What will happen at your facility when the clock strikes 12:01 a.m. on Jan. 1, 2000? What if pollution controls fail? What if a leak goes undetected? What if valuable environmental compliance records stored in computer files are lost forever? The "what if" year 2000 (Y2K) scenarios are plentiful.
The waste industry is as vulnerable as any industry to problems that may result from Y2K incompatible computer systems. A recent report released by the Environmental Defense Fund, a New York-based environmental group, outlines the potential for environmental damages posed by a Y2K computer glitch. Polluted drinking water, undetected leaks, unplanned wastewater treatment plant discharges, blackouts and nuclear disasters are among the potential problems cited by the organization.
Fortunately, if problems arise, many industrial processes are designed to shut down rather than to behave improperly, which could result in an accidental release or spill. Therefore, business interruption appears to be a greater concern than an environmental incident for environmental facilities.
If a problem does occur, do you have the appropriate insurance policy in place to cover financial losses, environmental damage, property damage or personal injury?
Recognizing the potential problem and assessing its impacts, including how your insurance coverage will kick in and offer protection, are essential to ensuring that a waste facility does not get bitten by the Y2K bug. Know what is covered in your business' in-force insurance program, and learn to recognize potential gaps in protection that could jeopardize your facility's profitability. Do you have errors and omissions in coverage? Are you adequately covered for a lengthy business disruption? What about product liability?
Unfortunately, definite Y2K insurance coverage answers don't exist. Whether incidents that arise from Y2K are covered under commercial general liability (CGL) and property policies is questionable. And an environmental incident caused by a Y2K system failure inevitably will be excluded from coverage because of the CGL's typical pollution exclusion.
Many insurance companies are adding Y2K exclusions to new or renewed policies. But, like many past claims involving the pollution exclusion, the courts will be the testing grounds for the strength of the Y2K exclusion.
Already, Y2K litigation is prevalent. In December 1998 for example, Cincinnati Insurance Co. filed suit against one of its insured companies - Source Data Systems Inc. - in Iowa federal court. Source Data Systems, Cedar Rapids, Iowa, a computer system supplier, is being sued by a Kentucky hospital for breach of contract because the recently purchased hospital computer system needed a costly upgrade to be Y2K compliant. In turn, the insurance company is asking the court to declare that it has no obligation to defend or indemnify Source Data Systems.
In another case, a grocer has sued its electronic cash registers' manufacturer because the system would crash for hours whenever a customer used a credit card with a 2000 expiration date. The case was settled out of court early this year for $250,000.
Insurance carriers are watching cases like these anticipating that they eventually will be dragged into court to aid in the defense of clients. Then, and probably only then, will the insurance coverages that actually apply in Y2K claims ultimately be decided by the courts.
Currently, insurers are unable to determine the risks of Y2K because no historical experience exists. And thus far, insurance companies have been unable to place any demands on their customers to fix any Y2K-related problems. Uncertainty surrounds the Y2K problem's extent, its potential costs and insurance coverage issues.
Is there any way to prevent against and prepare for a possible failure? The best insurance for a waste facility is to develop a contingency plan with alternatives to address potential system failures or incidents. Y2K compliance and adequately protecting your company's assets hinges on being able to identify critical business and operational functions, and adopting an effective risk management plan.
In truth, a system failure can occur at a facility today, tomorrow or on Jan. 1, 2000. Managing the risks of a system failure should be part of any thorough risk management plan for the new millennium.
For more information on Y2K, see "Ghost in the Machine," World Wastes June 1998, page 40.