Insurer Wins Out in Y2K Lawsuit

December 22, 2000

American Guarantee, a Zurich affiliate, does not have to cover $138 million of the money Xerox Corp. poured into Y2K preventative upgrades, a New York State trial court ruled on Dec. 20.

New York Supreme Court Justice Charles E. Ramos granted summary judgment to American Guarantee, saying “Xerox’s lack of timely notice of a potential claim was prejudicial and mandated judgment for the insurer,” according to a report posted on PRNewswire. Xerox said in its most recent annual report that it spent $167 million on Y2K upgrades between 1997 and 1999.

The company is among approximately 18 other businesses that are looking to insurers to pay costs associated with upgrading older computer systems to cope with potential “Y2K” bug problems. The businesses are mostly suing for Y2K coverage under “sue and labor” clauses, which can provide coverage for remedial actions taken to avert a covered loss. Insurers argue that Y2K costs were expected and were an ordinary cost of upgrading equipment, thus the “sue and labor” clauses do not apply. The Xerox case is the first to be decided by a court.

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