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Y2K Still Bugging Lawyers

by Joanna Glasner WIRED NEWS

3:00 a.m. May. 22, 2000 PDT

When the New Year arrived without catastrophe, most folks were content to forget all the apocryphal warnings of technological meltdown that preceded it.

No need to hide out in the woods, hoarding emergency rations and ammo. The phones worked. The electricity kept pumping. Airplanes stayed aloft. In short, everything was just peachy. Nothing at all to make a fuss about it. Unless, you're a lawyer, that is. In that case, even an absence of any Y2K mishap still provides plenty of cause for legal action. Just ask Robert Carter.

Carter, an attorney at the Washington firm of McKenna & Cuneo, is one of about 10 lawyers at the firm working full-time on millennium bug-related lawsuits. Even without a disaster to sue over, lawyers are finding plenty to fight about with insurance companies.

"The fact that there wasn't a problem with Y2K has absolutely nothing to do with it. That's a backward-looking assessment," Carter said.

At stake: who will pick up the tab for all the precautionary efforts tech companies took to protect against a Year 2000 fiasco. The dispute revolves around an ancient provision of insurance law called the "sue and labor clause," that dates back to 17th century maritime law.

In its original form, the sue and labor clause was applied to compensate shippers for the cost of preventing unforeseen catastrophes. The captain of a ship caught in a nasty squall, for example, might toss cargo overboard to keep the vessel afloat. The clauses provided that the shipper's insurer would reimburse him for the cost of lost cargo.

Fast-forward to 2000, and the old sue and labor clause is getting a whole new interpretation. Companies that spent massive sums to upgrade software and reconfigure computer systems in the hope of preventing a Y2K calamity are using the provision to press their insurers to cover the cost.

The logic: companies that spent money to avert a Y2K meltdown should be compensated just like a shipper, or anyone else who takes a loss to protect against an even bigger loss.

To date, Carter said he is aware of more than a dozen suits pending against insurers over Y2K costs. In addition, many more Year 2000-related claims that have been filed with insurers but not fulfilled could turn into lawsuits. Tens of billions of dollars are at stake.

So far, however, the insurance industry hasn't bought into corporate America's contention that insurers should pick up the Y2K tab.

The Insurance Information Institute, an industry group representing insurers, argues that the relatively glitch-free turnover to 2000 weakens the claims of companies seeking disaster prevention compensation. What's more, the III argues in a policy statement that upgrading and fixing computer systems is a commonplace activity for businesses.

"Their far-fetched interpretation of the sue and labor clause was a thinly veiled attempt to escape and shift responsibility for costs that were simply a part of doing business in today's high-tech world," the group said.

Insurers have an obvious motive to do anything in their power to avoid being stuck with the Y2K repair tab. The amount spent in the U.S. was so massive -- between $100-600 billion, according to the III's estimate -- that insurers would could suffer a debilitating blow to their bottom line if they were forced to pay.

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Y2K Still Bugging Lawyers 3:00 a.m. May. 22, 2000 PDT

(page 2) Staggering dollar figures aside, recouping the cost of millennium bug fixes isn't the only issue at stake, says Claude Stern, an attorney at Fenwick & West in Palo Alto, California, who has represented several companies in millennium bug suits.

"On the one hand, there were people who were screaming there was going to be Armageddon," Stern said. "I think businesses thought it would be irresponsible of them not to do something. And so a tremendous amount of money was spent ameliorating the problem."

But on the other hand, the actual outcome of Y2K turned out to be not nearly so fearsome as doomsayers had some people believe. That could put companies in a tougher position in terms of justifying the costs of protecting against Y2K meltdown.

The outcome of the Y2K sue and labor disputes could determine how much responsibility insurance companies bear for a range of preventative efforts of their clients. Broadly speaking, the clause could apply to everything from software upgrades to new security measures.

"I don't think these are frivolous lawsuits. These are important issues they have to decide," Stern said.

As with all important issues involving the U.S. court system, they will be decided slowly. Carter expects it will be at least a year -- probably closer to two -- before the first of sue and labor disputes are resolved. In the meantime, corporate clients like KMart and Unisys as well as their insurers will have to slog through piles of documents in a drawn-out discovery process.

What will they discover? Probably this: that a whole lot of money was spent fixing a problem that turned out not to be all that big a deal.

"The suggestion certainly seems to be that perhaps the entire matter was overdone," Stern said.

http://www.wired.com/news/politics/0,1283,36400,00.html

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-- (Dee360Degree@aol.com), May 22, 2000