Successfull strategies for handling professional indemnity claims

United Kingdom

EUROFORUM - 16TH APRIL 1999

Highlighting the Liability of Professional Advisers
for Year 2000 Related Losses

Maxine Cupitt - Cameron McKenna

April 1999

1.Overview

With some 8 months only remaining to the year 2000, the extent of the disruption which will be caused by the so-called Year 2000 problem remains unclear. It appears unlikely, however, given the state of unreadiness of a large number of organisations, both in this country and internationally, that the transition will be trouble-free and, indeed, some problems are already being experienced.

Where there is disruption and loss, experience shows that claims against professional advisers will follow. This paper focuses on some important implications of the Year 2000 problem for those professional advisers.


2.The Context : What is the Year 2000 Problem?

The Year 2000 problem has received what amounts almost to saturation coverage in the press. What follows in this section, and at 3 below, is a brief summary of some of the key features of the problem which provide the context within which claims against professionals may arise.

The Year 2000 problem, also referred to as "Y2K", the "millennium bug" and the "date recognition problem", arises from the fact that, historically, many computer programmers, originally as a result of shortage and cost of computer memory space, used a two digit format to identify a given date; for example 1st January 2000 as 01.01.00.

It has been recognised that systems programmed in this way may, when dealing with dates shown as "00" onwards, misinterpret them as meaning the century 1900; alternatively, they may be interpreted as the year when the relevant program was written or, possibly, as an error message. Other problem dates include 29th February 2000, since Year 2000 is a leap year (and 1900 was not), and September 1999, since some programmers have used "9999" as shorthand to prompt the end of a program or to represent infinity.

Two digit programming has been adopted not only in systems immediately recognisable by the lay person as computer systems (for example office networks) but also in the programmed element of embedded systems which are used, among other things, in heavy plant and building management systems.


3.What might happen and when?

The primary difficulty being faced by all those seeking to assess the risks posed by the Year 2000 problem is that, even within the IT industry itself, no-one is able to predict with any certainty what will happen as a result of the Year 2000 problem. What can be stated with certainty, however, is that the Year 2000 problem is, in terms of its potential ramifications, very far from being an IT problem only.


What might happen

Examples of the potential ramifications of the problem include the following:


Office Systems:

The Year 2000 problem may lead to an office systems crash (or, potentially, the disruption of office systems without any visible sign of that disruption). In the absence of paper back-up this may result in loss of information for the period it takes to remedy the problem or, potentially, permanently. It may also lead to the circulation of incorrect information which may take some time to detect.


Embedded Systems:

As highlighted above, the function of computer systems is by no means confined to the provision of information and applications associated with office networks. The Year 2000 problem has the potential to disrupt or affect embedded systems in facilities as diverse as those set out in the following (non-exhaustive) list:

•Fire fighting systems

•Security and access systems

•Temperature and ventilation controls

•Power supplies

•Communication systems (including faxes and telephones)

•Bar code readers

•Lifts and escalators

•Nuclear installations

•Oil Rigs


Suppliers and Trading Partners:

Even where the systems of a particular business or organisation are themselves Year 2000 compliant, the non-compliance of a supplier or trading partner of that business or organisation could lead to disruption, as a result of failure of the supplier or trading partner to provide goods or services to the business or organisation, or simply to communicate with it.

When might it happen?

The potential impact of the problem is not limited to the change of date from 31st December 1999 to 1st January 2000.

Affected systems may begin to operate in an inappropriate way as soon as they are called upon to process affected dates, for example by way of forward projection, and may continue to do so, if undetected, well beyond 2000.

The Year 2000 problem has already led to the inappropriate command that food in a chain store should be discarded as past its sell-by date and there has been litigation in the USA, including a claim arising from the inability of point of sale card readers to process credit cards bearing dates beyond 1999.


4.How may claims arise against professionals?

While wholesale litigation is in no-one's interests, experience tells us that parties who have suffered loss or disruption to their businesses or organisations will almost certainly seek to lay off those losses where feasible. Professional advisers are obvious targets for such claims being required to exercise high standards and, generally, having insurance cover (although, as to this see 6 below). Claims may arise against professionals through the failure of their office systems, through the failure of systems of others, or as a result of the advice which they give.

Own Systems Malfunction

As highlighted at 3 above, where office systems are not Year 2000 compliant and where no back-up systems are available, the Year 2000 problem could lead to considerable disruption to a business. In the case of the professional, this may mean loss of data which may result in failure by the professional to give proper advice. Critical information held on the office systems of professionals, loss of which could result in liability to a client, may include:

•dates by which tax reliefs are to be claimed (Accountants)
•rent review dates (Surveyors)
•actuarial calculations/pension projections (Financial advisers)
•dates of expiry of limitation periods (Lawyers)
•policy renewal dates (Insurance brokers)

Failure of Systems of a Trading Partner/Supplier

The failure of the systems of a party with whom the professional does business, or by whom he is supplied, may also impact upon the ability of that professional to deliver the service he has agreed to provide and thus lead to a liability being incurred by the professional to the client (albeit that the professional may, in certain circumstances, be able to lay this liability off against the supplier).

An example of such a potential problem is failure of banking systems, resulting in the inability of the professional to transfer funds via the bank's systems. Such a failure could, potentially, lead to Solicitors being unable to complete conveyancing transactions, or to Surveyors failing to meet rent payment dates on behalf of commercial clients. While the bank may have a liability in such cases, where the client suffers loss the professional, with whom the client has a contractual relationship, is likely to be the client's first point of claim.

Year 2000 Specific Advice : Failure to provide appropriate advice sought explicitly by the client in relation to Year 2000 Issues

In some cases, professionals will be asked to advise upon the potential effects of the Year 2000 problem on their client's business or upon the implications of particular Year 2000 issues for that client.

If the advice which the professional gives is flawed he may, in the usual way, be pursued in breach of contract or negligence by the client. Examples of instances where such liabilities might arise include:-

•recommendation by a Computer Consultant of software which is said to be Year 2000 compliant but which is not.

•advice given by a Surveyor or Accountant during the creation or audit of a client's project to achieve Year 2000 compliance.

•advice given by a Surveyor in relation to the extent of a landlord client's obligations to ensure that buildings are unaffected by the Year 2000 problem.

•recommendation, by Insurance Brokers, of an inappropriate policy where Year 2000 cover was sought by the insured.

Non Year 2000 Specific Advice : Failure to take into account Year 2000 issues in the usual course of providing advice.

While professionals instructed to provide explicit advice in relation to Year 2000 issues face some obvious potential exposures, a danger of a different type lies in the area of the implicit obligations which a professional may have to give
Year 2000 related advice. Depending always upon the scope of his instructions, and in the absence of effective limitations or disclaimers, professionals may well be found to have obligations to take into account the potential impact of the
Year 2000 problem.

For example:

Where a Surveyor values a commercial property without taking into account the potential impact on the value of the property of Year 2000 failure of, say, the property's building management systems, the Surveyor may be found to have a liability to his client should the Year 2000 problem impact upon those systems, to the extent, for example, that the value of the property is significantly affected.

Where an Insurance Broker is instructed to obtain D&O cover for an insured and, without explaining the position to the insured, recommends cover which bears a Year 2000 exclusion, in circumstances where cover with no such exclusion is readily available in the market at a reasonable price, should the client suffer a Year 2000 loss which is excluded under the policy, he may well look to his broker for compensation.

Assume that an Accountant is asked to value a company in connection with a merger or acquisition and does not take into account the potential impact upon the value of that company of the Year 2000 problem. If the client, acting on the strength of the advice, acquires the company and its value is significantly detrimentally affected by the Year 2000 problem, the Accountant may be liable to his client in relation to the loss to his client arising from that loss in value.

A Lawyer acting in relation to acquisition of a company may, as part of his instructions, be expected to advise on the obtaining of warranties, for example as to the value of the target company. The Lawyer may be open to a claim by his client, should appropriate warranties not have been obtained in relation to Year 2000 issues and should the Year 2000 problem cause losses to his client.


5.Classes of Professionals exposed

The Year 2000 problem has the potential to affect any business using computers; both office systems and embedded software (see 3 above) and thus to impact upon virtually all business and public activities and, to a lesser extent, domestic activities. It follows that any professionals advising in relation to such activities may be vulnerable to Year 2000 related claims.

Computer Consultants :

Computer Consultants (and, depending upon their precise role, Management Consultants) are, potentially, the most directly exposed class of professionals, in that they may have written or advised upon the software to be used by a client for any given purpose. They may also have audited and/or reported upon Year 2000 compliance of given systems used by those organisations. Computer Consultants, in common with other professionals, may be vulnerable to claims, both in negligence and breach of contract. The date on which computer consultants became aware, or should have become aware, of the Year 2000 problem and should have advised clients of its implications, will be of particular relevance in the context of the duty of care owed by the computer consultant.

Auditors, and the other classes of professionals which follow can be described as indirectly (although, potentially, significantly) exposed.


Accountants in their audit function :

While the directors of a company have direct responsibility for ensuring that their businesses are not adversely affected by the Year 2000 problem, the company's auditors will have a responsibility to make enquiries to establish what steps a company has taken to deal with the problem and, in certain circumstances, where the auditor is not satisfied with the steps taken, it may be appropriate to qualify an audit. Where no such qualification is provided, in circumstances where the company's arrangements for Year 2000 are less than satisfactory, and where the company's financial position is subsequently affected by its failure to address the Year 2000 problem, parties relying upon the audited accounts of the company may be in a position to seek redress from the auditor.

Accountants in their advisory function :

Exposures faced by Accountants in their advisory function will include instances where they have advised as to value, in circumstances where the value turns out to be detrimentally affected by the Year 2000 problem (as to which see 4 above).

Insurance Brokers :

As highlighted at 4 above, Insurance Brokers will, for example, be vulnerable to claims where the failure of their own systems leads to non-renewal of policies. They will also be vulnerable where they accept, on behalf of their clients, limited or no cover for Year 2000 related losses, where cover is available elsewhere in the market, or where they otherwise advise their clients negligently in relation to Year 2000 issues; such as where they provide incorrect advice in relation to the scope of a Year 2000 exclusion.

Financial Advisers :

Financial Advisers are heavily reliant on forward projections and will, accordingly, be particularly vulnerable to claims arising from errors in their calculations caused by defects in their own systems.

Lawyers :

As noted at 4 above, Lawyers will be vulnerable to claims where, for example, their own systems failure leads to the missing of critical deadlines. They will also have exposure where their instructions implicitly require them to advise in relation to Year 2000 issues, for example, in framing preliminary enquiries in conveyancing transactions, and they fail to do so, or where they are expressly retained to advise in relation to Year 2000 issues and their advice is negligent; for example, where they include inappropriate Year 2000 warranties in computer contracts.


Surveyors/Valuers

As highlighted at 4 above, Surveyors will be vulnerable to claims resulting from failure of their own systems which results, for example, in failure to alert clients to rent review dates. They may be vulnerable to claims in relation to their negligent conduct in the context of explicit Year 2000 instructions, such as instructions to carry out a Year 2000 audit. They may also be vulnerable to claims arising where it is implicit in their instructions that they should be advising in relation to the impact of the Year 2000 problem but where they have failed to do so; for example when valuing a commercial property.


6.Year 2000 claims against Professionals : insurance issues

The nature of the Year 2000 problem; being at once novel, unquantifiable and broadly foreseeable, gives rise to a number of issues which are highly pertinent to the question of whether, and if so to what extent, insurance cover will be available to the professional in relation to any claims made against him. These issues include the following:-


Fortuity:

As a broad rule, insurance responds to risks and not certainties. The nature of the Year 2000 problem, if not the degree, is foreseeable and has been known about (at least by certain IT professionals) for some years.

First party losses:

In many cases it is within the power of businesses and other organisations, so far as first party losses (for example loss of documents as a result of computer failure) are concerned, either to prevent the impact of the Year 2000 problem entirely or to minimise that impact by replacing or altering non-compliant systems. It may be arguable, therefore, depending upon the precise circumstances of a particular loss, that the loss was certain to happen and therefore that the insurance does not respond (although see the case law below). It will, however, in practical terms be impossible to eradicate the risk of first party Year 2000 losses completely, even if the business or organisation is, itself, Year 2000 compliant, given its dependency on other business partners/suppliers who may not be compliant and in such instances there may be good arguments for saying that the loss was fortuitous.

Third Party claims:

Where the Year 2000 problem gives rise to a claim against a professional (rather than a first party loss), it may be easier for an argument to be raised on behalf of the professional that the ramifications of giving the advice, in particular the decision of the third party to claim, were entirely unforeseeable and the loss fortuitous.

In Prudential Insurance v Inland Revenue Commissioners [1904] 2KB 658 it was said, of the requirement for uncertainty in the context of insurance cover, that "there must be either uncertainty whether the event will happen or not, or, if the event is one which must happen at some time, there must be uncertainty as to the time at which it will happen".

The Court of Appeal decision in Soya v White GmbH (CA) 1982 1 LLR 122 made it clear that the question of uncertainty must be judged from the perspective of what the insured knew or should have known.

In summary, therefore, although the facts giving rise to any particular claim or loss would have to be looked at carefully to consider whether that claim or loss constituted an uncertain event to which the insurance will respond, it seems likely that many claims under professional indemnity policies, and particularly third party claims, will have the necessary element of fortuity, by virtue of the fact that it may be hard for an insurer to argue that the claim was bound to arise or, potentially, bound to arise at a certain time.


Non-disclosure:

Insurance contracts, being contracts of the utmost good faith, require the parties to the contract to disclose to one another all material facts which are, or ought to have been, known by that party which are material to the formation of the contract.

Following the line of case law including CTI v Oceanus (1984 Court of Appeal), Pan Atlantic v Pine Top (1994 House of Lords), St Paul's Fire & Marine v McConnell Dowell (1995 Court of Appeal) and Glencore International AG v Portman (1996 Court of Appeal), the position in relation to materiality is, in summary, that a material fact is one which would, on the balance of probabilities, be found to have influenced the judgment of the actual underwriter in deciding whether to enter into the contract or how to rate the risk.

An underwriter writing a particular class of business will be held to be conversant with the ordinary attributes of that type of risk but is only presumed to know what, in the ordinary course of his business as an underwriter, he ought to know. An underwriter cannot, in particular, be found to have waived his rights in relation to information he does not know exists. Waiver of rights can only arise where there has been a fair presentation of the risk and the presentation cannot be described as fair where there is silence as to material issues.

Should the obligation of disclosure be breached by the insured, the insurance contract is rendered voidable; that is insurers can elect to avoid the contract for non-disclosure. The draconian nature of this remedy has led various insurers, for commercial reasons, to include innocent non-disclosure clauses in their policies. Such clauses provide that insurers will not avoid a policy for non-disclosure where the insured can establish that the non-disclosure was made innocently. Professional indemnity policies frequently contain such clauses.

It is likely that the insured's potential exposure to the effects of the Year 2000 problem will be found material in the context of the insurance contract. In view of the level of press coverage given to the Year 2000 problem, there will rarely be grounds upon which the insured can claim that it was not aware of the problem or that the problem, in general terms, was not something of which it should have had knowledge.

Where the policy contains an innocent non-disclosure clause, it is for the insured to establish, where there has been non-disclosure, that the non-disclosure was innocent. This burden of proof will be increasingly hard for the insured to discharge as a result of the publicity which the Year 2000 problem has attracted. In light of the uncertainties as to the precise ramifications of the Year 2000 problem, on the other hand, the Courts may chose to treat the insured leniently within the framework of a given wording.


Warranties:

It is common for statements made in the proposal form, by which the contract of insurance is entered into, to be incorporated into the policy expressly as warranties. Breach of such a warranty discharges the insurer from all liabilities under the contract after the date of the breach and where a breach occurs, it is not necessary for the insurer to demonstrate that the warranty was material to the risk or, indeed, to the loss.

Many professional indemnity insurers have adopted, as part of their underwriting of Year 2000 risks, the practice of issuing tailor-made questionnaires seeking information in relation to the state of Year 2000 readiness of the insured's office systems and as to the type of advice being given. Where this information is given the status of warranties, and is untrue at the time that it was given, it follows that the insurer will be discharged from liability (see above).

By way of example, if a Surveyor stated in its proposal form, signed in June 1998, that it was not giving, and had not previously given, express Year 2000 advice, but the Surveyor subsequently sought indemnity in respect of a claim in relation to its project management role in a client's Year 2000 compliance project, arising from the surveyor's activities in May 1998, this would be likely to represent a breach of that warranty with the result that the insurers might not be obliged to provide cover, either in relation to that loss or (since breach of warranty discharges the insurer from all liabilities under the contract from the date of the breach) to any other claims arising under the policy.


Exclusions:

Tailor-made Year 2000 Exclusions

Given that it is impossible to quantify the potential losses which might arise from the Year 2000 problem, and thus it is impossible for insurers to arrive at a level of premium to take account of Year 2000 risks, a number of insurers have chosen to apply exclusions in relation to Year 2000 claims/losses.

Professional indemnity insurers have, in some circumstances, adopted the route of selective underwriting in order to distinguish between those insureds who they consider have addressed the risks represented by the Year 2000 problem responsibly and those who have not and, in some cases, to identify insureds who, by the nature of their businesses, represent a greater or lesser insurance risk. These professional indemnity insurers may then use this information in order to determine whether to apply exclusions.

Professional bodies representing the interests of a given profession have, in various instances, agreed with insurers that Year 2000 exclusions may be applied. The ICA have, for instance, allowed application of a blanket Year 2000 exclusion in the context of the ICA Approved Wording, on the basis that it is not to be imposed by insurers unless there has been selective underwriting, and Year 2000 exclusions are being applied to a number of Surveyors' policies. It has been decided, on the other hand, that the Solicitors Indemnity Fund will, for the time being, not apply Year 2000 exclusions to Solicitors' primary layer of cover.

In common with other exclusions, Year 2000 exclusions will be construed against the drafter, where there is any ambiguity as to the intention of the exclusion.

Non Year 2000 - specific exclusions

Even where there is no tailor-made Year 2000 exclusion, existing exclusions will be relevant in determining the cover available in relation to Year 2000 losses. Most professional indemnity policies, for example, contain an exclusion in relation to claims for death, bodily injury or damage to property and where such claims arise in the context of the Year 2000 problem, they will, in any event, be excluded under the policy.

As always, there will be no substitute for a close reading of the policy wording.


Year 2000 Sub-Limits

Insurers wishing to underwrite Year 2000 risks without blanket exclusions, but to contain their exposure, may employ Year 2000 sub-limits which may restrict indemnity for Year 2000 losses at a significantly lower level than the limit of indemnity otherwise applicable. It will be for the insurer seeking to apply the Year 2000 sub-limit, in any given case, to demonstrate that the loss is Year 2000 related. This may give rise to various difficult issues of causation, as to which see 7 below.


Retroactive Dates

Another way in which Insurers may seek to limit their Year 2000 exposure, while continuing to underwrite risks in the absence of Year 2000 exclusions, is to apply retroactive dates which limit professional indemnity cover, which is claims made, to acts or omissions committed after a particular date. Such retroactive dates may, for instance, be calculated to accord with a date by which it is reasonable to assume that most professionals will have been aware of the Year 2000 problem and, potentially, its dangers to them.


Blanket Notifications

Many professional indemnity policies contain clauses providing for notification of circumstances, coupled with a "deeming provision", which provides that where a notification of circumstances is made in accordance with the notice provisions under the policy, any subsequent claim arising in relation to that notification will be covered by the policy for the year in which the notification of circumstances is made.

If the policy current when the claim is made bears a Year 2000 exclusion, whereas the policy current when the notification was made does not, the issue of which policy year properly responds to the claim will clearly be extremely important.

The requirements for notification of circumstances and, it follows, entitlement to the benefit of the deeming clause, differ. Some policies, for example, require notification of circumstances "which may give rise to a claim", whereas others require notification of circumstances which are "likely to give rise to a claim".

Case law on what constitutes a valid notification of circumstances is scant and turns, to a significant degree, on the facts of any given case. However, the following authorities provide some assistance:

Home Insurance Co. -v- Cooper & Cooper (1989): this case provided that a notification of claims in relation to every matter ever handled by the insured had no effect and was merely vexatious. (While this case has only the status of a persuasive authority in this jurisdiction, being a US decision, it is widely cited as an example of what cannot constitute a notification).

BNP Mortgages -v- Page & Wells and Sun Alliance (1994):The court held in this case that, on the wording of the policy, the Insured's obligation was to inform insurers of the circumstances which might produce a claim, not the particular claim which in the event transpired.

Hamptons Residential Ltd v Field & Others (CA) 22.5.98: The Court of Appeal found, in this case, that while only one potential claimant had been referred to in a notification concerning a dishonest employee, the notification was broad enough to encompass a subsequent claim by another claimant. Hirst LJ stated that "in the case of a dishonest employee, it surely goes without saying that there may be further hidden ramifications beyond the original discovery of fraud".

Layher -v- Lowe (1996): the Court of Appeal held in this case that where the insured were under an obligation to notify "any occurrence likely to give rise to a claim", "likely" meant at least a 50% chance of such a claim.

Rothschild -v- Collyear (1998): in this recent case Rix J. considered the wording "may give rise to a claim". He concluded that this was a weak test of materiality and that there was not "any justification for demanding too much of the test that the notified circumstances "may" give rise to a claim."

In reaching his decision Rix J. considered the fundamental nature of a claims made insurance contract and his conclusions appear to have been motivated, in some significant part, by public policy considerations. He commented that a narrow interpretation could well lead to the position that "by the time that a claim came to be made, it is quite likely that it would have become impossible to obtain cover for it, either at all or on only prohibitive terms". This comment is particularly pertinent where a later policy contains a Year 2000 exclusion and the earlier does not.


7.Defending a Year 2000 claim: some practical issues.

Recognition and Causation

An important issue facing claims handlers will be to recognise whether any given claim is, in fact, a Year 2000 related claim. Solicitors and claims handlers initially retained to consider policy issues will need to identify Year 2000 claims in order to advise on insurance issues such as those identified at 6 above. Solicitors handling the defence of a claim will also need to identify the claim as a Year 2000 related claim in order fully to assess and advise upon the issues and the responsibility of his client and in order to consider joinder of other parties, such as computer consultants who may have advised on the software at the root of the problem.

In some instances a claim may be readily identifiable as a Year 2000 claim; for example where a computer consultant has advised the use of software which leads to a systems crash on 1st January 2000 and which, on investigation, is immediately found to be Year 2000 non-compliant. Other instances may be less clear; for example, where an accountant values a company which, shortly after 2000, suffers severe financial difficulties and where the company appears not to have achieved Year 2000 compliance. Here the loss could arise from non-compliant systems or, for instance, as the result of bad management, or both.

Where a given loss is caused by a number of different factors, the Year 2000 problem being just one of these, there is existing case law to determine whether the insurance cover will respond. Where there is more than one proximate cause of the loss leading to the claim and only one of the causes is covered under the policy but none is excluded, the claim will be covered (Capel-Cure Myers Capital Management Co Ltd -v- Richard Justin McCarthy & Ors QBD 8.10.93). On the other hand, where one of the causes (here the Year 2000 problem) is expressly excluded, the claim will be excluded in its entirety (Wayne Tank & Pump Co Ltd -v- Employers Liability Assurance Corp Ltd (CA) 1974 AB57).

Solicitors and claims handlers could usefully adopt a checklist or addition to their reporting format, in the period from now until a date well after year 2000, which requires consideration, as a matter of course, of whether any Year 2000 issues arise in the context of the claim.


Establishing the facts and preserving evidence

In order to determine, first, whether he is dealing with a Year 2000 claim and, second, to consider the potential liabilities of the professional and any other parties involved, it will be important for the solicitor/claims handler to establish the facts as swiftly as possible. For example, where a claim is made against a computer consultant, was that computer consultant the only one to recommend the software which the claimant is using or was additional advice or programming provided by another computer consultant or, indeed, was programming undertaken by the claimant itself?

Having established the facts, steps should then be taken, as swiftly as possible, to preserve the evidence underlying those facts.


Identifying the issues and protecting rights of subrogation

Once the facts have been established, the solicitor/claims handler will be able to begin to identify the issues and assess the responsibilities of the parties. Is this a Year 2000 related claim at all? Does the professional client have any liability? If so, is there another party who should share that liability? Should another party be joined? Could the claimant have been contributorily negligent?


Expert evidence

Technical

The IT issues underlying Year 2000 claims are likely to be highly technical. It will therefore be extremely desirable that the solicitor/claims handler involves an appropriate expert from an early stage, wherever practical and financial constraints allow.

A good expert involved early will not only assist the solicitor/claims handler to understand the IT elements of the claim but will be of assistance in clarifying the facts and identifying the issues.

With the advent of Woolf, however, it is important to recognise that the Courts may very well require a single expert to be retained for the purposes of proceedings, who is instructed by all parties. The opposing solicitor may well not accept an expert previously instructed by you, and the benefit of early instruction of an expert to advise on the case, must accordingly be balanced with the commercial and practical implications of the fact that a further expert may need to be retained, at a later stage, to prepare a report for the Court. (The impact of the Woolf regime has been considered in some detail by the previous speaker).

As is the case when retaining any expert, the solicitor/claims handler will need to check the expert's credentials carefully to ensure that he has applicable expertise and to obtain references, evidence of previous track record as an expert, level of fees and, where possible, personal recommendations.

Solicitors/claims handlers dealing with Year 2000 claims should, if they have not already done so, develop a library of potential experts which they can call upon swiftly when they are instructed in relation to a claim.

Legal

As highlighted above, a number of technical legal issues are likely to arise in the handling of a Year 2000 related claim. The solicitor may, for example, be required to advise on issues such as fortuity, applicability of exclusions and whether the claim under consideration is, in fact, a Year 2000 related claim at all. For this reason, the solicitor acting will, in addition to an expertise in the handling of professional indemnity claims, need to have a good grasp of the types of issues which may arise in the context of handling Year 2000 claims.

Other

As is the case with any other claim, the solicitor will need to consider what other expert evidence may be required; for example, in the case of a Year 2000 related claim against an insurance broker, evidence may well be required from a broking expert. Once again, the instruction of additional experts must be approached with caution in the context of the new Woolf regime.


8.Can arbitration or mediation help?

Where all parties to a dispute are willing to seek an alternative to litigation (or where, in the case of arbitration, provision is made in a contract for the option of arbitration), arbitration and alternative dispute resolution, in particular, mediation, will have an important role to play in the resolution of Year 2000 disputes; whether the dispute is between insurer and insured in relation to policy coverage issues, or in relation to the underlying substantive issues in the dispute. A number of organisations for alternative dispute resolution are actively preparing themselves to offer mediation of Year 2000 claims.

Advantages of using arbitration or alternative dispute resolution include:

•Relevant expertise of the arbitrator or mediator

The parties will be able to agree upon appointment of an arbitrator or mediator who has the appropriate technical expertise (or combinations of expertise), and is, therefore, able to grasp what may be highly technical issues in dispute between the parties


Speed

If there is a glut of Year 2000 related litigation, this may have the effect of clogging the Court system, with the result that the parties are unable to obtain a ruling on the dispute and move on. Depending always upon the number of claims being mediated, and the availability of appropriate mediators, the parties may be able to bypass this blockage by the route of mediation, which is itself a swifter process than formal litigation. Arbitration can also represent a shortcut to formal litigation.

Costs saving

Both mediation and arbitration can prove significantly less expensive than formal litigation.

Avoiding precedents

It is likely, if they are faced with a large volume of claims, that the Courts will be keen to set precedents by which subsequent claims can then be determined. Various parties involved in Year 2000 disputes may, on the other hand, be reluctant for such precedents to be set; for example, the insurer of a particular class of professional may be reluctant for a precedent to be set as to standards of care owed by that professional in circumstances concerning a Year 2000 related claim. Arbitration and alternative dispute resolution have the virtue of allowing a solution to be reached in the dispute without the need for a binding precedent to be set.

Cameron McKenna
April 1999
BIOGRAPHY

Maxine Cupitt is a Senior Solicitor in Cameron McKenna's Insurance and Reinsurance Group.

Maxine has, for many years, handled Professional Indemnity claims on behalf of insureds and insurers and advised on policy coverage issues in relation to Professional Indemnity Policies.

Maxine's particular specialisation is in computer-related insurance issues. She has advised the Association of British Insurers on issues arising from the Year 2000 problem and was a co-author, with the RICS, of "Beating the Bug" the RICS guidance on Year 2000 issues published in January 1999.