In the 1990s, the Port of Seattle, whose operations include SeaTac Airport, discovered that its many computer systems would not recognize the year 2000 and would fail when the century turned. Beginning in 1997, and at great cost, the Port began diagnosing, testing, and remediating or replacing those systems. To recover its costs in making its computer systems Y2K compliant, the Port brought an action against its property insurers.
Bullivant attorneys Doug Houser, Scott Stickney, Jerry Sale, and Michael McCormack represented several of the Port's insurers at trial and on appeal with respect to the Port's Y2K claims. The trial court dismissed all claims on summary judgment, and, in an opinion issued on May 28th of this year, the Washington Court of Appeals affirmed. Port of Seattle v. Lexington Insurance Co., 111 Wash.App. 901, 48 P.3d 334 (2002). (The Port elected not to seek review by the Washington Supreme Court.)
The Port's 1997 and 1998 policies provided coverage for "loss of computer resources" if that loss was "due to computer virus." The policies excluded loss due to "inherent vice." The Port sought coverage for its remediation costs under the policies on the ground that those costs constituted a loss of computer resources due to a computer virus. The Port also argued that the policies' "sue and labor" clause, which provides coverage for costs incurred in preventing an insured loss, afforded coverage under these facts.
The insurers denied coverage on the grounds that (1) there was no computer virus; (2) even if there had been a computer virus, the loss was excluded by the inherent vice exclusion; (3) the sue and labor clause did not provide coverage; and (4) the Port had not brought suit within the 12-month period provided by the suit limitation clause incorporated into the policies. The trial court granted all insurers summary judgment on all grounds, and the Port appealed.
The Washington Court of Appeals affirmed on three of the four grounds asserted by the insurers. First, the court agreed with the insurers that the undefined term "computer virus," in its common, ordinary meaning, refers to a computer problem that is external to the computer, is transferred to the computer, and is "infectious" in character or self-replicating. None of those qualities applied to the programming defect in the Port's computers.
Second, the Port's arguments notwithstanding, the court held that the computers' inability to distinguish between 1900 and 2000 was inherent in the computer system. Even if coverage were otherwise available, the inherent vice exclusion would apply to preclude coverage.
Third, the court agreed with the insurers that a sue and labor clause provides coverage only where an insured undertakes to prevent a loss that would otherwise be covered. In this case, any loss would have occurred on January 1, 2000, when the computers failed to recognize the year 2000. Because the 1997 and 1998 policies did not provide coverage for losses occurring in 2000, the court found that the actions taken by the Port in 1997 and 1998 to prevent a loss in 2000 were not subject to coverage under the terms of the sue and labor clause in the 1997 and 1998 policies.
The court also denied the insurers' suit limitation clause defense on the ground that the policies did not contain a suit limitation clause by incorporation.
The Port of Seattle case was the first Y2K suit to be decided through appeal. The decision offers persuasive precedent for Y2K cases pending in other jurisdictions.