American Guarantee & Liability Insurance v. Xerox Corp.

183 Misc. 2d 411, 703 N.Y.S.2d 661, 1999 N.Y. Misc. LEXIS 612
CourtNew York Supreme Court
DecidedNovember 15, 1999
StatusPublished

This text of 183 Misc. 2d 411 (American Guarantee & Liability Insurance v. Xerox Corp.) is published on Counsel Stack Legal Research, covering New York Supreme Court primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
American Guarantee & Liability Insurance v. Xerox Corp., 183 Misc. 2d 411, 703 N.Y.S.2d 661, 1999 N.Y. Misc. LEXIS 612 (N.Y. Super. Ct. 1999).

Opinion

OPINION OF THE COURT

Charles Edward Ramos, J.

Defendant Xerox Corporation (Xerox) moves for an order (i) dismissing the complaint, pursuant to section 7 of the Year 2000 Readiness and Responsibility Act (15 USC § 6601 et seq., added by Pub L No. 106-37,106 US Stat 185), CPLR 327 (forum non conveniens), CPLR 3211 (a) (4) (prior action pending), and CPLR 3001 (discretion to hear declaratory judgment action); or (ii) staying all discovery for the time period set forth in section 7 (f) of the Year 2000 Readiness and Responsibility Act (15 USC § 6606 [f]) (Y2K Act); or (iii) entering a stay pending final judgment in an action pending in the Superior Court of Connecticut pursuant to CPLR 327 and 3211 (a) (4).

Plaintiff American Guarantee and Liability Insurance Company (AGL) is a New York corporation, with places of business in New York and Illinois. AGL is a New York domiciliary insurer and is subject to the regulations of the New York Superintendent of Insurance. Xerox is a New York corporation with major operating centers located in Rochester, New York. Xerox’s corporate headquarters is located in Stamford, Connecticut.

AGL issued a first-party property insurance policy (Policy) (No. TOP 82 24 313) to Xerox with an effective period from March 31, 1996 through March 31, 1999, which was extended by endorsement to March 31, 2000. The insured entities under the Policy include Xerox and its subsidiaries around the world, and the Policy covers property both in and outside the United States. The Policy provides coverage for “all risk of direct physical loss of or damage to property described herein * * * [including] any destruction, distortion, or corruption of any computer data, coding, program or software except hereinafter excluded” (Policy If 9). By letter dated March 17, 1999, Xerox submitted a notice of claim under the Policy for its ‘Wear 2000 remediation expenses and/or damages.” AGL acknowledged receipt of the claim by letter dated April 7, 1999. On April 28, 1999, AGL notified Xerox that it was commencing an investigation, enclosed a proof of loss form, and requested that Xerox [413]*413complete and file the form “within 60 days of the date of this letter.” On July 26, 1999 Xerox sent AGL a purported “First Partial Proof of Loss.”

AGL commenced the instant action on July 1, 1999, seeking (i) a declaration that Xerox is not entitled to coverage under the Policy based on its failure to comply with the notice provisions of the Policy, and to submit a proof of loss, and (ii) a determination regarding the rights and obligations of the parties with respect to whether coverage exists for year 2000 related costs. With respect to the coverage issue, the complaint alleges that the year 2000 related costs are “ordinary business expenses, and are not within the scope of coverage under the Policy” (complaint 15). The day after AGL commenced the instant action, Xerox filed an action against AGL in the Superior Court of the State of Connecticut for the Judicial District of Stamford/ Norwalk. Xerox seeks both affirmative and declaratory relief in the Connecticut action.

By letter dated August 2, 1999, Xerox sent AGL a letter indicating that it had elected to treat the New York complaint as a prelitigation notice under Y2K Act § 7 (15 USC § 6606). AGL rejected Xerox’s attempt to cast the New York action as falling under the Y2K Act. In addition, AGL noted that Xerox affirmatively filed an action in Connecticut seeking a judicial resolution of the parties’ dispute. AGL has argued that the Y2K Act was passed after this action was commenced and the prelitigation commencement provisions should not govern actions which were commenced prior to the execution of the statute.

Xerox’s contention that the action should be either dismissed or stayed pursuant to the Y2K Act (15 USC § 6601 et seq.) is rejected. The Y2K Act was developed as a Federal response to the prospect of increased civil litigation resulting from Y2K failures. A Y2K failure has been defined by commentators as consisting of a “disruption and malfunction of systems and operations that depend upon and use date-coded information in connection with time-sensitive computer systems.” (See, e.g., Kerr, Understanding, Preventing and Litigating Year 2000 Issues: Practical Strategies and Industry-Specific Solutions III— Developing Theories Of Y2K Liability In Litigation, 571 PLI/Pat 907, 914 [Westlaw 1999].) The problems concerning the Y2K date coding resulted from the use by early computer programmers of a two-digit number format, as opposed to a four-digit number format, to register the year in early programs to save memory space. (Alces and Book, When Y2K Causes [414]*414“Economic Loss” To “Other Property,” 84 Minn L Rev 1, 6-10 [Nov. 1999].) In programs using this space-saving coding, the calendar year “1950” would be registered as “50” {Ibid.). In those programs which contain this form of embedded coding, the date January 1, 2000 will be read by the computer system as being January 1, 1900. The inability to accurately register the correct dating is predicted to result in various types of system failures ranging from minor calculation errors to complete system collapses.

The Y2K Act was enacted on July 20, 1999 in anticipation of an increase in frivolous litigation which would result from minor Y2K failures. {See, 15 USC § 6601 [a] [7].) The Federal Government therefore promulgated the statute to address the prospect of an overwhelming wave of litigation with a structured system to promote the resolution of disputes arising out of Y2K failures. At issue in this motion is whether the Y2K Act was designed to also encompass insurance coverage litigation pertaining to issues of dispute regarding the alleged failure to provide a timely proof of claim. Neither the statute nor the legislative history supports a finding that insurance coverage disputes were designed to be encompassed within the framework of the Y2K Act.

A plain reading of the statute does not support a finding that the Y2K Act encompasses insurance litigation. As stated in the statute, the Act covers: “[A] civil action commenced in any Federal or State court, or an agency board of contract appeal proceeding, in which the plaintiff’s alleged harm or injury arises from or is related to an actual or potential Y2K failure, or a claim or defense arises from or is related to an actual or potential Y2K failure.” (Y2K Act § 3 [1] [A], 15 USC § 6602 [1] [A] [emphasis added].) The term “Y2K failure” is defined in the statute as: “[A] failure by any device or system (including any computer system and any microchip or integrated circuit embedded in another device or product), or any software, firmware, or other set or collection of processing instructions to process, to calculate, to compare, to sequence, to display, to store, to transmit, or to receive year-2000 date-related data.” {Id., § 3 [2], 15 USC § 6602 [2].) Indeed, the examples set forth in the statute concerning covered Y2K failures indicate that the Act was designed to cover litigation involving damage directly resulting from a Y2K failure. {See, Y2K Act § 3 [2] [A]-[C], 15 USC § 6602 [2] [A]-[C].) Based upon a plain reading of the statute, the Y2K Act is drafted to encompass lawsuits related to a failure to process year 2000 date-related data. The [415]*415instant suit is a contract-based action to determine whether an insured provided its insurer with a timely notice of claim and is not premised upon a Y2K failure.

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Cite This Page — Counsel Stack

Bluebook (online)
183 Misc. 2d 411, 703 N.Y.S.2d 661, 1999 N.Y. Misc. LEXIS 612, Counsel Stack Legal Research, https://law.counselstack.com/opinion/american-guarantee-liability-insurance-v-xerox-corp-nysupct-1999.