Insurance May Leave Companies Y2K-Exposed
Along with systems and project management issues, another Y2K headache is surfacing. Many insurance companies are reportedly backing away from covering companies that incur losses as a result of Year 2000 glitches in standard business liability plans. Instead, companies may need to seek additional, Year 2000- specific coverage.
A recent survey by Gartner Group (Stamford, Conn.) finds that more than 40 U.S. states have already granted insurance companies exclusions that allow them to not cover Y2K losses under existing business interruption policies. "Enterprises making the assumption that business interruption insurance will cover losses incurred directly or indirectly from the year 2000 date change problem may be in for a rude awakening," the report finds. While separate policies specifically for Year 2000 coverage are being made available, they are expensive and limited in scope.
Recently, several insurers, including American International Group (AIG) and Travelers Property Casualty Corp., issued letters to policyholders urging them to address their Y2K readiness. While the letters do not specify whether the insurers intend to exclude Y2K coverage, many industry experts believe that insurers might dispute future Y2K claims or attempt to add Y2K exclusions to insurance polices.
Thus, businesses need to pay close attention to what their liability insurance covers, advises Carolyn Rosenberg, chair of the Y2K team at Chicago-based law firm Sachnoff & Weaver. Businesses need to "carefully review and negotiate their existing insurance policies," Rosenberg says. This includes an audit of current policy or policies to evaluate the exclusions, terms and conditions.
Companies should contact their insurers and request written clarification of coverage in the event that year-2000-related losses are incurred, or the company is the target of a Year 2000 suit. The insurer should also be treated as a "mission-critical supply chain vendor" in the Year 2000 process, according to Gartner.