Legal action by US companies to recover some of the huge costs of Y2K compliance in the American courts is unlikely to rebound on Lloyd's, market experts say.
The Institute of Actuaries raised concerns on Friday, that the effect on Lloyd's could be "catastrophic" if US courts were to find in the companies' favour.
Peter Wright, chairman of the institute's general insurance board, stressed that although Y2K exclusion clauses are generally good, the US courts have a history of overturning such clauses, particularly when they involve a non-US party.
He said: "It is unlikely that syndicates would hold enough reserves in the event of losing such cases, although they do possess enough funds for fighting their defence."
The US legal actions hinge on a point of old marine insurance law. This says policyholders can reclaim the cost of measures that minimise the effect of a covered peril, such as taking evasive action to avoid a damaging storm.
However, several Lloyd's experts say such "sue and labour" clauses have no relevance to Y2K remediation spending.
Reg Brown, of Lloyd's syndicate RE Brown, said the fallout from Y2K has been smaller than first imagined and Lloyd's exposure is minimal since the legal actions only involved American insurers.
He conceded that there might be some reinsurance issues for Lloyd's, although it was the responsibility of each syndicate to ensure it had appropriate reserves. He added: "They should have enough reserves to meet the legal costs whether they win, lose or draw."
Robert Chiles, an underwriter at Lloyd's syndicate, Hiscox, also said the spending by US companies on Y2K-compliance measures is unlikely to be recoverable from insurers.
Since Y2K is not a covered peril but a product limitation, it is, therefore, a cost that should have been met by the companies themselves.
He explained: "The argument is that these companies were responsible for maintaining their computer systems since they benefited directly from this expenditure."
