ITT, others sue to recoup Y2K costs

By Niki Kelly The Journal Gazette ITT Industries Inc. has joined several other major corporations nationwide in suing their insurance companies to recoup money spent avoiding Y2K problems.

ITT sued late last week in Allen Superior Court, asking to be reimbursed by its insurance companies for its Y2K costs.

Tom Glover, spokesman for ITT in New York, said the company spent $21 million worldwide to update and correct possible computer glitches. He did not know, however, how much money was spent in Indiana.

The company's aerospace and communications division is located in Fort Wayne.

The suit names several insurance agencies as defendants: Factory Mutual Insurance Co., successor to Allendale Mutual Insurance Co. ; Allianz Insurance Co.; AIU Insurance Co.; Zurich American Insurance Co.; Royal Insurance Company of America; and Continental Casualty Co.

The suit does not state where many of the companies are based, and The Journal Gazette was unable to contact their representatives Monday.

"These are policies we acquired over the years, and we feel like the expenses we incurred in making our computers Y2K compliant are recoverable," Glover said.

The suit is not a unique one.

According to a story Friday in the Fort Lauderdale Sun-Sentinel, corporations such as Nike, GTE and Xerox have sued their insurance companies seeking reimbursement of the money spent to ensure their computers would not crash.

The paper said lawyers are using a clause that predates the Civil War to seek remuneration from the companies.

The concept is that if an oceangoing vessel sprang a leak, the crew could throw cargo overboard to lighten the load and save the ship. Then the ship line can make an insurance claim to be reimbursed for the cost of the cargo.

In Y2K terms, companies are saying they threw millions of dollars at the problem to avoid billions of dollars in insurance claims for damaged property.

PUBLISHED TUESDAY, JANUARY 4, 2000

-------------------------------------------------------------------------------- Copyright ) 1999 Journal Gazette All rights reserved.

-- justme (justme@myhouse.com), January 04, 2000

Answers

...The concept is that if an oceangoing vessel sprang a leak, the crew could throw cargo overboard to lighten the load and save the ship. Then the ship line can make an insurance claim to be reimbursed for the cost of the cargo...

Okay, that I understand. But they've all been saying that isn't a problem, and now they're making serious noises that it never was a problem. So now they want insurance companies to reimburse them for (bad) decisions made to circumvent a problem that never existed in the first place? But if it was a problem, insurance companies would deny coverage. OTOH, if they admit that any problems that occur are not Y2k-related, they miss out on all those nice juicy exclusions that Da Fedz generously gave them.

I think the lawyers on both sides have their work cut out for them. This could be fun.

-- I'm Here, I'm There (I'm Everywhere@so.beware), January 04, 2000.

I'm Here:

I think the point is: "...If an ocean going vessel *sprang a leak*..."

Real damage must have been averted. The plantiff's complaint isn't that their money was not well spent, but that they deserve renumeration for saving the insurance company the cost of replacing the entire ship. Or so it seems to me.

Surely there is a lawyer around here who can clear this up?

-- tim phronesia (phronesia@webtv.net), January 04, 2000.

Tim,

I see what you're getting at. But if the ship had already SPRUNG that leak, it starts sounding like the infamous "Fix on Failure" scenario -- which, it could probably be argued, meant that the PTB neglected their fiduciary responsibility to their stockholders if they'd known about any potential problem and failed to take action. (Yeah, right. Prove it.)

It's like banks and their 30-year mortgages that started having this problem in the 70s. To my knowledge, none of them tried to pawn off their repair costs on their insurance companies. Things break. They (usually) get fixed. It's a cost of business; overhead.

In this case, though, it'd be like a shipbuilder telling their insurance company that they usually route transatlantic shipping through the north Atlantic, and there might occasionally be a rogue iceberg there, and our captain might be stupid enough to hit it, so we expect you to pick up the cost of stiffer steel and better rivets. I'm no big fan of insurance companies, but I can see why they might have a problem with this.

You're right, though. I think we need a Friendly Lurking Lawyer<sup>TM to maybe clear up the finer points before we just go ahead and blame it all on Y2K Pro.

-- I'm Here, I'm There (I'm Everywhere@so.beware), January 04, 2000.</sup>

(Oops. Sorry 'bout that...)

-- I'm Here, I'm There (I'm Everywhere@so.beware), January 04, 2000.

!!!!! (Durn it!)

-- I'm Here, I'm There (I'm Everywhere@so.beware), January 04, 2000.

For their homegrown apps, this shipbuilder, ITT, built the leaks into the ships. For their out of house apps, they bought/leased leaky ships.

Jerry

-- Jerry B (skeptic76@erols.com), January 04, 2000.

Theres an urban legend about a ferryboat crossing a river with four cars. The ferry starts to take on water and the captain tells the passengers if they want to live theyd better roll the cars off the back of the ferry. The passengers quickly comply with the captains order and roll the first three cars off the back of the ferry. When they roll the last car off the ferry the owner of the fourth car does not help. Despite the owners lack of help, the other three passengers roll the car off with little problem.

Well, when the four passengers file a claim with their insurance companies only the last drivers loss is covered. Why you ask? Well the first three drivers intentionally scuttled their own cars resulting in the loss. The fourth driver had no hand in the loss of his auto and therefore the loss was covered.

This legend really doesnt apply to the Y2K issue here (so dont try to extrapolate) but it should serve to point out that life can throw some strange twists that must be applied to an insurance contract.

As to the Y2K lawsuits discussed here, the insurance coverage they are seeking falls under the sue and labor clause of a MARINE policy (why its called sue and labor is just another stupid quirk in the insurance business). As I understand these suits (which is very little) the companies are trying to assert Marine policy coverages that does not exist under their general business policies (general business is not an insurance term and Ill speculate you dont want to hear the real term). Therefore its a real stretch to find coverage here. But remember our tort system: losers dont pay the winners expenses. So, if youre a large company who paid millions for Y2K, signing up some layers on a contingency basis is free. And free is a very good price.

-- gary (a@a.com), January 04, 2000.