The insurance industry is alert to the potential increase in claims for the accidental loss of computer equipment and loss adjusters and their principals are already seeing the first wave of related claims.
The replacement culture means that many domestic and small business-level claims are likely to be settled at source without real investigation – even if the timing of these accidents appears contrived or coincidental. After all, if someone claims they dropped their £3,000 system it may only cost the insurance company £600 to replace.
It may be difficult to prove the accident was staged because the computer was not Y2K compliant.
Insurers can be liable if a computer is damaged regardless of whether it has been swept for the Millennium Bug
Even if it is established that the loss occurred due to non-compliance it may only allow insurers to exclude the portion of the claim for the chip itself.
The problem of both domestic and commercial insured's using their policy to upgrade equipment is hardly new and is not confined to IT claims and the Y2K phenomenon.
In short, careful analysis by loss adjusters to the specific policy wording will be essential to determine if the insurers' liability is restricted to excluding the component itself or, in fact, the entire non-compliant system.
Claims investigators and the profession of loss adjusting really come into their own with the larger commercial claims.
For example, major fires might be started as a way of replacing a computer system; evidence of motive and the faulty equipment are destroyed in one event.
Going beyond the norm
If this occurs and involves a system that is not Y2K compliant it may not be sufficient to use the traditional indicators of cash flow, debts, etc to justify a major investigation.
The key to why the fire was started lies within the system itself and not in the business context.
Nevertheless, data stored on computer hardware can provide vital clues in the investigation of Y2K claims. Data recovery specialists can retrieve data held on computer hard disk – even when the storage system has been seriously damaged.
Evidence extracted from storage media can often expose the real reasons why a company might decide that an accident is the only way to obtain a compliant system. However, such claims may not arise from the system on the insured premises alone.
Looking for clues
The insured's suppliers might have non-compliant equipment that malfunctions and there could be problems further down the supply chain that would seriously impact on the insured business.
Delays in meeting contract deadlines are likely to result in loss of business.
Problems with customer systems can impact upon an insured who is unable to deliver his services to his client as a consequence; thus Y2K non-compliance can indeed be a wide-ranging issue.
The end-of-year holiday could also give rise to Y2K claims.
The police and media have been speculating that the long Christmas/New Year break will lead to an increase in theft losses.
How fortuitous if a theft of a crucial system (which might have been non-compliant) was to happen during this period!
One thing is for sure – claims professionals will be required to use judgment to ensure the dubious claim is properly investigated and the genuine loss is quickly resolved to avoid extensive business interruption.
All claims investigators should be able to establish which chips are non-compliant from the various databases which are accessible.
So where does this leave us? Will the Millennium Bug become a major disaster or will it be seen as the biggest anti-climax since the August eclipse?
While some lawyers may anticipate testing exclusion clauses in the courts others might explore the liability trails of individual hardware and software manufacturers.
Whatever the outcome the loss adjusting profession has been in a state of alert for months. The insurance industry must be ready for Y2K and should be prepared for the worst.
