NCPA - National Center for Policy Analysis

Companies Sue Insurers For Y2K Costs

January 12, 2001

Millions of firms in the U.S. spent hundreds of billions of dollars trying to prepare for the Year 2000 Millennium "Bug." Despite the fact that the widely-feared threat turned out to be a big fizzle, companies want to collect their preparation costs from their insurance companies. But insurance companies aren't keen on that, and are fighting the companies' lawsuits.

  • Many companies' property insurance policies contain an obscure clause -- which originated in 17th century marine policies -- allowing policyholders to recover some of the costs incurred in efforts to prevent a loss.
  • Companies are arguing that the insurance industry lobbied for extensive preparations -- even posting urgent calls on their websites for policyholders to take action.
  • Some insurers amended their policies to exclude coverage of Y2K problems -- which leaves them in the position of arguing that they tried to exclude something which was never covered in the first place.
  • The insurance industry contends that companies preparing for Y2K also spent money on upgrading their systems -- a normal business expense.

The insurers also make the case that the central idea for insurance is that it is based on the risk -- not the certainty -- of the occurrence of an event. So insurance does not come into play for an entirely foreseeable event.

Source: "Who's to Pay for Y2K?" Economist, December 23, 2000.

 

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