 8, 2017, the 

court ruled in favor of two states, and the U.S. government has appealed. At this time, the government is unable to 

determine the likelihood of an unfavorable outcome or make an estimate of potential loss.
121 NOTES TO THE FINANCIAL STATEMENTS

Environmental and Disposal Contingencies

Environmental and disposal contingencies as of September 30, 2018, and 2017, are summarized in the table below:

2018 2017

Estimated Range of Loss Estimated Range of Loss

for Certain Cases 2 for Certain Cases 2

Accrued Accrued

(In billions of dollars) Liabilities 1 Lower End Upper End Liabilities 1 Lower End Upper End

Environmental and 

disposal contingencies:

Probable ............................ 30.2 29.5 31.4 28.4 27.7 29.5

Reasonably possible............ - 0.6 0.8 - 0.7 1.5

1 Accrued liabilities are recorded and presented in other liabilities on the Balance Sheet.

2 Does not reflect the total range of loss; many cases assessed as reasonably possible of an unfavorable outcome did not include

estimated losses that could be determined.

The government is subject to loss contingencies for a variety of environmental cleanup costs for the storage and 

disposal of hazardous material as well as the operations and closures of facilities at which environmental contamination may 

be present.

Management and legal counsel have determined that it is “probable” that some of these actions will result in a loss to 

the government and the loss amounts are reasonably measurable. The estimated liabilities for these cases are $30.2 billion 

and $28.4 billion as of September 30, 2018, and 2017, respectively, and are included in “Other Liabilities” on the Balance 

Sheet.

In accordance with the Nuclear Waste Policy Act of 1982 (NWPA), DOE entered into more than 68 standard contracts 

with utilities in which, in return for payment of fees into the Nuclear Waste Fund, DOE agreed to begin disposal of spent 

nuclear fuel (SNF) by January 31, 1998. Because DOE has no facility available to receive SNF under the NWPA, it has been 

unable to begin disposal of the utilities’ SNF as required by the contracts. Therefore, DOE is subject to significant SNF 

litigation claiming damages for partial breach of contract as a result of this delay. Based on settlement estimates, the total

liability estimate as of September 30, 2018 is $35.5 billion. After deducting the cumulative amount paid of $7.4 billion as of

September 30, 2018 under settlements, and as a result of final judgments, the remaining liability is estimated to be 

approximately $28.1 billion, compared to approximately $27.2 billion as of September 30, 2017. In addition to its SNF 

litigation, a number of class action and/or multiple plaintiff tort suits have been filed against current and former DOE 

contractors in which the plaintiffs seek damages for alleged exposures to radioactive and/or toxic substances as a result of the 

historic operations of DOE’s nuclear facilities. Collectively, damages in excess of $1.1 billion are currently being sought in

these cases. 

Other Contingencies

DOT, HHS, and Treasury reported the following other contingencies:

x The Federal Highway Administration (FHWA) preauthorizes states to establish construction budgets without having 

received appropriations from Congress for such projects. FHWA has authority to approve projects using advance 

construction under 23 U.S.C. 115(a). FHWA does not guarantee the ultimate funding to the states for these “advance 

construction” projects and, accordingly, does not obligate any funds for these projects. When funding becomes 

available to FHWA, the states can then apply for reimbursement of costs that they have incurred on such projects, at 

which time FHWA can accept or reject such requests. As of September 30, 2018, and 2017, FHWA has preauthorized $60.8 billion and $55.2 billion, respectively, under these arrangements. Congress has not provided 

appropriations for these projects and no liability is accrued in the DOT consolidated financial statements.

x Contingent liabilities have been established as a result of Medicaid audit and program disallowances that are 

currently being appealed by the states. The Medicaid amounts are $6.3 billion and $12.2 billion for fiscal years 

ending September 30, 2018, and 2017, respectively. The states could return the funds through payments to HHS, or 
NOTES TO THE FINANCIAL STATEMENTS 122

HHS could recoup the funds by reducing future grant awards to the states. Conversely, if the appeals are decided in 

favor of the states, HHS will be required to pay these amounts. In addition, certain amounts for payment have been 

deferred under the Medicaid program when there is reasonable doubt as to the legitimacy of expenditures claimed by 

a state. There are also outstanding reviews of the state expenditures in which a final determination has not been 

made.

x As part of an annual process, Treasury assesses the need to estimate and accrue a contingent liability to the GSEs to 

reflect the forecasted equity deficits of the GSEs. Based on this assessment, it was estimated there were no probable 

future funding draws as of September 30, 2018, and 2017, and therefore, no contingent liability was accrued. 

However, as of September 30, 2018, it is reasonably possible that market volatility or non-recurring events—for 

instance, changes to accounting policies that impact credit loss provisions—could potentially cause the GSEs to 

generate quarterly losses and, therefore, result in future funding draws against Treasury’s funding commitment. Due 

to challenges quantifying future market volatility or the timing, magnitude, and likelihood of non-recurring events, 

an estimate of the total amount of this reasonably possible future funding liability could not be made as of 

September 30, 2018. See Note 8—Investments in Government-Sponsored Enterprises for further information.

Treaties and Other International Agreements

The government is a party to treaties and other international agreements. These treaties and other international 

agreements address various issues including, but not limited to, trade, commerce, security, and law enforcement that may 

involve financial obligations or give rise to possible exposure to losses. When a contingency originates from the U.S. 

government’s involvement in a treaty or other international agreement, the responsible reporting entity must establish a 

contingent liability, include a required note disclosure to its financial statements, or both, in accordance with guidance in 

SFFAS No. 5, as amended. A review of potential contingent liabilities arising from litigation related to treaties and other 

international agreements has been conducted by U.S. government entities. This entity-level review, along with any resulting 

relevant information, is captured and reported in the annual legal representation letter process and, if applicable, disclosed in 

the Legal Contingencies section of this note.