Y2K CAN MEAN MORE PREMIUMS: ATTORNEY

Underwriters should view the Year 2000 problem as an opportunity to cover some of the risks the problem presents for additional premiums, an attorney says.

Underwriters should now be devising a plan for Year 2000 risks and "writing back" into their policies some of those risks, according to Michael Furman, a London-based partner in the law firm of Wilson, Elser, Moskowitz, Edelman & Dicker.

"An army of plaintiffs' lawyers is now armed and ready" to do battle over Year 2000-related claims, Mr. Furman said during a forum on the Millennium Bug at the International Union of Marine Insurers' conference in Lisbon, Portugal.

Arguments by insurers over such issues as whether or not Year 2000 losses are fortuitous or whether or not computerized data is a tangible asset mean that coverage litigation over the matter could reach the magnitude of asbestos and pollution disputes, Mr. Furman warned.

Several marine insurance groups are already working on Year 2000-related policy wordings. In addition, some are offering to write back some coverage into policies after certain exclusions are included and the applicant has demonstrated that it is Year 2000 compliant.

London market energy insurers are soon likely to issue a combined model Year 2000 exclusion and write-back clause.

Len Messenger, chairman of both the London market's joint rig committee and IUMI's energy and offshore committee, said a dedicated working party has been considering the clause for some time. It would offer London underwriters a choice of an absolute exclusion; an exclusion of any computer system-related remedial or modification costs; or a write-back facility based on listed perils, such as fire, explosion or impact with another vessel.

Mr. Messenger, an energy underwriter with Zurich Reinsurance (London) Ltd., said it would be up to individual energy underwriters to decide which, if any, of the Year 2000 clauses they choose to use. However, he said, given that the date change is a certainty and not a fortuitous event, he doesn't believe any underwriter will insure direct losses from Year 2000 computer problems.

But French marine insurers issued a statement at the conference claiming their recently published Year 2000 clause would offer policyholders coverage against risks associated with the date change.

The Assn. Francaise des Societes d'Assurances Transports said the clause covers the consequences of fortuitous failure or malfunction of electronic equipment, computer systems, programs and embedded systems arising from an electronic change of date. It is incorporated under all risks in the "French Marine Hull Insurance Policy for all Vessels."

A client seeking to have the clause inserted in its coverage first will have to complete a questionnaire on the remedial measures it has taken to be Year 2000-compliant. Thereafter, if the client makes a claim, the onus would be on the insurer to prove that the client did not take appropriate preventive measures.

Meanwhile, protection and indemnity clubs have no plans to introduce a Year 2000 exclusion, according to Nigel Carden, chairman of the ships' standards subcommittee of the International Group of P&I Clubs. But Mr. Carden said that P&I Clubs will expect their members to act as "prudent insureds" and to do all they can to be Year 2000-compliant. P&I clubs would reduce claims payments where they thought policyholders had not acted prudently to avoid losses, he said.

David Taylor, governmental affairs adviser to the Institute of London Underwriters, outlined Year 2000 practices being implemented by the London marine market. The Joint Hull Committee of the ILU and Lloyd's of London has proposed an exclusion to be used at underwriters' discretion providing coverage on a named-peril basis, though not for a complete computer system damaged by the Year 2000 problem. In August, the ILU/Lloyd's Joint Cargo Committee issued a cargo policy with a named-peril exclusion.