Response in the US to Y2K Litigation issues
Aaron Wilmot
October 31, 2008
While many analysts commented on the potential side effects that the Y2K problem could potentially have on everyday life, a rather broad consensus emerged that a large volume of undesirable and counter-productive litigation would result. Con¬sequently, in the United States resolving the Y2K issue necessarily encompassed taking into account the anticipated legal consequences arising from the problem. Congress responded by enacting the "Y2K Act".
Under certain circumstances the Act imposes severe limitations on a plaintiff's ability to prosecute claims predicated upon inten¬tional conduct, causes of action for fraud for example. In order to pursue such legal theories the plaintiff must prove that the defendant had actual knowledge or recklessly disregarded a known and substantial risk of a Y2K failure. More importantly, limitations are imposed on the damages that can be recovered. Claims for breach of contract are strictly limited to damages recov¬erable under the express terms of the parties' agree¬ment. Punitive damages can only be recovered based on clear and convincing evidence that the defendant's conduct meets the applicable stand¬ard. Moreover, such damages cannot exceed three times the plaintiff's compensatory damages or $250,000, whichever is less. Finally, a defendant can only be held liable for that portion of the plaintiff's damages that is attributable to the defendant's conduct. In other words the rule of joint and several liability does not apply. More details can be found at the Economic & Business News Blog
The Y2K Act coupled with the absence of any major or widespread Y2K failures has kept litiga¬tion in check. One area that has not been im¬pacted is insurance litigation. While there are no published appellate decisions addressing whether the Act applies to coverage claims involv¬ing remediation costs, at least one lower court has held that the legislation does not because insurance litigation does not involve damage directly resulting from a Y2K failure.4 Thus, determining who pays for the Y2K fix will likely not be impacted by the legislation.
Under certain circumstances the Act imposes severe limitations on a plaintiff's ability to prosecute claims predicated upon inten¬tional conduct, causes of action for fraud for example. In order to pursue such legal theories the plaintiff must prove that the defendant had actual knowledge or recklessly disregarded a known and substantial risk of a Y2K failure. More importantly, limitations are imposed on the damages that can be recovered. Claims for breach of contract are strictly limited to damages recov¬erable under the express terms of the parties' agree¬ment. Punitive damages can only be recovered based on clear and convincing evidence that the defendant's conduct meets the applicable stand¬ard. Moreover, such damages cannot exceed three times the plaintiff's compensatory damages or $250,000, whichever is less. Finally, a defendant can only be held liable for that portion of the plaintiff's damages that is attributable to the defendant's conduct. In other words the rule of joint and several liability does not apply. More details can be found at the Economic & Business News Blog
The Y2K Act coupled with the absence of any major or widespread Y2K failures has kept litiga¬tion in check. One area that has not been im¬pacted is insurance litigation. While there are no published appellate decisions addressing whether the Act applies to coverage claims involv¬ing remediation costs, at least one lower court has held that the legislation does not because insurance litigation does not involve damage directly resulting from a Y2K failure.4 Thus, determining who pays for the Y2K fix will likely not be impacted by the legislation.
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