Newspaper article THE JOURNAL RECORD

Insurance Companies Face Lawsuits to Repay Millions Spent on Y2K

Newspaper article THE JOURNAL RECORD

Insurance Companies Face Lawsuits to Repay Millions Spent on Y2K

Article excerpt

LOS ANGELES (AP) -- Insurance companies could wind up the big losers in the worry over Year 2000 computer glitches, whether or not the millennium bug actually strikes Jan 1.

In recent weeks, four big companies and two local government agencies have filed multimillion-dollar lawsuits against their insurers to recoup the cost of upgrading computer systems. Others are waiting in the wings with claims, attorneys say.

Xerox has sued its insurer for $150 million in Y2K remediation costs. Nike is seeking reimbursement of an estimated $110 million layout for Y2K preparations. Others that have sued are Unisys, GTE, the Port of Seattle and the Royal Oak, Mich. School District. The lawsuits, filed since July, altogether seek about $700 million from insurers.

Ultimately, insurance companies could face hundreds more lawsuits seeking repayment of much of the estimated $100 billion spent in the United States to prepare computers and chip-dependent devices for the turn of the century.

"They're going to end up paying a huge amount in attorneys fees, if not a huge amount in settlements," said Ron Weikers, a Philadelphia attorney specializing in Y2K litigation. "I think you're going to see a lot of these cases."

Insurance industry attorneys contend that the plaintiffs are basing their cases on a shaky legal argument rooted in 19th century maritime law that encouraged ship owners to make emergency repairs when away from home.

Insurers were willing to bear the cost because repairs were far cheaper than the cost of replacing a ship and cargo lost at sea.

Unlike an emergency on the high seas, businesses have known for years about the potential of Y2K glitches, said Jack Pomeroy, general counsel for FM Global, a Rhode Island-based insurer targeted in the Nike and GTE lawsuits.

"There are lots of reasons why this isn't covered," he said.

The lawsuits are unique among the estimated 85 Y2K actions filed in the United States so far. …

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