SURVEY THE MILLENNIUM BUG
Midnight’s children
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Feast for lawyers, fear for insurers |
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The more mind-boggling estimates of the future costs of litigation and damages go up to $1 trillion, a figure that stretches credulity, given that it amounts to a seventh of America’s entire output for a year. But there is certainly plenty of scope for argument over who should foot the bill for fixing the bug—software vendors or their customers—and who should pay for any damage that occurs from bug-induced failures. As the FCC’s Michael Powell, once a class-action litigator, points out, “The formula for a powerful lawsuit is that the consequences are huge and the causes simple. I can hear it now: ‘They knew it was just two little numbers, and my client paid the price.’ ” Lawyers have already begun to sharpen their knives. Reed Kathrein of Milberg Weiss made a name for himself filing class-action suits on behalf of shareholders upset by a fall in the prices of their shares. Now he is bearing down on the Year 2000.
Already, he has filed five class-action suits on behalf of consumers or small businesses against companies such as Intuit which have produced software that may fail because of Year 2000 problems. All the companies involved initially charged customers for patches to see them through. The case against Intuit was dismissed by a judge this month.
Faced with Mr Kathrein, companies have tended to change tack and provide the remedy free. Claude Stern, of Fenwick & West in California, who represents Intuit, complains that its legal problems began when it voluntarily provided information on its web site about which of its products were compliant and which were not. “I’m now being contacted by many companies who tell me, why should I get sued for doing what Intuit did?”
But this is only initial jousting. As the millennium bug becomes more of a problem, Mr Stern expects an explosion of cases about warranty law. What standards are implied in the purchase of an item of software? “Every software program has hundreds of bugs in it at the time of release,” he argues. “The courts have recognised this. But, where the Year 2000 problem causes losses, the courts may ask whether the law should be more forgiving of software than of a toaster.”
At the Information Technology Association of America, Mr Miller argues that software has emerged in the past five years as a critical infrastructure, as essential to society as electricity or transport. But that achievement imposes new responsibility. “We need to deliver more reliable products. Our industry says, if you write an article with our software and it vanishes, that’s too bad. You wouldn’t buy a car on that basis. We’ve got to change.”
Even though the mere loss of data from a computer does not count as damage, software and hardware companies may be vulnerable in other ways. If a product was compliant several years ago—indicating that the company that sold it knew there was a problem—should all its other, non-compliant products not have been labelled accordingly? Maurice Newman, chairman of Australia’s Year 2000 national steering committee, notices that non-compliant equipment is still being sold, and is surprised that consumer groups are not taking more interest in the problem.
“The advent of the automobile changed the law in several ways,” says Mr Stern. “For instance, it changed the law of jurisdiction, so that a person who lived in one state could be sued in another. Technology changes the law.” So it may be with the millennium bug.
For the moment, though, the law and the threat of suits are having a different effect. Companies are nervous of disclosing whether their products are millennium-safe, or how far they have travelled along the road to compliance. Mr Kathrein is unabashed. “Early disclosure will greatly reduce the possibility of damage,” he insists. “The argument that the fear of lawsuits is keeping people from disclosing is baloney.” Vice-President Al Gore has been working on a “Good Samaritan” law, which would ensure that companies helpfully telling customers and others about their own and their products’ state of readiness could not be held liable if they turned out to be wrong.
Peter de Jager, a veteran Canadian campaigner on the Year 2000 problem, last year set up a web site, “Project Damocles”, to collect information on embedded systems and use it to coax action from manufacturers of potentially faulty devices. He has shut it because “lawyer after lawyer” warned him that he might be subpoenaed in the innumerable chip cases that lie ahead. That project, he argues, should surely be taken over by government. In Australia, a less litigious country, something similar has already happened: compliant products and organisations are listed on the web site of Standards Australia, a not-for-profit body.
Fear of breaking antitrust laws is another impediment to sharing information. Many companies see a need to co-operate with competitors or customers to test millennium-readiness. In Australia, for example, the large banks are working together. So are nursing homes. In Britain, banks are pooling information on what industries might pose a credit risk. But such collaboration could attract unwelcome attention from antitrust regulators. In the United States several industries have now received formal dispensations: the FCC and the Justice Department agreed, for instance, that telephone companies could jointly test integrated networks.
Taking a chance
For insurers, the Year 2000 is a novel problem. They are used to insuring “fortuitous” events—indeed, they are often prevented by law from insuring any other kind of loss—and yet the millennium problem is both totally predictable and remediable. Moreover, the basis of their trade is to pay for the losses of the unlucky few from the premiums of the fortunate many, whereas millennium losses may not fit into that pattern. Because the event is without precedent, “the only prediction that can be made is that losses will probably be either fairly small or extremely massive,” says a paper by Anthony Fitzsimmonds, an aviation specialist at Ince, a firm of London solicitors. “An insurer taking on a large millennium-exposed portfolio without proper investigation . . . is playing Russian roulette with its capital.”
Insurers’ first instinct has been to exclude Year 2000 cover from policies. In the United States, several state legislatures have allowed insurers to exclude millennium risk. In London, home to almost 40% of world aviation insurance, the market has drawn up a model exclusion clause. But definitions may be tricky: what happens, for instance, if a fire starts and the alarm system duly goes off, but because the telephone system has been disabled by millennium problems the fire brigade is not summoned in time? It may be hard to pin a problem on the millennium bug unless it occurs on the stroke of midnight. And even if it does, insurers may quarrel among themselves: many policies expire on December 31st, and if a policyholder has changed insurers there may be arguments about liability.
Yet many businesses cannot operate without insurance. Aeroplanes cannot fly; ships cannot enter port. Without health-and-safety cover for their employees, many firms would hesitate to trade. To square this circle, insurers are entering the questionnaire business. Britain’s aviation insurers, for instance, are sending a list of questions to airlines. If they are satisfied with the answers, they will offer cover for the airline’s core risk. But they will not necessarily give cover against delays if the baggage handling or check-out desk were to seize up, or against a general grounding of aeroplanes by regulators—such as might happen if, in the first few days of 2000, an airline with a good safety record suffered an unexplained crash. “We have gone through 10-15 years of litigation on pollution,” says Martin Cox of the British Aviation Insurance Group, who has chaired an industry working party on the Year 2000. “We don’t want this to be a repeat.”
In fact, many insurers will probably end up offering some form of millennial coverage; but few businesses will have their fingers more firmly crossed as 1999 wears on. And few will have more need of their lawyers to kybosh that $1 trillion-worth of prospective lawsuits.
