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Mark Grossman

New Y2K Law in Florida

8 June 1999

The legal landscape for the Year 2000 computer problem is about to change in Florida. On April 30, the Florida House and Senate passed the "Commerce Protection Act." On May 21, the legislature presented the bill to the Governor for signature. He's expected to sign it. By the time you read this column, it may be law.

One thing is clear under this new law. If you act reasonably, properly and according to this new law between now and December 1, 1999, you can substantially reduce your liability to others if you cause them damage due to your own internal Y2K failures. The law provides a formula that you must begin following immediately.

Direct Economic Damages

Unless you have a contract that specifically says otherwise, under the Act, your business is only liable for "direct economic damages caused by the failure of [your] information technology products to be year-2000 compliant." You may not even be responsible for "direct economic damages" if you comply with procedures set forth in the Act.

The Act defines "direct economic damages" to mean "only economic compensatory damages that follow both immediately and necessarily from the failure of the information technology products of a business or governmental agency to be year-2000 compliant. The term excludes special damages, incidental damages, and exemplary or punitive damages."

The way the Act defines "direct economic damages" is basically consistent with the way lawyers generally use the term. The idea is to answer the question "how far do the damages go." So, for example, let's say you use a software product that isn't Y2K compliant, which causes you to send "junk" data to another business. Then, this "junk data" mucks up (I always prefer scientific and precise terms, when possible) their perfectly year 2000 compliant database, which effectively shuts them down for a week.

Under the Act, you could arguably be responsible for the cost of fixing their database and maybe for their lost profits during the week they were closed. You would presumably not be responsible for the damages that were less direct like the late fee on the loan payment they couldn't make because you shut them down and they had no money.

Year-2000 Compliant

One of the most frequent questions people ask me when I lecture on Y2K is, "What's the difference between year-2000 ready, year-2000 compliant and year-2000 capable." My answer has always been, "There is no difference. They're all equally meaningless terms."

The problem is that the ability to function "correctly" in the year-2000 environment may be in the eye of the beholder. The most common year-2000 warranty I see reads something like, "The software is year-2000 capable." The problem with this language is that it's meaningless.

Does it mean that the software will have a four-digit field for the inputting years? It might or it might not. There is nothing inherent in the term "year-2000 capable" or "compliant" or "ready" that answers this question. Will it output four digits for the year? Again, you don't know.

Bear in mind that you just may not care. You may know that in the way you'll use the product, you only need two-digit input and output fields because you'll always know whether the software is referring to the twentieth or twenty-first century. Still, you may care if, for example, you're a hospital and need to have clear identification of whether your patient born in "OO" is an infant or geriatric patient. Clearly, it's better to know the details of what your product can and can't do now rather than in 2000 and after you've paid lots of money for it.

The bigger point that I'm trying to make is that you must define what you mean by "year-2000 compliant." I can break it down into about 14 different subparts. More than likely, you don't need all of these definitions to be true. Some won't matter to you in context. Nonetheless, you need to go through them all when developing a warranty and specifications for a new purchase to insure that you and your vendor are on the same page.

The Act does change the landscape a bit on this point. I won't be able to say that year-2000 ready, year-2000 compliant and year-2000 capable are all equally meaningless terms. The Act defines the term "year-2000 compliant." The core of the definition is that the information technology product is "capable of correctly processing, providing, and receiving date data." It's too lengthy to quote in full here, but suffice it to say that it's lacking.

I predict that many lawsuits will be bogged down over the basic argument of whether the product is year-2000 compliant or not. A good Y2K warranty in all new contracts should, in detail, state what the parties define "capable of correctly processing, providing, and receiving date data" to mean.

Bear in mind that there are quick fix programming tricks used sometimes to remediate software for the year 2000. One such technique is called "windowing." It's not a permanent fix, but it may get you past January 1, 2000 without incident.

Under the Act's definition of "year-2000 compliant," software may be deemed "year-2000 compliant" if it's "fixed" using windowing. Still, you may have thought that it was permanently fixed, not windowed. This is yet another example of why you want to define your warranty and specifications carefully. Don't rely on the Act's definition of "year-2000 compliant." If you use the Act's definition, you'll be a lawsuit waiting to happen.

Safety under the Act

If you haven't involved your technology lawyer in your Y2K program before, now you must. As mentioned above, you may not even be responsible for "direct economic damages" if you comply with procedures set forth in the Act. This is an opportunity for a protective shield that you must not miss. It's out there and it's inexcusable to fumble it.

The Act creates a safe-harbor for those that make good faith and diligent attempts to assess and deal with their own Y2K problems. The Act is clear when it says that, "A business or governmental agency is not liable for direct economic damages if it proves by a preponderance of the evidence that it has [complied with the following provisions]."

Complying with these provisions shouldn't be a difficult task for you. It really boils down to having a good Y2K program in place and diligently pursuing it. Still, you're going to need some attorney guidance to insure that you don't misstep. You have to take the steps specifically mandated by this new law or you'll find the defenses made available by the Act unavailable to you.

If you're an officer or director of a corporation, the Act even has a bonus for you. As you may know by now, many officers and director's liability insurance policies exclude coverage for Y2K-related matters. The good news is that the Act provides you with a safe haven, but again, you have to comply with all of the requirements of the Act.

Overall, the deadline date for compliance for companies, directors and officers looking for a safe haven is December 1, 1999. That doesn't mean that you can start and finish complying with the Act on December 1. You need to start now. There are many steps that you'll need to take to comply. In many cases, it will take months to do what needs to be done. You must start today or you may have regrets in 2000.

New Y2K Law in Florida is republished from
Mark Grossman
Mark Grossman