InformationWeek
Defining The Business Value Of Technology
November 29, 1999
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Insurers, companies disagree on whether corporate property policies cover bug fixes
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usinesses stung by hefty Y2K remediation costs may find solace in an unlikely place--their property insurance policies. Many contain controversial clauses that might cover the costs of fixing the Y2K bug. But, depending on the policy, there may be only 32 days left to file claims.The "sue-and-labor" clause is designed to protect policyholders and insurers from potential damages that could be caused by an event. For example, a construction company could ask its insurer to pay for a structural repair to avoid further damage to a building or injury to occupants.
The question is whether that same logic can be extended to Y2K fixes, now estimated to have cost U.S. companies $100 billion. Not surprisingly, businesses say yes--and insurers say no. Already, four businesses or organizations--Xerox, GTE, Unisys, and the Port of Seattle--are letting the courts decide after their insurers refused to pay for their Y2K fixes. For example, Xerox is asking for $183 million, and GTE is asking for $400 million.
Other businesses are keeping a close eye on the pending lawsuits, all filed in the past five months. "You would be foolish not to watch it," says Margaret Waldeck, MIS manager for Kuhlman Corp., a Maumee, Ohio, distribution wholesaler for construction products. Siemens Energy & Automation, an Alpharetta, Ga., energy equipment manufacturer, agrees. "These current claims make a strong case for Siemens to revisit the company's own property insurance policy," says Sassan Karai, a senior system analyst for the company.
That's just what the Information Technology Association of America, a trade group representing the U.S. IT industry, recommends its members do. If a claim or lawsuit ensues, it will be up to IT managers to help determine how much the company spent on Y2K fixes.
Experts are expecting a vicious fight. "It's something that every company should take a look at, realizing in most cases that it's an uphill battle," says Steven Hock, a principal with the San Francisco office of law firm Thelen, Reid & Priest, which specializes in Y2K cases. "Insurance companies have a strong incentive to win."
Nonetheless, PaineWebber Inc. says it expects a wave of claims by year's end, because most policies require claims to be filed before the event occurs. However, other policies specify deadlines for claim filing that may extend beyond Jan. 1.
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