Y2K legal wrangling escalates

While the public stocks up on such New Year's essentials as Dom Perignon, propane, and freeze-dried food, major businesses have begun battling over who will pay the tab for year-2000 preparations.

Joining the legal free-for-all that threatens to overshadow actual year-2000 damage is a high-stakes game of hot potato between major companies and their insurers.

In several prominent cases now pending, the likes of Xerox, GTE, and Unisys are suing their insurance companies to force them to honor claims pertaining to year-2000-preparedness costs.

This scenario of finger-pointing over year-2000 liability alone has been estimated to represent upward of $US35 billion in potential claims before all is said and done, according to research cited by legal counsel for two of the companies.

The insurance companies targeted in the lawsuit have demurred. Suits and countersuits are already the order of the day.

Arguing that the costs of year-2000 preparedness fall under the provisions in their policies that cover expenses for equipment repairs that could mitigate or stave off business losses, the companies are suing to recoup those costs. Their insurance companies have countered that because year-2000-related problems have been well-known, the cost of addressing them does not fall under standard property and casualty coverage.

Regardless of the merits of each side's arguments, many companies seem to have targeted their insurance providers as likely sources of reimbursement - at least more viable than equipment and software vendors, which appear to be somewhat protected from claims under recent year-2000 legislation, according to a report by Giga Information Group, a market research company.

A lot rests on the outcomes of these bellwether cases, noted Kazim Isfahani, an analyst at Giga.

"These cases will be the precedent-setters," Isfahani said. "They will serve as the guides to possible future suits. If these cases are summarily dismissed, similar suits are pretty much down the chute. If they go through, every Fortune 100 company and others will be lining up to cash in on the precedent."

If the legal events take the latter course, litigation could drag on for as long as a decade with counter-suits and appeals, Isfahani said.

One of the most formidable hurdles facing all sides in these cases is the assessment of actual year-2000 costs, according to Isfahani.

"A lot of companies have lumped in overall functional-systems replacement costs and general projects with Y2K measures. And the larger and more geographically dispersed a company is, the harder it becomes to discern just what's a Y2K cost and what's not," Isfahani said.

The process of poring over the minute details of each company's inner IT workings to tease out how each programmer and systems analyst spent his or her time in 1999, determining whether certain testing tools and other products can be used for purposes beyond year-2000 fixes, and other such arcana could drag on interminably.

The insurance companies face the task of proving that they notified their customers that remediation for the year-2000 problem would not be covered, and that those customer organizations were aware of that fact, Isfahani said.

"When it comes to the letter of the law, this area is vague," Isfahani added, noting that neither federal nor state laws provide clear guidelines on this issue.

It is clear that this variety of legal maneuvering, along with the recently raised prospect of patent-infringement cases concerning year-2000 tools, expands the scope of year-2000-related litigation considerably beyond the realms of more straightforward liability cases and shareholder lawsuits.

"It's these out-of-left-field issues that crop up and are going to be lumped into this legal morass, which is turning out to be a very large pie," Isfahani said. The dispute reflects widespread failure of companies and their insurers to identify the full scope of Y2K legal issues, said analysts, who noted that technical IT concerns have often overshadowed other aspects of the date change impact.

All of which spells more opportunity for year-2000 specialists, given the impending demand for expert witnesses in such cases.

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