Companies Seek Y2K Relief from Insurers

Jeff Jinnett, head of the year 2000 practice at New York law firm LeBoeuf, Lamb, Greene & MacRae LLP, has been tracking legal implications of Y2K since 1996 and has testified on the issue's potential impact before the U.S. Senate. Jinnett spoke with Computerworld reporter James Cope, who is the author of Y2K: Lessons Learned from World-Class Companies (Macmillan Computer Publishing, 1999).

Q: What specific year 2000 legal issues should concern companies?

A: There are those that will continue, despite our having a seamless transition for the most part. One is the so-called "sue and labor" case. There are a number of cases pending [in this category]. GTE, Xerox, Nike, Unisys, Port of Seattle all have sued their insurers seeking to recover [millions of dollars in] year 2000 remediation costs.

Q: What exactly do you mean by sue and labor?

A: The theory of the GTE, Xerox and similar lawsuits is that the year 2000 problem was a defect, like a defect in a ship engine. So the insured discovers they have this defect in their systems and spends money to remediate those defects. The insured is claiming had they done nothing, the defects would have ended up as covered under the policy.

Q: How would an insurance company respond?

A: The insurance company would typically say it doesn't agree that the year 2000 defect is a covered occurrence because the insured knew about the problem maybe 10, 20, 25 years ago but deliberately chose to use two digits for the century field to save memory and expense.

Q: In what other ways are companies seeking recovery?

A: Some companies have filed notices of claim with their insurance companies [saying] the insured feels the insurance company should reimburse year 2000 remediation expenses. You [also] might have an insured ask the insurance company to enter into a "stand-still agreement." This indicates the insured reserves its rights to file a notice of claim, and the insurance company reserves its rights to object to it and deny coverage. This is essentially saying, "Let's stand still until they've sorted this out [through other court cases] before taking any action."

Q: Is this just about recovering remediation costs, or do companies have other risks here?

A: If you're a public company and you've incurred significant year 2000 remediation costs and you don't file a notice of claim, you don't pursue recovery, and GTE or Xerox or Unisys wins, you might get sued by your shareholders, who then argue that as a company, you're guilty of corporate waste.

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