Y2K Liability Q&A
Washington Post Staff Writer
Sunday, May 16, 1999; Page H8
It's not too late for small and mid-sized business owners to protect themselves against being sued because the year 2000 bug shut them down. But it's getting close.
Here are some coping strategies recommended by a range of experts.
Q: How do I start?
A: With a brutally honest review of potential year 2000 problems. Look both inside your company and at the suppliers you depend on, suggests Lou Marcoccio, year 2000 research director at the GartnerGroup, a consulting firm in Stamford, Conn.
Imagine your business shuts down on Jan. 1, and crucial shipments don't go off to a customer. Imagine you're in court, facing a hard-eyed attorney with a grocery cart full of your business records and demands for compensation. What did you do--or could you have done--to prevent Y2K problems, he demands. And how will your answers sound?
To find those answers, you might start with a Prudential Insurance Co. Y2K checklist on the Web site www.prudential.com.
And don't forget to review all your contractual agreements to pinpoint your legal vulnerabilities, adds Marcoccio, whose company's Y2K primer is at http://gartner6.gartnerweb.com/public/static/ solutionseries/year2000/.
Q: How do I know when I've done enough?
A: Find out what your peers are doing, suggests Andrew Pegalis, president of Next Millennium Consulting in Bethesda.
"We don't know where the courts will go in setting standards for Y2K liability but reasonable care, compared to the rest of your industry, is the minimum," Pegalis said. Firms such as his sell reviews of the "best practices" used in various industries to fix Y2K problems. You can find some at http://benchmark.consult2000.com/.
Q: How can I defend myself against legal problems caused by failure at the computer services firms I've hired?
A: You can't look inside their businesses. But make sure you've pressed them in writing for assurances that they're okay on their end. Your customer doesn't care if your supplier let you down, Pegalis said. "All they know is, you breached a contract and they're coming after you," he said.
Q: What about the computer firms that sold me equipment and software with the Y2K bug in it?
A: Some computer and software vendors have agreed to replace products with built-in year 2000 problems for free. Other require users to pay for upgrades. Your leverage with suppliers is much stronger if you have a service contract with them, said Tom Oleson, research director with IDC International Corp.
Q: Can I get insurance coverage against Y2K lawsuits?
A: Most states have permitted insurers to exclude losses from year 2000 mishaps from their regular business coverage policies. The argument is that since Y2K risks weren't generally known when the policies were drawn, the carriers haven't been including those risks in their premiums.
Some companies now offer special year 2000 liability coverage, but it's expensive, said Christopher Guidette, spokesman for the Insurance Services Office in New York, which represents the insurance industry on regulatory matters. "It's like earthquake insurance," he said. "Not many people buy it, so the risk isn't spread very far."
Q: Are many small businesses likely to be sued?
A: Experts disagree. Pegalis said they're at risk because typically they don't have the know-how or resources to Y2K-proof their operations. Oleson said the big class action lawsuits will be aiming at major technology companies with deep pockets, not the small fry.
Q: Can I get any help on liability from the government?
A: The Small Business Administration is making special loans to small businesses to address Y2K problems. But the loans can't be used to pay damages if you're sued, said SBA spokesman Chancy Lysford.
Q: Is there a chance that Congress will enact a year 2000 liability law that caps damages I'd have to pay?
A: There's a chance, but no more than that. The year 2000 legislation currently is a pawn in a fight between the nation's trial lawyers and powerful business groups.
The trial lawyers say that many companies won't fix their Y2K problems unless the threat of punitive damages hangs over them, and thus Congress shouldn't put ceilings on penalties. Business groups contend that technology companies will be hammered by a plague of year 2000 lawsuits, making money for attorneys, but gravely damaging the companies.
The House last week passed legislation limiting punitive damages in Y2K cases, but opponents have stalled the measure in the Senate, where the trial lawyers' influence is stronger.
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