Originally created 08/05/98

Insurance companies seeking Year 2000 exclusions

NEW YORK -- Hoping to head off billions of dollars worth of litigation, the insurance industry has asked regulators for permission to exclude businesses' Year 2000 losses from their commercial liability policies.

The Insurance Services Office, a company that helps insurers deal with regulatory issues, has received permission from 46 states for insurance companies to deny Year 2000 claims.

The four remaining states -- Alaska, Texas, Maine and Massachusetts -- are considering granting that permission, said Christopher Guidette, a spokesman for the New York-based company.

Insurers could decide to exclude Year 2000 from business policies and not inform policyholders of the exclusion until the policy comes up for renewal, according to a report released Tuesday by the Gartner Group, an information technology consulting company in Stamford, Conn.

But "some of them haven't decided whether or not to use the exclusion," said Loretta Worters, a spokeswoman for the Insurance Information Institute, a trade group. "It could be case-by-case."

Insurance companies are arguing that businesses will have had plenty of warning and time to fix the Year 2000 technology glitch, which could cause computers to misread the year 2000 as 1900 and wreak havoc on computer-dependent businesses from multi-million-dollar real estate empires to mom-and-pop copy stores.

The Gartner report says businesses that assume they're covered for Year 2000 "may be in for a rude awakening."

They should "immediately contact their business insurers and request written clarification of coverage in the even that year-2000-related losses are incurred" or the business is sued because of Year 2000.

Sean Mooney, an economist with Guy Carpenter, Inc., a New York reinsurance broker, said insurance companies consider the Year 2000 issue one that needs clarification and not a policy change, and that insurers therefore aren't obligated to tell their policyholders about the exclusion.

But Worters said the companies would have a legal as well as ethical obligation to tell policyholders what their Year 2000 position is.

Year 2000 losses could generate a blizzard of litigation costing as much as $1 trillion, estimates The Giga Information Group, a technology consulting company.

That would dwarf previously costly product-liability settlements such as in the $2 billion Dalkon Shield intrauterine device case, points out A.M. Best & Co., the insurance rating company.

Six lawsuits, including four class actions, have already been filed against software companies including Intuit Inc., maker of Quicken home finance software, and Symantec, Corp., which makes software that helps computer users perform various file management tasks. They allege the companies knowingly sold software that would not work in the year 2000.

In an action that would be similar to tobacco lawsuits, attorneys general in several states are considering suing software companies to recoup the cost of fixing Year 2000 problems.

At least one insurer, the American International Group Inc., is selling, for an extra premium, up to $50 million of Year 2000 coverage as part of some policies that shield officers and directors of a company that is sued.

AIG wouldn't say how much the coverage costs. But analysts outside the industry said it was prohibitively expensive, and that AIG will require policyholders to demonstrate that they have taken steps to try to correct the computer problem.

"Although many insurers are offering separate policies for year 2000 coverage, these policies have considerable exclusions and are offered at high premiums," the Gartner Group report says.


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