The lawyer's role in managing the millennium bug.

• Author: Grant, John
• Position: Florida

It has been called the "Y2K problem," the "millennium bug," and the "Y2K glitch." The possible ramifications have been likened to everything from commercial Armageddon to the muffled bang of a wet firecracker. While the impact of the problem may lie somewhere in the middle, its magnitude will depend on measures taken by governments, businesses, and their attorneys to become Y2K compliant during the next 12 months.

Lawyers clearly will play multifaceted roles with respect to Y2K issues. We will be expected to warn clients of the problem and evaluate their rights and responsibilities regarding Y2K assessment and plan implementation. We will also be expected to protect clients' interests by drafting appropriate contractual language and making recommendations regarding insurance coverage. Finally, we will be expected to litigate when clients are damaged by Y2K problems.

Beyond protecting our business clients, attorneys also must be concerned with the Y2K compliance of their law firms. This article considers the scope of the problem and some issues lawyers will wish to consider as the clock winds down on the millennium.

The Problem

The Y2K problem originates in computer chips and programs that use two digits to describe year/date information. At midnight on December 31, 1999, some information systems will not be able to tell whether the year is 1900 or 2000. Many noncompliant computer chips or programming will either shut down or will emit corrupt data.

While it may seem abstract to many of us, the problem is very real. The U.S. Senate established the Committee on Year 2000 to take on the ominous task of preparing this country for the ramifications of Y2K noncompliance. Senator Bennett (R. Utah), speaking for the committee, prioritized what he considered as the major areas of concern:[1]

1) Utilities, particularly power plants and water treatment plants.

2) Telecommunications.

3) Transportation, including air traffic control systems and global positioning systems.

4) The financial system, in particular clearinghouse operations and electronic funds transfer.

5) General government services, such as Medicare, Medicaid, welfare, and food stamp distributions.

6) General manufacturing, including automated manufacturing plants and just-in-time inventory systems.

7) Litigation.

The federal government has taken many other steps to prepare for the problem. For example, it recently authorized the printing of $50 billion in currency to add to the $150 billion in cash reserves for next year[2] because of the anticipated run on banks. This is the first time the federal government has planned for a nationwide demand for extra cash.[3]

Notwithstanding the federal government's efforts in this area, the forecasts do not look promising. The Department of Defense, Department of Labor, and the Nuclear Regulatory Commission are not expected to become compliant until 2001. The Department of Health and Human Services and the Department of Energy are not expected to achieve Y2K compliance until 2002. The Department of State is not expected to become compliant until 2027, and the Departments of Justice and Education are not forecasted to achieve Y2K compliance until 2030. Although the Departments of Transportation and Treasury are expected to be compliant in the years 1999 and 2000 respectively, both recently received a "D" grade by the Senate Subcommittee on Government Management and Information Technology.[4]

A survey conducted a year ago indicated that fewer than 50 percent of municipalities believed their computers had Y2K problems. Experts considered this "Pollyanna thinking."[5] If Y2K problems have in fact been underestimated by those in local government, the effects to the investments made by bond holders and those who rely on government-backed services could be disastrous.

The government's degree of Y2K compliance is critical to the continued flow of goods and services within the chain of commerce. Mail, traffic, rail, subway, and utilities can each be adversely affected by operating systems, programming, or computer chips that are not Y2K compliant. Emergency services such as 911, fire, police and rescue service providers are also at risk. Although legislation has been proposed--such as Florida's Commerce Protection Act of 1999, designed in part to encourage compliance among governmental agencies to preserve the health and welfare of the public--the laws enacted among the states to date principally protect government against incurring liability by extending sovereign immunity to cover Y2K-related mishaps.[6]

A Glimpse of the Future

Although not related to any Y2K malfunction, several events occurred recently which may provide a glimpse of what may occur when operating systems, programming, and computer chips are not Y2K compliant. In May of this year the Galaxy 4 satellite malfunctioned, rendering 32 million pagers useless for a day. Two months later the Hong Kong airport's cargo and baggage handling computer system malfunctioned, causing the 'delivery of goods to be delayed, perishable cargo to spoil, and many passengers to miss their flights. The cost of the malfunction was estimated to be as high as $2 billion in damage over a nine-day period.[7] Intel was one of the businesses that suffered a significant impact to its supply chain as a result of the Hong Kong malfunction, which in turn prompted a partial shutdown of two Intel plants.[8] Similarly, in 1996 the computers controlling a New Zealand aluminum smelting plant shut down for several hours because programmers failed to consider leap years in the operation's software. The mistake cost the company half a billion dollars. Several hours after the New Zealand plant shut down, a plant in Tasmania reported similar problems.[9] Then, in mid-April of this year, AT&T's Interspan data network ceased operating for almost 20 hours, causing teller machines and credit card processing devices to go off-line.[10] These types of occurrences will be commonplace as we approach the Year 2000. Attorneys must be proactive in addressing the potential Y2K problems faced by their business clients so that they can avoid being ensnared in costly litigation or can be ensured of an avenue for potential redress in the event they suffer damages.

Insurance and Litigation

According to The Financial Post, insurers may be among the hardest hit by the costs associated with the Y2K bug.[11] Some experts have indicated that certain insurers may become insolvent due to Y2K claims.[12] The litigation defense costs and declaratory judgment costs associated with litigation over whether Y2K-related losses are covered under present policies is expected to rival the costs suffered by insurers and reinsurers for asbestos and environmental litigation combined.[13] Recognizing the potential for large numbers of Y2K claims, regulators in 46 states, including Florida, are allowing insurers to exclude Y2K-related occurrences from their policies.[14]

Remarkably, despite the fact...