Court: Y2K Computer Fixes Not Covered by Insurance.

The first court decision concerning Y2K claims by businesses against insurers is in--and the insurer won.

A New York State Supreme Court judge in Manhattan granted a summary judgment to American Guarantee & Liability Insurance Co., a subsidiary of Zurich U.S., which had been sued by Xerox Corp. for costs Xerox incurred while preparing for the computer conversion to the Year 2000.

Judge Charles E. Ramos ruled that Xerox failed to give American Guarantee timely notice of its claims, which Xerox said totaled $183 million between 1996 and 1999. Xerox filed a parallel lawsuit in Connecticut Superior Court.

A statement released by Hayes Law Reports, a Wilmington, Del.-based publisher of litigation reports for attorneys, insurers and other legal professionals, said the Connecticut action is pending but "courts generally defer to decisions from other jurisdictions on the same dispute."

Several similar actions were filed in 1999 and early 2000. Kmart and ITT are among the companies trying to force insurers to pay Y2K costs. Also, Nike Inc., a Michigan school district, the Port Authority of Seattle, GTE and Unisys Corp. sued their insurers.

Hayes Law Reports said that about 18 businesses are seeking insurance coverage for Y2K-related costs. All of those cases are pending.

Generally, the companies argue that insurers should pay for the costs based on sue-and-labor clauses in their insurance policies. Those clauses require policyholders to repair property to prevent imminent and more expensive damage, with insurers covering the costs of those repairs. The sue-and-labor clause traces its history to maritime insurance. Often, insurers would pay for repairs to a sinking ship or dumped cargo to avoid having to pay the cost of a new ship.

Insurers, however, argue that Y2K-remediation costs don't stem from the type of imminent failure that a sinking ship faces.