Monday April 3, 5:03 pm Eastern Time

Company Press Release

SOURCE: Insurance Information Institute

Attorneys Still Looking for Ways to Recover Y2K Costs for Companies, Despite Absence of Y2K Glitches, I.I.I. Economist Says

NEW YORK, April 3 /PRNewswire/ -- Y2K has come and gone. Sporadic reports of minor glitches persist, but all have been easily rectified. With Y2K now behind them, America's six million businesses and thousands of government entities are ready to move on to the challenges of a new century. Yet a handful of corporations and attorneys in the U.S. continue to look for ways to recover between $100 billion to $600 billion spent preparing for the Y2K phenomena, according to an insurance industry economist. ``During 1999, several dozen corporations and government entities decided to try to recover Y2K remediation expenses from their insurers through the obscure 'sue and labor' clause. Today, their attorneys are still trying to pursue this venue,'' said Robert Hartwig, vice president and chief economist, Insurance Information Institute (I.I.I.). ``Insurers believe this 'sue and labor' provision has no relevance to Y2K remediation. Plaintiffs are employing unprecedented and unconventional interpretations to this clause in an attempt to obtain insurance coverage for expenses that were never intended to be covered. The fact that millions of corporations addressed their Y2K problems without filing claims also speaks volumes.''

According to Hartwig, sue and labor clauses originated centuries ago in ocean marine policies and were designed to encourage or require policyholders to prevent or minimize imminent potential loss or damage covered by the policy without forfeiting recovery under the policy, thereby reducing the insured loss. An example would be reasonable costs incurred to salvage sunken goods from the seabed. ``There is no analogy between recovering sunken goods from the bottom of the sea and a multi-year, meticulously planned effort to correct computer system inadequacies,'' he said. ``The costs of maintaining and upgrading the operating systems of a business in good functioning condition -- whether they be air conditioning, electrical wiring or computers -- have always been assumed by the business, not its insurer.''

Hartwig said that corporations hoping to involve sue and labor clauses for Y2K costs face an uphill battle. ``Sue and labor only applies when insureds act to prevent loss against a covered peril, prevent loss to a covered peril, the loss to be minimized or avoided has to be actual or imminent, the expenses incurred must be reasonable, and the expenses incurred must be for the primary benefit of the insurer.''

There are several other reasons why no coverage exists under sue and labor clauses, Hartwig explained. ``For one, Y2K is not a 'fortuitous' event. In fact, Y2K was an entirely foreseeable event,'' he said. ``Property insurance by definition covers only fortuitous or inherently unforeseen events, such as damage resulting from tornadoes or lightning. Premiums are based on the likelihood, not the certainty of such events.

``Many sue and labor complaints were lodged well after Y2K remediation efforts were underway, in violation of the policy provision that the insurer be notified immediately. Especially where companies have incurred remediation costs for years, these companies have only recently informed their insurers or provided loss notification essentially in the form of lawsuits. The lateness of such a claim renders it invalid.

``The insured intentionally and deliberately wrote, purchased, used and maintained two-digit year coding in order to economize on data storage costs and function with existing operating systems,'' Hartwig added. ``Property insurance does not cover the economic shortcomings of short-sighted financial decisions.''

Looking at the overall issue, Hartwig noted that ``it is illogical and fundamentally unfair from a public policy standpoint to force insurers to be the sole bearers of the nation's Y2K remediation costs. It's time to move on.''

More information on the sue and labor issue is available on the I.I.I.'s Web site at http://www.iii.org/media/issues/Y2Ksue_and_labor.html.

The Insurance Information Institute is a fact-finding, communications organization sponsored by the property/casualty industry.

SOURCE: Insurance Information Institute

http://biz.yahoo.com/prnews/000403/ny_iii_y2k_1.html

-- Carl Jenkins (Somewherepress@aol.com), April 03, 2000