Y2K: Prepare for Major Losses if Y2K Meltdown Happens, Bankers Warned - Industry Trend or Event

Edge: Work-Group Computing Report, Nov 2, 1998

If a solution is not found to the Y2K problem, banks will suffer enormous losses, the International Bankers Association in California was told in Carlsbad, CA last week. Litigation expenses will represent a major portion of the anticipated $1 trillion in losses that are anticipated if the computer meltdown occurs, said lawyer John Hosack, a partner of Arter & Hadden.

Infrastructural elements of bank facilities (gas, electricity, elevators, etc.) controlled by computers as well as computers themselves are required to be Y2K complaint to avoid, or at least mitigate, litigation instituted by customers, Hosack noted. "Substantial insurance claims also should be anticipated by all banks," he added, emphasizing that D&O (directors and officers) liability coverage should receive particular scrutiny. Moreover, he warned, some Y2K claims may also be brought against information systems personnel within the bank. "The importance of insurance coverage cannot be overstated," declared Hosack. All banks will confront potential liabilities to their customers, depositors, borrowers, shareholders and other third parties. However, he pointed out, "banks may have rights of recovery against third parties -- particularly manufacturers and vendors who sold the products that were not Y2K complaint." No matter how well an institution prepares for Y2K problems, they can expect the unexpected to occur, Hosack said. "Thus, crisis management plans should be an integral part of preparing for Y2K," he said. Established in 1843, Arter & Hadden LLP is a national law firm with more than 440 attorneys in 23 practice groups covering all substantive areas of litigation and business law. The firm has offices in Cleveland, Columbus, and Dayton, Ohio; Austin, Dallas and San Antonio, Texas; Irvine, Los Angeles, San Diego, Sacramento, San Francisco and Woodland Hills, Calif.; and Washington, D.C.