Countdown to Year 2000: Some Final Y2K FAQs

As we close in on Y2K, I thought I should address three frequently asked questions.

1. What’s the difference between "Y2K-compliant," "Y2K ready" and "Y2K O.K.?"

There is no standard, universally accepted definition for Y2K compliance. Any company disclosing its own readiness or trying to assess the readiness of customers/suppliers must define compliance in writing so that relying parties understand what is being promised.

In my experience, "Y2K-compliant" refers to systems that will handle the century change properly, automatically convert ambiguous two-digit numbers to acceptable non-ambiguous years (even if only internally) and interface with other systems by either correcting or rejecting bad date data.

"Y2K ready" typically means less. While such systems are able to correctly handle the century change, including the leap year, and correct data, it is somewhat questionable whether they will properly process incorrectly formatted data that is entered/transmitted. Therefore, there is some risk that bad date data can corrupt a particular transaction or slowly corrupt a database over time.

Lastly, the third kind of stamp of approval that is popular is "Y2K O.K." I have seen this "too cute" moniker used in relation to small devices, such as printers, VCRs, clock radios, Internet PCs and other appliances that you might buy at a Circuit City.

Be cautious. Understand what people mean when they use these terms. A phone call or clarifying letter is cheap insurance, indeed.

2. What is the "Sue-and-Labor" clause everyone is talking about?

Sue-and-Labor comes from old British maritime law. It provides that in the face of an imminent catastrophe, such as an approaching storm, the insured should perform activities to minimize losses to the insurance company – for the insurance company’s benefit. Therefore, if insured cargo falls overboard in a storm, the ship owner should "batten down the hatches" before the storm to minimize losses and then send out small boats to recover the insured cargo. The insurance company would reimburse the insured for out-of-pocket expenses for the salvage (to minimize losses), plus any property damage and/or personal injury that occurred that was actually covered by the policy.

Several months ago, three marine ports in the U.S., and then three Fortune 500 companies, gave notice to their insurance companies, and some sued for reimbursement of all Y2K remediation costs, under the Sue-and-Labor clause.

They argue that there is a storm coming, called "Y2K," and by remediating their systems before it hit, they actually saved the insurance company millions of dollars from imminent failures and resulting damage that Y2K problems would have caused.

If the plaintiffs win, it will be a big surprise and a blow to the insurance industry. This would likely be followed by a rash of lawsuits from other companies seeking reimbursement for remediation efforts. I believe the following areas will be hotly contested/debated before judgements are rendered:

  • What losses are covered by the policy?
  • What exceptions/exemptions exist?
  • Is Y2K an imminent event? A fortuitous event?
  • Was there any "betterment" to the insured? (i.e., do the replacement/remediated systems provide better "service" and information to the user?)
  • Did the current non-Y2K-compliant system have a limited life for other reasons? If so, and it was scheduled for replacement shortly anyway, should reimbursement be limited (e.g., such as to interest on monies paid earlier than planned – less the betterment)?
  • Could repair/remediation have been less elegant and performed much more efficiently at less cost?
  • Were the appropriate tools used? Were best methods/practices used? Why didn’t the insured start earlier?
  • Does "sue-and-labor" apply at all?
  • Was there an occurrence? What damage would have taken place without remediation? What alternative contingencies existed?

We will follow these suits in earnest and report back to you.

3. Is my city ready?

Some months ago, during a Y2K test, the Balboa Water Treatment Plant in Van Nuys, Calif., located two miles from my home, spewed four million gallons of raw sewage onto the street. I could smell it from my backyard. Even Jay Leno joked about it.

Some cities are in better shape than others. Go on the Web and research your city to determine what preparations you must make in case your city or community falls behind. Start with a United States General Accounting Office Publication (GAO/AIMD-99-246R) "Reported Y2K Status of the 21 Largest U.S. Cities," which shows only two cities, Dallas and Boston, ready in July 1999. New York hoped to have been "fully Y2K-ready by September 30, 1999," and Los Angeles and Chicago "fully Y2K-ready between October 1, 1999, and December 31, 1999," respectively. That’s sure cutting it close!

About the Author: Warren S. Reid is the President of WSR Consulting Group, LLC, in Encino, Calif. He can be reached by fax at (818) 986-7955, via e-mail at wsreid@wsrcg.com or through his Web site at www.wsrcg.com.