Tony Chase, Inc., the motorcycle manufacturer, included the following note in its annual report:

1. Why are these contingent (versus real) liabilities?
2. In the United States, how can the contingent liability become a real liability for Tony Chase? What are the limits to the company’s product liabilities in the United States?
3. How can a contingency outside the United States become a real liability for the company? How does Tony Chase’s potential liability differ for claims outside the UnitedStates?

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7 (In Part): Commitments and Contingencies The Company self-insures its product liability losses in the United States up to $3.8 million (catastrophic coverage is maintained for individual claims in excess of $3.8 million up to $26.3 million). Outside the United States, the Company is insured for product liability up to $26.3 million per individual claim and in the aggregate.