This country is deemed to be "at risk." As late as March, 1999, hospitals in Italy had not yet started to take an inventory of their Y2K exposure. Italy did not establish a commission to look into the Y2K problem until early 1999. "The Comitato 2000" has no money. They meet once a week. Their approach to the problem is to be careful not to cause the public to panic. There is no comprehension of the scope of the problem. The general belief seems to be that it is a small problem, and that someone will fix it in the morning.
Global readiness
The Gartner Group, an independent consulting agency, surveyed more than 80 nations and regions, and concluded:
Group 1: Highly prepared
Australia, Belgium, Bermuda, Britain, Canada, Denmark, Netherlands, Ireland, Israel, Switzerland, Sweden, and the United States.
Group 2: Some systems ready
Bahamas, Brazil, Chile, Finland, France, Germany, Greece, Hungary, Iceland, Italy, Japan, Mexico, New Zealand, Norway, Peru, Portugal, Singapore, South Korea, Spain, Taiwan, Thailand.
Group 3:Significant shortcomings
Argentina, Armenia, Austria, Bulgaria, Colombia, Czech Republic, Dominican Republic, Egypt, Guatemala, India, Jamaica, Jordan, Kuwait, Malaysia, Panama, Poland, Puerto Rico, Saudi Arabia, south Africa, Sri Lanka, Turkey, United Arab Emirates, Venezuela, Yugoslavia.
Group 4: Highly vulnerable to disruptions
Afghanistan, Bahrain, Bangladesh, Cambodia, Chad, China, Congo, Costa Rica, Ecuador, El Salvador, Ethiopia, Fiji, Haiti, Indonesia, Kenya, Laos, Lithuania, Morocco, Mozambique, Nepal, Nigeria, Pakistan, Philippines, Romania, Russia, Somalia, Sudan, Uruguay, Vietnam, Zimbabwe.
At highest risk
The Gartner Group identifies Russia as most at risk, followed by India, then by a group of countries including Venezuela, Norway, Japan, Taiwan and Finland.
National
US banks prepared
Ninety-nine percent of the nation's federal insured banks, thrifts and credit unions have completed their preparations for Y2K, and have completed their testing, according to federal regulators.
EPA waives penalties for problems resulting from Y2K testing
In an effort to encourage companies to test their environmental systems, the EPA's Enforcement Policy, 64 Fed.Reg. 46 (March 10), will waive 100% of civil penalties and recommend against criminal prosecutions for environmental violations caused during Y2K testing.
SEC will close unprepared brokerage firms
Beginning December 1, the SEC will bring legal action against any brokerage houses that are unprepared for Y2K. The firms have until November 15 to prove they are ready.
FAA on air safety
While the FAA has succeeded in ensuring air traffic control functions will not be disrupted, risks remain in areas such as jetway security systems and runway lighting. Expect air travel delays.
State
Only Iowa, Nebraska and North Dakota have completely tested their computer systems and are ready to face the new year without fear, according to a recent report by the General Accounting Office. While all 50 states have a plan in place, about 14 states have a deadline of October or later to be fully ready. Most likely are disruptions in the delivery of unemployment insurance and other benefits. Of great concern are local "911" emergency systems. In Illinois, Governor Ryan's chief technology officer reports that state agencies are about 85% compliant. See http://www.state.il.us/.
Illinois Insurance Department prohibits broad Y2K exclusions
The Illinois Department of Insurance earlier this year issued regulations prohibiting any blanket exclusionary endorsements to commercial policies which are not based on valid underwriting data. Since the Y2K problem has never happened before, there is no valid underwriting data. As a result, most Illinois insurers have been sending "surveys" to their clients asking in detail about their Y2K exposure. If the insurer does not renew the policy, it must comply with section 143.17a of the Illinois Insurance Code, or the non-renewal will be invalid. If it offers to renew, but attaches a Y2K exclusionary endorsement, or increases the deductible, it must likewise comply with section 143.17a. Failure to comply results in a renewal on the old terms. See the department's website at http://www.state.il.us/INS/ .
Illinois Y2K legislation protects banks, consumers
In the only substantive Illinois legislation yet to be passed concerning Y2K, Public Act 91-0645, effective immediately, creates the Illinois Financial Institutions Year 2000 Safety and Soundness Act, which provides, among other things, that someone injured by the bank's Y2K failure must allow 60 days for the bank to resolve the claim before bringing an Acton. The Act also requires the bank to waive late fees, and to delay by 30 days actions to collect debts from consumers whose default is caused by Y2K problems of third parties. In addition, such institutions are not liable for Y2K damages to persons not in privity. The Act can be found in its entirety at http://legis.state.il.us/ publicats/pubact91/acts/91-0645.html
State Y2K legislation
For a complete list of state legislation and pending bills on Y2K, go to a website sponsored by Chicago law firm McDermott, Will & Emery at http://mwe.com/y2k/legislat.htm .
Local
Chicago not yet ready
The General Accounting Office in August listed Chicago as one of 10 major US cities that won't be fully prepared for Y2K until the final quarter of 1999. Chicago joins Los Angeles, Phoenix, Detroit, Baltimore, San Francisco, Washington and others. Barrett Murphy, a Y2K coordinator for the city of Chicago, said most of the city's work on Y2K will be completed by September 30, as planned. About 200 personal computers will not be replaced until mid-October, however, but that still gives the city plenty of time to test systems before December 31.
Utilities
Meanwhile, state and local government officials and representatives of the Chicago area's major utilities met recently, and delivered the following message: "We're ready, but you should prepare for some disruptions." One spokesman suggested Chicago residents prepare as they might for a blizzard. Speakers at the conference advised people to store flashlights and a few days worth of food and prescription medicines, and to keep the car's gas tank at least half filled with gas. Commonwealth Edison was reportedly ready for Y2K as of June 30. Nicor Gas advises that its eight separate gas pipelines feeding its local system mean any catastrophic failure is unlikely. Ameritech has reportedly been ready in its mission-critical systems since April. However, Ameritech is joining federal officials in recommending that users try to stay off the phone on New Year's Day.
Y2K bug in some court computers
As of July, most of Cook County's Circuit Court computers were prepared for Y2K, but officials were concerned that the Criminal Division and suburban traffic court computers wouldn't be ready by year's end. Court officials and law enforcement agencies rely heavily on the computerized court docket, Criminal Division Presiding Judge Thomas R. Fitzgerald said. Part of the problem was that in addition to obtaining and installing the new computer software programs, personnel in the Clerk's office had to be trained on the new systems, which was going to take some time. A target date for readiness was September 1, 1999. That date has now been moved back to November 1, according to Catherine A. Maras, the County's Chief Information Officer.
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Author: Ms. Cunningham is the principal of Cunningham & Colleagues, P.C., www.bzlaw.com, in Barrington, IL, where she practices business law. She writes a monthly business law column for Illinois lawyers, at www.iicle.com, and is a frequent speaker and writer on business law topics for IICLE, the ISBA and the Chicago Daily Law Bulletin. She can be reached at cunning@bzlaw.com .
What you think you know could hurt you: Myths about the Year 2000 problem
By Annie E. Thar
Myth No. 1: "I don't have any Year 2000 concerns because I just use my computer for word processing and I have a paper calendaring system."
Comment: Many of the word processing programs currently in use by lawyers are not fully Year-2000 compliant. Could your law practice survive long if your system crashed, taking with it all of the documents you regularly use, such as sample complaints, wills, and real estate closing checklists? In addition, you need to check for Y2K problems in other places in your office.
Myth No. 2: "I purchased all new computer equipment for my law office last month so I don't have a Year 2000 problem."
Comment: Even if you have new equipment, it may not matter if you have installed old programs onto the new system. Your old data may itself be a problem if it lacks four-digit dates. Furthermore, the computer that you recently purchased may not be Year-2000 compliant. Most new computer systems come with pre-installed software and there is no guarantee that the software is compliant.
Myth No. 3: "I have been inputting dates beyond January 1, 2000 into my system for several months so I know that my software and hardware is Year-2000 compliant."
Comment: Just because your system appears to be accepting dates into the Year 2000 and beyond, does not mean that your system is compliant. It still may not work on January 1, 2000. For example, it may make hidden incorrect calculations that you won't see.
Myth No. 4: "If I wait until the middle of 1999 to purchase a new computer, I can get the most advanced Year 2000-compliant system available on the market."
Comment: Don't delay in updating or replacing your systems. First, experts are predicting that there will be shortages of Year-2000 compliant products at some point in 1999. Second, conversion, testing, and training all require time. By purchasing compliant products now, you can tackle conversion, testing and training at your own pace. Third, if you need the assistance of a computer consultant in converting to a new system, you may find that the consultants are harder to obtain as the year goes on.
Myth No. 5: "I don't need a disaster recovery plan for my office because I tested all of my computer equipment and it is Year 2000 compliant."
Comment: Under the best case scenario, that may be true. But what if the Y2K problem doesn't come from your computer? What if, as predicted by some experts, there are widespread power failures? That Y2K-compliant computer won't do you any good without electricity. Similarly, what if your two-year-old voice mail system shuts down your ability to receive or make telephone calls? Or your building's security system goes haywire and you are locked out of your office?
Myth No. 6: "Some genius will come up with a universal fix for the Year 2000 problem in the next year."
Comment: Although the crux of the Year 2000 problem is simple (programs and embedded chips that record a year by its last two digits), the solutions are infinitely complex for two reasons. First, there are billions of lines of programming that must be rewritten to handle dates in the year 2000. Programming is a creative endeavor and therefore no one fix will apply to all programs. Thus, programmers are using a myriad of different fixes to solve the same problem.
Second, even if the programming hurdles could be overcome, it would literally be impossible to replace all of the embedded chips in every product from fax machines to traffic lights by January 1, 2000. Each embedded chip contains its own internal clock. The question is what will happen to these products when their clocks turn over to 1-1-00. In many cases, the change will not adversely affect the product. In other cases, the result could be range from a minor malfunction to total shutdown.
Reality: No one knows for sure what the impact of the Year 2000 problem will ultimately be. In light of the uncertainties, we strongly suggest taking the prudent approach: test all of your computer systems; verify whether other office equipment and vital building services are Y2K compliant; and devise a disaster recovery plan.
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DISCLAIMER: This material includes recommendations designed to reduce the likelihood of being sued for legal malpractice. It is not the intent of these materials to suggest or establish practice standards or standards of care applicable to a lawyer's performance in any given situation. Rather, the sole purpose of these materials is to assist lawyers in avoiding legal malpractice claims, including meritless and frivolous claims. To that end, the intention is to advise lawyers to conduct their practice in a manner that is well above the accepted norm and standards of care established by substantive legal malpractice law. The recommendations contained in these materials are not necessarily appropriate for every lawyer or law firm and do not represent a complete analysis of Year 2000 issues.
© 1999, Illinois State Bar Association Mutual Insurance Company. All rights reserved. 3-1-99
Author: Annie E. Thar is Vice-President and General Counsel of the Illinois State Bar Association Mutual Insurance Company www.isbamic.com . She received her undergraduate degree from Mount Holyoke College in South Hadley, Massachusetts in 1979 and her law degree from Northwestern University School of Law in 1983. Before joining ISBA Mutual, Ms. Thar practiced privately for several years, primarily at Hopkins & Sutter. Ms. Thar concentrated her practice at Hopkins & Sutter in insurance and corporate law, and was instrumental in the formation of ISBA Mutual. She is a prolific speaker and author on malpractice avoidance.
Federal Y2K legislation signed into law
By Thomas D. Lupo
Just six months before the eve of the Year 2000, President Clinton has signed comprehensive Y2K-related legislation that will govern various aspects of expected Y2K litigation. Identical bills passed the respective Houses of Congress with strong support at a time when the pendency of the much-feared Y2K bug looms ever closer, and American business more strenuously seeks guidance, if not protection. The bill was signed by the President in July, 1999, H.R. 775, <http://thomas.loc.gov/cgi-bin/query/D?c106:5:./temp/~c10631ZkL1::> (H.R. 775, if moved, can later be located at <http://thomas.loc.gov>).
Sponsors claim that Congress bears a responsibility to help solve Y2K problems and to limit the potential explosion of litigation and frivolous lawsuits. Critics charge that the legislation sells out consumers and small businesses in favor of high-tech and other business interests. White House spokesman Jake Siewert emphasized that the legislation is critical to meeting national priorities and is narrowly tailored to deal with potential Y2K litigation issues, calling the Y2K problem unique and unprecedented.
The Year 2000 Readiness and Responsibility Act
Bearing the short title "Year 2000 Readiness and Responsibility Act" and a popular title of "Y2K Dispute Resolution", the Act establishes procedures to be used in civil actions brought for damages relating to the Y2K computer bug. Most prominent among the Act's provisions is a 90-day period to allow a party to fix Y2K problems before litigation is filed. The Act includes various prompts toward mediation, proportionate liability standards and caps on punitive damages for small businesses. It also narrows the range of class actions and limits liability to actual damages in many circumstances.
Applicability--The Act applies broadly to any Y2K action filed after January 1, 1999 for a Y2K failure occurring before January 1, 2003. The Act does not apply to claims for personal injury or wrongful death.
Contract terms enforceable--Section four essentially makes enforceable all written contract terms, including liability limitations and warranty disclaimers. A defendant also would be permitted to present evidence of a "Y2K upset" as a complete defense. A Y2K upset is defined as an exceptional incident involving temporary noncompliance with applicable federally enforceable measurements or reporting requirement that is beyond the reasonable control of the defendant. The defendant will be required to demonstrate a good faith effort to remediate the problem. It also will need to establish that it occurred as a result of a Y2K system failure, that noncompliance was unavoidable, and that it provided notice of the failure to the regulatory authority within 72 hours. Finally, section four prohibits adverse actions relative to mortgages, credit histories, utility, banking and other transactions related to actual or potential Y2K failures.
Punitive damages limited--Section five limits punitive damages awards against most small businesses to the lesser of three times the awarded amount or $250,000.
Proportionate liability--Section six sets forth a relative and proportionate liability scheme, with the trier of fact to make specific findings. A specific intent to injure or to knowingly commit fraud would expose a defendant to joint and several liability. A defendant settling prior to a final verdict or judgment will receive a bar order from the court constituting a final discharge of all obligations to the settling plaintiff.
Pre-suit notice, alternative dispute resolution required--Section seven requires a prospective plaintiff to provide a detailed pre-litigation notice to a potential defendant, specifying the problems encountered, harm or loss allegedly suffered and the remedy being requested. Each prospective defendant must within 30 days send a written acknowledgment of receipt, describing current or contemplated actions and stating whether the prospective defendant is willing to engage in ADR. A responsive defendant is allowed 60 days to complete the proposed remedial action. The prospective defendant's statement will not be admissible in evidence.
Complaint to state specific defects, damages--Section eight mandates that the complaint itself incorporate a statement of specific information as to the nature and amount of each element of damages and the factual basis for the damages calculation. The complaint must also specify the material defect in the product or service and contain facts supporting the allegation that the defendant acted with the required state of mind.
Compensatory damages limited--Sections nine and 12 place certain limitations on damages. The sections exclude compensation for damages that the plaintiff reasonably could have avoided in light of any disclosure or other reasonably available information. They also bar the recovery of damages for economic loss in a tort claim unless the recovery of such losses is provided for in the contract at issue or such losses resulted directly from damage to tangible personal or real property caused by the Y2K failure.
Class actions limited--Section 15 limits Y2K-related class actions. For example, in order to proceed as a class, the court must find that the alleged defective product or service is a material defect for the majority of the class members. Section 15 also permits the filing in or removal of such an action to a U.S. district court under certain circumstances.
Avoidance of penalties for first-time violators--Section 18 includes a directive that certain executive agencies with authority to impose civil penalties on small business concerns to establish and publish Y2K points of contact and prohibits the imposition of civil penalties for "first-time violations." These provisions apply, however, only if certain prerequisites such as good faith efforts can be demonstrated.
Defenses; special masters--The remaining provisions address various defenses including knowledge thresholds, lack of privity, impossibility, commercial impractibility and recklessly disregarding a known and substantial risk. The Act also authorizes any U.S. district court in which a Y2K action is pending to appoint a special master or magistrate judge to hear the matter and make findings of fact and conclusions of law in accordance with FRCP 53.
Effective for three years only--Some commentators warn that components of this legislation are merely business' latest attempt to institute tort and litigation reform. Specifically, consumer groups have voiced their concerns that the Act serves as a further step toward protecting businesses from product liability claims. In partial response to such criticism, the Senate sponsors included language limiting the legislation to three years.
The Year 2000 Information and Readiness Disclosure Act
In addition to the federal legislation discussed above, on October 19, 1998, President Clinton signed into law the "Year 2000 Information and Readiness Disclosure Act." <http://thomas.loc.gov>. The purpose of this legislation is to encourage open reporting and the exchange of information necessary to resolving Y2K problems. The legislation is described elsewhere in this newsletter, in more detail, with descriptions and links to various sections.
In brief, The Disclosure Act protects Year 2000 Readiness Disclosure Statements from admissibility in "covered actions." In any covered action, the plaintiff bears the burden of proving that the Readiness Disclosure Statement was material, deliberately misleading and/or made with intent to deceive or with reckless disregard for the truth. It creates a specific anti-trust exemption for Y2K preparation activities and establishes an Internet site containing information and links to the latest solutions for consumers, small businesses and local governments. The Disclosure Act allows companies and organizations to share information on how to best prepare for expected computer glitches with a lessened fear of lawsuits.
Small Business Year 2000 Readiness Act
On April 5, 1999, President Clinton signed the "Small Business Year 2000 Readiness Act. <http://thomas.loc.gov/ cgi-bin/query/D?c106:4:./temp/~c1062ZHWu3::> This Small Business Act provides a pilot loan guarantee program to support small business' efforts to address Y2K problems. The bill amends the Small Business Act, 15 U.S.C. 636(a), with the loan guarantee program for the upgrade and repair of IT systems, consulting and third-party services. The guarantees apply various protections to loan amounts up to $1,000,000.