Y2K Cost Recovery and Sue and Labor Claims
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Y2K Cost Recovery
It was expensive dealing with Y2K. You were trying to avoid the even bigger costs that failures would have brought to your organization. Now, you need to see what you can do about recovering those remediation and preparedness costs. Y2K Cost Recovery efforts are now turning to the "Sue and Labor" provision of insurance policies as a potential source of recovery. Organizations worldwide spent hundreds of billions of dollars on Y2K remediation and risk management. As a result, Y2K cost recovery is a major issue for business executives as directors and officers will be held accountable for efforts to limit the financial consequences of Y2K. Numerous insurance claims and lawsuits are have now been filed seeking to recover Y2K expenses. Y2K Risk Management was defined early on as a broad based program to minimize all sorts of Y2K impacts to the enterprise. When I co-authored Y2K Risk Management, the leading text on the subject, I advocated a number of means to avoid and minimize the cost of Y2K before it happened. However, in the book, we addressed the need to determine how to recover costs incurred. In many cases, insurance claims, litigation, or other actions are appropriate Y2K cost recovery strategies. The two most prominent sources of cost recovery are responsible parties and insurance companies. Your organization should review the performance of responsible parties such as software and hardware vendors, consultants that may have been involved in the acquisition, provision, or implementation of systems and other third parties for possible legal liability. In reviewing your options and in determining who is responsible for your costs, start with a review of contract, expressed or implied warranties, and your insurance policies. Y2K cost recovery claims present a difficult and arduous process. Even if you do not plan to sue, filing a claim will require appropriate legal counsel as well as accounting and independent Y2K experts. As with Y2K, a special project team will need to be pulled together involving Y2K project staff with these other experts. Expect protracted negotiation and or litigation to occur. Your staff and experts may be required to serve as witnesses and give testimony regarding your Y2K project. Sound project management and the use of qualified forensic accountants and Y2K experts1 will be crucial to your success. Sue and LaborSeveral lawsuits and insurance claims have already been filed on the basis of a relatively obscure clause in property insurance policies commonly known the "sue and labor" clause. Under that section of a policy, insured parties can file claims for reimbursement of costs used to protect property in the face of imminent damage. Y2K remediation costs may actually be covered under the "sue and labor" provision of many property insurance policies. "Sue and labor" comes from maritime law and generally requires policyholders to take the necessary steps and to incur expenses needed to avert or minimize losses or damage to property covered under the policy. The sue and labor provision typically requires the insurance company to reimburse the policyholder for a significant portion of the costs incurred in protecting insured property from "imminent" loss or damage. As might be expected, insurance companies are opposed to this interpretation. As you can see from the cases profiled to the left, the "jury" is still out on how extensively this provision may be used. However, it is reasonable to expect that many organizations have reviewed their property insurance to see if this clause is included. It appears that Y2K cost recovery issues will remain long after the start of the year 2001. With a number of Y2K Sue and Labor lawsuits filed, Y2K litigation could go on for years. Notes: 1. DavisLogic provides Y2K expert services and has prepared Y2K sue and labor claims.
Articles - Y2K Suits Filed - Books - Other Links Pages N.Y. Court Rules Against Xerox on Y2K Insurance Coverage (Yahoo News) Insurance Recovery for Year 2000 Remediation Cost A Y2K Glitch For Lawyers: Few Lawsuits Is There Sue and Labor Coverage for Year 2000 Remediation Expenses? Insurance Recovery for Year 2000 Remediation Cost A Y2K Glitch For Lawyers: Few Lawsuits Y2k Suits Filed FICC's Guide to Year 2000 Litigation and ADR Proceedings - summaries of all the Year 2000-related lawsuits, arbitrations and other ADR proceedings Pending Y2K Litigation - pending Y2K case information from Weikers and Co. USA Today article on the first sue and labor claims
Y2K Risk Management offers a comprehensive guide to Y2K Risk Management, Contingency Planning, and Business Continuity Introduction to Risk Management and Insurance Cliffsnotes Understanding Health Insurance Managing Risk : Systematic Loss Prevention for Executives Risk Management and Analysis : Measuring and Modeling Financial Risk Risk Management: Concepts and Guidance Property & Casualty Insurance: Principles and Practice Business of Insurance: A Comprehensive Introduction to Insurance Other Links American Risk and Insurance Association Insurance Information Institute |
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For more information please contact us. Last updated: Sunday, October 30, 2005 09:49 AM |