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ARCHIVED  December 3, 1999

Insurers await Y2K with some concern

With less than a month to go before the year 2000 is upon us, the insurance industry remains fairly optimistic about Y2K and possible claims for damages caused when computers mistake the two digits 00 indicating 2000 for 1900.

Small-business owners who have done little or nothing to prepare for Y2K and whatever problems it may bring are of greatest concern to the insurance industry nationwide.

Carole Walker, regional manager of the Western Insurance Information Service in Denver, said that the industry has been reciting the “be-prepared” mantra for the past two years or more. And while most financial institutions and large corporations have done just that — spending millions in the process — many small-business owners are doing nothing more than crossing their fingers in hopes that the biggest event will be in fact a nonevent.

But if disaster does strike on Jan. 1, because of a power failure or computer glitch or whatever, most business owners and homeowners, for that matter, won’t find coverage for Y2K claims in their insurance policies. “The only things covered by insurance are accidental events,” Walker said. Y2K, in the eyes of the insurance industry, is a well-known, well-hyped event, not an accident.

“Some people may say it’s too late [to prepare], but it’s better to know what’s coming down the road; to be blindsided by something is not the way to go,” she said.

Expecting an outpouring of concern from business owners, WIIS a year ago put together a resource guide, presented a symposium and provided other types of information for businesses interested in ensuring that they were Y2K compliant. Though many are indeed concerned, Walker said many more in fact are not. And that, she said, was a surprise.

Nonetheless, WIIS has encouraged agents to inform their own clients about Y2K and that claims resulting from the New Year will not be accepted.

“We stressed to our membership to get people to talk about it, to get agents to send letters out informing them that [Y2K] is excluded,” Walker said.

Elaine Hutchings, marketing director for Professional Independent Insurance Agents of Colorado in Denver, said that her organization has also actively publicized and reminded people that they need to take steps to protect themselves from claims. They have notified customers that Y2K problems could occur and told them what they need to do to have computer systems compliant, as well as to make sure their own systems are Y2K-compliant, she said.

Hutchings said that while those in the insurance business are not expecting an onslaught of claims, many were concerned that the federal government was slow in becoming Y2K-compliant. Though President Clinton announced this month that the government was now ready for the year 2000, Hutchings said she’d wait and see.

And while large businesses scrambled to ensure that all systems will work Jan. 1, Hutchings said that many of the computer consultants who worked on such projects are now concerned that they’ll be held liable if the corrections they made don’t work.

“In the beginning, there were a lot more people to do the consulting,” she said. “Then, I think some have pulled back because they can’t get coverage for their own work.”

Nonetheless, Walker and others say it’s inevitable that claims will be made. “I suspect the claims adjusters will be out on these,” she said. “They will have some sort of parameters or basis to determine if the claim is Y2K related or not. And that would have to be case by case. I imagine there will be a lot of negotiating and chat and some court cases that will determine some of these parameters.”

Whatever claims do end up in the courts, however, will have financial limits. “The fear at first is this would be a heyday for trial attorneys, a whole new way of suing people,´ said Walker, who noted that legislation has passed on the federal level to limit liability when suits end up in court.

Eric Anderson, spokesman for State Farm Insurance Co. in Greeley, said that State Farm will handle Y2K claims case by case.

“State Farm is here for its customers, and it will be here for its customers after the first of the year,” Anderson said. “The primary goal is to manage every day of life in regard to the unexpected. We will approach problems with Y2K as any other problem — person to person and based on the incident, claim and the policy they have.”

Like the others, Anderson said that State Farm encourages business owners to check with their agents regarding coverage.

“If they have basic coverage in place, the owner might want to consider endorsements to increase coverage, such as a data-processing footer,” he said. “While a basic policy would replace lost disks, the floater would allow lost data to be recovered. Or if a business relies on continuous power, it can buy coverage to help pay for losses if the power goes out.”

Robert Powell, branch manager of Reidman Insurance in Fort Collins, said that while Y2K insurance coverage is available, it is “very limited” and comes with a high price tag.

“We’re essentially advising our clients that the best protection against risk is to take risk-management measures outside of insurance,” Powell said. “In other words, make sure their systems are Y2K-compliant.”

Powell said that issues that could lead to litigation will be those that fall into gray areas of whether the claim resulted from an accident. For example, what if a business is Y2K-compliant but the electrical system failed and the building burned down because the computer didn’t work? In that case, Powell said, the resulting damage from the fire would be covered, but the insurance agency wouldn’t rectify or make whole erroneous computer systems.

“A year ago, we were scared to death about lots of litigation,” he said. “Who knows what’s going to come, but it doesn’t look like it’s going to be very serious, at least not in our community. There are countries that haven’t seriously taken the Y2K issue and rectified the problem, and there are small businesses that haven’t paid much attention, [but] we haven’t seen a doomsday concern in our industry that once existed. Most of the work to make compliant has been done, and we feel comfortable they’re on top of it — their contingency plans are in place.”

However, Powell added, perhaps echoing the sentiment of millions of others, “I will be glad when we get to Jan. 2.”

With less than a month to go before the year 2000 is upon us, the insurance industry remains fairly optimistic about Y2K and possible claims for damages caused when computers mistake the two digits 00 indicating 2000 for 1900.

Small-business owners who have done little or nothing to prepare for Y2K and whatever problems it may bring are of greatest concern to the insurance industry nationwide.

Carole Walker, regional manager of the Western Insurance Information Service in Denver, said that the industry has been reciting the “be-prepared” mantra for the past two years or more. And while most financial institutions and…

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