Insurance fight likely over Y2K claims

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By Stan Beer

A battle between insurance companies, retailers and manufacturers is looming after the insurance industry warned that consumers and businesses would not be covered for millennium bug losses.

The warning was issued by the Insurance Council of Australia in more than half-a-million brochures sent to business policy holders. At least as many are planned for further delivery to consumers.

Though the warning seeks to absolve insurance companies of direct responsibility for Y2K claims from consumers and business, it in effect moves the insurance liability up the purchasing chain to vendors and manufacturers. However, the insurance industry is fighting to protect insurers from Y2K claims from this sector as well.

According to the deputy chairman of the Australian Consumer and Competition Commission, Mr Alan Asher, consumers and small businesses have the right to demand that vendors refund, replace or repair Y2K non-compliant systems bought less than three years ago.

"Under the Warranties Provision of the Trade Practices Act, consumers and businesses with computer systems worth less than $40,000 can claim against vendors for products that are not year 2000 compliant on the basis that the equipment is not reasonably fit for its purpose," Mr Asher said.

Retailers forced to pay claims involving Y2K-defective products could seek compensation from either their manufacturer suppliers or their insurers under product liability or product guarantee policies.

However, the national manager of public affairs at the ICA, Mr Mark Sheehan, says retailers and manufacturers may not be able to claim from insurers on product liability or product guarantee policies if the issue involves Y2K.

"If the issue is Y2K-related, we're saying to manufacturers they have to show their insurer that they've taken sufficient action to be Y2K compliant," he said.

The executive director of the Australian Retailers Association, Mr Bill Healey, called on insurers to honour their obligations. "We would think that most retailers have taken appropriate steps to guarantee Y2K compliance from suppliers. Therefore we'd like to think that insurers would honour their obligations to them," he said.

The head of the commercial disputes resolution group at legal firm Mallesons Stephen Jaques, Mr Emilios Kyrou, said that past product liability insurance policies of vendors and manufacturers had the potential to cause disputes with insurers over Y2K issues.