Who Should Pay for NonY2K?

Businesses that spent billions to exterminate bug want insurers to pony up


Now that the hype and scattered hysteria about the threat of a Y2K computer bug has passed as a non event, what has happened to all the lawsuits and the windfall lawyers had expected to make as a result of computer chaos.

According to the American Bar Association Journal, Charles Kerr, a New York City technology lawyer, says that the uneventful transition to the new millennium "takes the wind out of the sails" of those banking on a Y2K litigation boom. However, he still worries about the "more insidious problem" of flawed programs that still may be operating but collecting inaccurate data.

But the big liability boom is likely to focus on the billions of dollars that thousands of U.S. companies spent to avert computer calamities. Already, at least six parties -- Xerox, Unisys, GTE, Nike, the Port of Seattle and the Royal Oak, Mich., school system -- have sued their insurers to recover Y2K compliance costs, and policyholders nationwide have filed coverage claims.

These computer-age cases may turn on an insurance clause dating back to the 17th century. Since the era of the buccaneers, maritime insurers have required shippers to cut their losses of boats and cargo through rescue and salvage operations. In return, the companies are reimbursed for efforts to protect insured property -- even if they fail.

This "sue and labor" provision appears in many all-risk or property insurance policies. Companies are beginning to assert Y2K coverage claims under this clause, reasoning that precautions against massive computer disasters are akin to battening down a ship for a hurricane that veered away at the last minute.

Carriers may be paying for their own poor planning. Experts say that the industry scrambled for approval of Y2K exclusion clauses. He says the industry pleaded to state insurance commissioners that this new policy language was needed because existing boilerplate did not expressly exclude losses from software bugs. This argument may now come back to haunt insurers trying to avoid payouts under policies without specific Y2K exclusions, he says.

Some attorneys for the insurance companies say they are not worried that their clients will be stuck with the tab for computer system overhauls. They insist that Y2K readiness costs are ordinary business expenses, and thus are not covered under conventional policies.

Some experts believe if insurance carriers lose the first few Y2K coverage cases, there will be more litigation from "other major companies that have spent tens of millions" preparing for the computer bug that never bit.

Source: ABA Journal


DATE: 5/4/2000

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