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News |
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COST
OF Y2K COMPLIANCE GTE
Corporation thinks so! Recently,
GTE filed a suit against its insurers claiming that it should be
reimbursed by its property insurer for costs (associated with Y2K
compliance) under the sue and labor provisions of the policy. This is a provision, originally found in marine policies, whereby insurers would pay the cost incurred by an insured in repairing a ship to keep it from sinking. The clause was then adopted in property insurance policies, thereby obligating the insurance company to pay for costs to prevent loss or damage to insured property. This clause still exists in some older forms or in manuscript policies. GTE’s
insurance company denied coverage and this claim is now being litigated.
The insurance company filed a motion to dismiss, however, if the case
survives that motion, it is expected that a flood of similar litigation
may follow. If GTE is
successful, estimates of the cost to the insurance industry are as high
as 35 billion dollars. As
you may be aware, many insurance companies are issuing Y2K Exclusions on
both property and liability policies.
Others have taken a position that the policy would not cover such
an event as the inability of a computer to recognize a date, does not
constitute “direct physical loss to insured property”.
Many of you have completed Y2K questionnaires for various forms
of insurance and some companies have agreed not to include Y2K
exclusions. The insurers,
however, have stated that the policy will stand on its own regarding
these issues. Until the
court renders its decision on these issues, we believe insurers will
continue to deny coverage. Another
way the carrier may deny coverage is through late notice In
order to avoid a coverage denial based on “late notice”, you may
want to consider placing your insurer on notice, if your cost of
remediation has been substantial and your policy contains the sue and
labor clause. In all
probability, we would expect the insurer to deny coverage.
One insurer (that we are aware of) cancelled the policy as a
result of the policyholder placing the insurance company on notice of a
possible Y2K claim. The
insurer indicated that it took this approach due to the uncertainty of
the impact of potential Y2K claims.
A somewhat drastic measure, but, nevertheless, a real issue. We believe that many companies are looking at the GTE case
and will wait to see what happens.
With January 1, 2000 just around the corner, one can only guess.
Please
contact us to discuss your individual October ‘99 |
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Stockbridge
Risk Management, Inc. |
| Industrial Risk |