GTE Sues Over Y2K Repairsgreenspun.com : LUSENET : TimeBomb 2000 (Y2000) : One Thread
July 1, 1999
By BARNABY J. FEDER
GTE Corporation has sued five insurance companies seeking $400 million to cover its spending on Year 2000 computers repairs and testing. It is believed to be the first lawsuit to test whether insurers may be compelled to pay for at least some of the tens of billions of dollars that big companies are spending on Year 2000 repairs.
Lawsuits like GTE's for coverage of preventive repair work are not addressed in the Year 2000 liability legislation agreed upon Thursday by Congress. The legislation, which the White House has indicated President Clinton will sign, focuses on stemming litigation against vendors over defective products and potential suits against computer owners for damages resulting from their failure to repair their computers.
GTE's suit, filed June 18 in Federal District Court in Newark, is based on contract language common in one form or another in corporate insurance policies, according to insurance lawyers. The language is known as a "sue and labor" clause because it compensates the policyholder for work it does or for the cost of lawsuits filed against third parties if such actions are aimed at limiting future damage claims.
"This suit deals with policies that have been widely sold to corporate America," said Mark R. Misiorowki, an insurance lawyer at the firm of Williams & Montgomery in Chicago.
More than 80 lawsuits have been filed in Year 2000 cases, but until now only two had involved insurance companies directly.
One pending insurance action has grown out of a liability suit against a software vendor, which was sued by a Kentucky hospital for failing to repair or replace an information management program incapable of handling Year 2000 dates. The vendor's insurer asked a Federal court in Cedar Rapids, Iowa, to rule that its contract did not obligate it to mount the policyholder's defense in the lawsuit.
In a second case, a company that sold insurance protecting Sunbeam Corporation's directors and officers from liability lawsuits is trying to have the policy canceled on the grounds that Sunbeam did not respond fully to questions about its Year 2000 program.
Year 2000 consultants say that insurers have paid some claims for Year 2000 repairs to avoid suits like GTE's, but how much and under what circumstances is not public.
Estimates of potential insurance industry liability for Year 2000 problems have varied wildly, partly because so many Year 2000 damage scenarios are imaginable and so many types of insurance might come into play.
One recent study by Milliman & Robertson Inc., an actuarial firm, said that claims and legal costs could run anywhere from $15 billion to $35 billion. That study concluded that $5 billion to $10 billion would be spent in battles between insurance companies and their own policyholders over what was covered.
Insurers have argued that most Year 2000 costs are not covered because they have been foreseeable. Insurance in general is intended to cover unforeseen events.
GTE sued under three policies negotiated with Allendale Mutual Insurance Co. of Johnston, R.I., for the period running from July 1, 1996, to July 1, 2000. The primary policy covered "destruction, distortion or corruption of any computer data, coding, program or software" and, in another section, obligated GTE to "sue, labor and travel" if necessary to safeguard its property. The contract also said Allendale would contribute to expenses that GTE incurred in such efforts.
With Allendale as the lead insurer, four other companies negotiated coverage with identical language and are now defendants: Affiliated FM Insurance Co., Allianz Insurance Co., Federal Insurance Co. and Industrial Risk Insurers.
"We see this case as very specific to the language in GTE's policies," said Robert F. Ruyak, a Washington attorney representing the Irving, Tex.-based telephone company. He said many insurance contracts would not have such clearcut language referring to computers and software.
But John J. Pomeroy, Allendale's general counsel, said that the language was not unusual. He said Allendale haf not yet had a chance to examine the lawsuit in detail.
The insurers have until July 18 to file their initial response.
Pomeroy said that GTE had also filed a standard compensation claim for money already spent, which Allendale adjusters are reviewing.
Ruyak estimated that GTE has spent about three-fourths of its $400 million budget.
Ruyak said that the insurers had been kept informed during GTE's repair work of its budget and that the company had been very conservative in its accounting. For example, he said, the company had been careful not to ask for compensation for investments that eliminated Year 2000 problems but would have been made anyway because equipment was old.
-- regular (firstname.lastname@example.org), July 02, 1999
Oh S**t. It's starting. And it hasn't even happened yet!
I guess they (GTE) figure that if they (GTE) can get their insurance companies to pay, they (GTE) will get all or part of their (GTE's) remediation money back from the innocent parties (the insurance companies), and they (GTE) will make a bigger profit.
Never mind that the rest of the country (us), their insurance companies (them), and the rest of the businesses in the US (the rest of them), may get pulled under in the massive toilet bowl flush (flood?) of lawsuits.
-- Robert A. Cook, PE (Kennesaw, GA) (email@example.com), July 02, 1999.
Mississippi wants $900 Million from just one company (fat chance).The giant insurance flush will only last as long as the insurance industry does. They can just all join hands, with the attorneys and form a spiraling chain to be twirled down the big poop tank of Y2K. If the court systems believe they have been burdoned already...just wait! There's another hand to hold in the big flush. Who else will join the chain? Come on....you'll *only* wind up in a Public Park somewhere!
-- Will continue (firstname.lastname@example.org), July 02, 1999.
I think every company just needs to suck it up.
Pay for what you did, use the "no-fault" system. You broke it, it's your product, you fix it.
-- JAW (email@example.com), July 02, 1999.
Insurance companies won't pay up without a fight. They'll sue Microsoft, IBM, AT&T, Cisco, etc. etc. for creating and perpetuating the "defect."
Just like a car accident: make the the insurance company of the guy was caused the crash pay up, not the insurance company of the innocent victim.
-- rick blaine (firstname.lastname@example.org), July 02, 1999.
You crack me up! Love your sense of humor.
-- DianeR (email@example.com), July 02, 1999.