r some insurance carriers, the Year 2000 compliance aftershocks are still lingering. But one such carrier, Charlotte, N.C.-based Royal & SunAlliance USA, hopes a court ruling in July spells the last Y2K trembler it will have to absorb.A Delaware Superior Court dismissed a lawsuit filed in August 1999 by Unisys Corp. The Blue Bell, Pa.-based computer giant, which has a commercial general liability (CGL) policy through two Royal & SunAlliance co-insurers, sought to recover more than $35 million in Y2K expenses to bring its computer networks into compliance.
The two co-insurers, Allendale Mutual Insurance Co. and Insurance Company of North America, were specifically named in the suit because their coverage period for the policies spanned from 1996 to 2000. Unisys claimed that its Y2K-related costs were covered expenses under a policy provision referred to as "sue and labor."
Precedent-setting
Industry experts say the lawsuit was one of the first filed by a company seeking to require a property insurer to pay for costs spent preparing computer systems for the year 2000. Now, insurers that face similar litigation can probably breathe somewhat easier since a legal precedent has been set on applying Y2K compliance work to the "sue and labor" provision, legal experts say.
Sue and labor can actually be traced to some 200 years ago when shippers exploited the clause to protect their businesses from natural disasters. However, the Delaware Superior Court ruled that unlike a hurricane, which is a natural disaster that provides little warning, Y2K was "a predictable event," says Chris Benson, assistant general counsel for Royal & SunAlliance.
"Years ago, Unisys' programmers created software and they were aware of its memory capacity," he explains. "They were probably aware of the eventual need to rewrite software code to comply with Y2K. Ultimately the court was able to take this viewpoint in the process of dismissal."
The stipulation terminating the suit provides that dismissal is "without prejudice" to either Unisys or the insurers' right to refile the case. As a condition, the stipulation also states that if a party elects to file another action related to Unisys' claim, the suit must be brought again in Delaware Superior Court, and evidence obtained in the prior lawsuit will apply to any future action.
