13. Commitments and Contingencies
Purchase Commitments
As of December 31, 2025, the Company has total minimum purchase commitments, which must be made during the next three years, of $5.2 million.
Legal Proceedings
From time to time, the Company may be involved in litigation or other legal proceedings. The Company is routinely named in litigation involving claims from policyholders. Legal proceedings relating to claims are reserved in the normal course of business. The Company does not believe it is a party to any pending litigation or other legal proceedings that are likely to have a material adverse effect on the Company’s business, financial condition or results of operations. Regardless of outcome, litigation can have an adverse impact on the Company because of defense and settlement costs, diversion of management resources and other factors.
The Company records a liability for litigation if an unfavorable outcome is probable and the amount of loss or range of loss can be reasonably estimated. If an unfavorable outcome is probable and a reasonable estimate of the loss is a range, the Company accrues the best estimate within the range. If no amount within the range is a better estimate than any other amount, the Company accrues the minimum amount within the range. If an unfavorable outcome is probable but the amount of the loss cannot be reasonably estimated, the Company discloses the nature of the litigation and indicates that an estimate of the loss or range of loss cannot be made. If an unfavorable outcome is reasonably possible and the estimated loss is material, the Company discloses the nature and estimate of the possible loss of the litigation. The Company does not disclose information with respect to litigation where an unfavorable outcome is considered to be remote or where the estimated loss would not be material. Based on current expectations, such matters, both individually and in the aggregate, are not expected to have a material adverse effect on the Company’s liquidity, results of operations, business, or financial condition.
About Commitments Disclosures
Commitments and contingencies disclosures catalog a company's off-balance-sheet obligations and legal exposures — purchase commitments, guarantee arrangements, pending litigation, and regulatory proceedings. These items represent potential future cash outflows that may not appear as liabilities on the balance sheet until they become probable and estimable.
Key signals: litigation reserves and disclosed loss ranges quantify management's estimate of legal exposure, but unquantified "reasonably possible" losses often represent the larger risk. Watch for changes in language around pending cases — shifts from "remote" to "reasonably possible" or increases in estimated loss ranges signal deteriorating outcomes. Unconditional purchase obligations and take-or-pay contracts create fixed cost structures that reduce operational flexibility. Guarantee arrangements for subsidiaries or joint ventures can create cascading obligations. Compare the total commitment schedule against projected free cash flow to assess whether the company can meet its obligations without additional financing.