"Insurers are notifying small-business customers that they're not covered for any losses caused by Y2K problems," says Patricia Bennett, a small-business contingency-planning consultant based in Cherry Hill, N.J. But if you're willing to pay a higher premium, she adds, "you can buy tightly written Y2K liability coverage."
Vic Sanders, senior vice presi dent of the Rust Insurance Agency in Washington, D.C., says his agency offers specialty liability coverage on a selective basis. For small companies that are thoroughly prepared for Y2K, a year's coverage can cost about $2,500. But for companies that are not well-prepared, the premium can be $10,000 or more. Coverage does not include business interruptions attributable to Y2K problems. To qualify for Y2K coverage, Sanders says, you have to jump through a lot of hoops. "Acceptance," he says, "is based on an underwriter's review of a very detailed, five-to-10-page application form." Such applications typically ask what percentage of your total operations involve activities such as data processing, customsoftware development, and support services.
At Media Professional Insurance Co. in Kansas City, Mo., companies that satisfy the underwriters can purchase an "errorsand-omissions" policy written for service companies such as direct-mailers, funeral directors, travel agencies, brokers, publicrelations firms, and research laboratories. The errors-and-omissions policy may be adapted "to include such firms as those in the computer business whose errors might have created Y2K problems for, say, a grocery store's inventory and cashier system that crashes," says Chad Melton, a senior vice president at Media Professional. The company also insures businesses whose Y2K remediation work for others might not measure up on Jan. 1.
Media Professional and other insurers are quick to note that they are not selling policies that cover Y2K liability exclusively. Instead, they are including some Y2K coverage in packages that insure against more-traditional types of risks. Another type of Y2K insurance—separate from general business coverage—is designed to protect directors and officers against claims alleging failure to achieve or properly disclose Y2K compliance. One such policy is D&O Gold from the American International Group, based in New York City. Applicants must fill out a 10-page form on potential Y2K exposure and compliance efforts.
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