Y2K claims

Provides protection for persons who exercise commercially
reasonable efforts to identify and find solutions for computer-
based systems that may be affected by year 2000 errors.  (SD2)

THE SENATE                              S.B. NO.           S.D. 2
TWENTIETH LEGISLATURE, 1999                                
STATE OF HAWAII                                            

                   A  BILL  FOR  AN  ACT



 1      SECTION 1.  The legislature finds that virtually every
 2 business and consumer in the State of Hawaii is potentially
 3 affected by the practice in many computer-based systems of
 4 utilizing the two low order digits to represent a four digit
 5 year.  While this is common practice for handwriting dates, such
 6 as 1/1/98 as an abbreviation of January 1, 1998, it will lead to
 7 errors in computer-based systems that handle date data in and
 8 after the year 2000.  This practice, along with the use of other
 9 erroneous date-related computer logic, came to be known as the
10 "year 2000 problem."
11      The legislature further finds that in the absence of
12 remedial legislation, the usual methods of determining
13 responsibility and providing remedies for year 2000-related
14 errors through the courts are likely to result in a multitude of
15 lawsuits and the expenditure of substantial time and money in the
16 litigation process.  Additionally, the legislature finds that
17 businesses are diverting money and other resources away from
18 programs to remedy the year 2000 problem at this critical time to
19 work on litigation defense and claims preservation strategies.
20 This diversion of resources has the potential to impair

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 1 completion of these essential year 2000 compliance programs.
 2      The pervasive nature and fixed deadline of the year 2000
 3 problem creates a unique situation which justifies a modification
 4 to the usual legal rights, remedies, and dispute resolution
 5 procedures available under the law.
 6      This Act is intended to provide protection for persons who
 7 exercise commercially reasonable efforts to identify and find
 8 solutions for computer-based systems that may be affected by year
 9 2000 errors.
10      SECTION 2.  The Hawaii Revised Statutes is amended by adding
11 a new chapter to be appropriately designated and to read as
12 follows:
13                             "CHAPTER
15          -1  Definitions.  As used in this chapter: 
16      "Claimant" means the plaintiff in a lawsuit or a person
17 otherwise asserting a claim.
18      "Computer-based system" includes any computer or other
19 information technology system, and any electronic device that
20 controls, operates, monitors, or assists in the operation or
21 functioning of equipment, machinery, plant, or a device using an
22 embedded or installed microprocessor or chip.
23      "Consumer" means a natural person who, primarily for

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 1 personal, family, or household purposes, purchases, attempts to
 2 purchase, or is solicited to purchase goods or services.
 3      "Core activities" means those business activities of a
 4 person which are supported by computer-based systems and which
 5 have been identified by the person, based on reasonable internal
 6 criteria, as being central to the continued operation of the
 7 business.
 8      "Respondent" means the defendant in a lawsuit or a person
 9 otherwise defending against a claim, and includes those persons
10 who are liable on a claim, but who were not made a party to the
11 lawsuit or other assertion of the claim.
12      "Year 2000 error" means the failure of a computer-based
13 system to accurately store, display, transmit, receive, process,
14 calculate, compare, or sequence date and time data from, into, or
15 between the years 1999 and 2000 and beyond, and leap year
16 calculations.
17          -2  Applicability.(a)  Claims properly filed by
18 consumers in the small claims division of the district courts
19 shall be excluded from the error dispute resolution process and
20 the limitations on liability provisions contained in sections
21   -5 and   -6.  
22      (b)  Claims alleging physical injury as the direct and
23 proximate result of a year 2000 error shall be excluded from the

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                                     S.B. NO.           S.D. 2

 1 error dispute resolution process provisions contained in section
 2   -5.
 3      (c)  The provisions in this chapter shall not apply to
 4 claims asserted by or against the State, its political
 5 subdivisions, a board, or a government employee, arising out or
 6 relating to a year 2000 error produced, calculated, or generated
 7 by a government computer system or other computer-based system,
 8 regardless of the cause for the year 2000 error; provided that
 9 nothing in this subsection shall be deemed to apply to any claim
10 asserted against a government employee to enforce a mortgage
11 obligation or other similar personal obligation of the government
12 employee which is unrelated to the government employee's
13 employment.  
14      As used in this subsection:  
15      "Board" means any agency, board, commission, authority, or
16 committee of the State or its political subdivisions that is
17 created by constitution, statute, rule, or executive order to
18 have supervision, control, jurisdiction, or advisory power over
19 specific matters. 
20      "Government employee" includes an officer or employee of the
21 State, its political subdivisions, or board, including a person
22 acting on behalf of a board in an official capacity, temporarily
23 or permanently, whether with or without compensation.

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                                     S.B. NO.           S.D. 2

 1      (d)  The provisions in sections    -5 and    -6 may be
 2 modified or waived by express agreement.  Any such modification
 3 or waiver shall be explicit, and no intent to modify or waive
 4 these protections shall be inferred.
 5          -3  Blanket protections.(a)  No punitive or exemplary
 6 damages, and no statutory minimum or treble damages shall be
 7 awarded under any theory of recovery, including contract and tort
 8 law, for claims arising out of a year 2000 error unless one of
 9 the following is found to have occurred in addition to the other
10 facts necessary for the award of such damages:
11      (1)  The year 2000 error was intentionally created by the
12           respondent with the intent to cause damage or injury;
13      (2)  The respondent had entered into an agreement to
14           discover or remedy year 2000 errors with the intent to
15           defraud the claimant; or
16      (3)  The damage or injury was caused by the dissemination of
17           corrupted data to recipients:
18           (A)  With actual knowledge that errors were occurring;
19           (B)  Without reasonable efforts at warning; and
20           (C)  Without reasonable efforts to correct the cause of
21                the errors.
22      (b)  Noneconomic damages (including, but not limited to,
23 physical and emotional pain, suffering, physical impairment,

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 1 emotional distress, mental anguish, disfigurement, loss of
 2 enjoyment, loss of companionship, services, and consortium, and
 3 other nonpecuniary losses) shall not be awarded under any theory
 4 of recovery for any claim arising out of a year 2000 error except
 5 for physical injury directly and proximately caused by a year
 6 2000 error.
 7      (c)  Joint tortfeasors, as defined in section 663-11, shall
 8 not be held jointly and severally liable under any theory of
 9 recovery for any claim arising out of a year 2000 error.
10          -4  Limitation of actions.  Any other provision of law
11 notwithstanding, all claims arising out of a year 2000 error
12 shall be brought no later than two years after the claimant
13 discovers, or through the use of reasonable diligence should have
14 discovered, the damage or injury, but in any event not more than
15 four years after the date of the alleged year 2000 error.
16          -5  Procedure; alternative dispute resolution.  In any
17 dispute in which a year 2000 error is alleged as a claim or a
18 defense, within 20 days of service of the last pleading directed
19 to the issue the plaintiff shall contact the court in which the
20 action has been filed and shall schedule an alternative dispute
21 resolution status conference with the court, which shall be
22 attended by each party or each party's lead counsel.  The court
23 and the attendees shall discuss alternative dispute resolution

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                                     S.B. NO.           S.D. 2

 1 options.  The court may require each party to submit to the court
 2 prior to the conference a statement of any objections to
 3 alternative dispute resolution and the reasons for objecting.
 4 The court, in its discretion or upon motion by a party, during
 5 the conference or at a later date, may order the parties to
 6 participate in an alternative dispute resolution process subject
 7 to conditions imposed by the court.
 8          -6  Liability.(a)  All arbitration awards and all
 9 judgments in a court proceeding which award damages on a claim
10 arising out of a year 2000 error shall state whether the claimant
11 and the respondent engaged in commercially reasonable efforts to
12 avoid the impact of year 2000 errors.
13      (b)  The trier of fact shall make an independent
14 determination that the actions taken by a claimant or respondent
15 constitute commercially reasonable efforts, based on the totality
16 of the circumstances, and notwithstanding that the party's
17 efforts failed to avoid all year 2000 errors affecting its
18 computer-based systems.  In making the determination, the trier
19 of fact shall examine the party's efforts as a whole and shall
20 take into consideration the sophistication of and resources
21 available to the party.  The burden of proof shall be on the
22 party claiming that it engaged in commercially reasonable
23 efforts, and the standard of proof shall be a preponderance of

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                                     S.B. NO.           S.D. 2

 1 the evidence.
 2      (c)  A claimant or respondent shall not be found to have
 3 undertaken commercially reasonable efforts unless it has, at a
 4 minimum:
 5      (1)  Implemented the remediation steps in timely fashion;
 6           and
 7      (2)  Complied with any data formats established by a
 8           government regulation, a governing body (such as the
 9           National Automated Clearing House Association for
10           certain financial transactions) or reasonably requested
11           by the other party where the parties exchange
12           electronic information which was impacted by the
13           alleged year 2000 error.
14      (d)  "Remediation steps" means, for a person addressing
15 potential year 2000 errors, awareness, assessment, renovation,
16 validation, and implementation.  The reasonableness of those
17 steps shall be determined by the circumstances, including the
18 sophistication of and resources available to the person carrying
19 them out.
20      (1)  The awareness step generally includes providing any
21           supervisory personnel with information about the year
22           2000 problem and the designation of personnel to deal
23           with the person's potential for year 2000 errors.

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                                     S.B. NO.           S.D. 2

 1      (2)  The assessment phase generally includes a determination
 2           of the impact of potential year 2000 errors on the
 3           person (including those caused by computer-based
 4           systems controlled by the person and those controlled
 5           by others), identification of core activities, a
 6           physical inventory of potentially affected computer-
 7           based systems supporting core activities,
 8           prioritization of items with potential year 2000 errors
 9           to create a remediation schedule, determining whether
10           the item records dates or processes date information,
11           identifying and obtaining resources to address
12           potential year 2000 errors, the development of a
13           remediation strategy for each item with the potential
14           for year 2000 errors, and the development of a recovery
15           plan to handle those year 2000 errors which are
16           reasonably likely to occur.
17      (3)  The renovation step generally includes the conversion,
18           upgrade, replacement, or elimination of computer-based
19           systems supporting core activities which are subject to
20           year 2000 errors.
21      (4)  The validation step generally includes validating
22           existing, converted, or replaced computer-based systems
23           supporting core activities.  "Validating" means:

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                                     S.B. NO.           S.D. 2

 1           (A)  Testing the item to actually simulate the
 2                transition from December 31, 1999, to January 1,
 3                2000, the processing of other date data which may
 4                reasonably be expected to trigger a year 2000
 5                error, and a determination that no year 2000 error
 6                occurs; and
 7           (B)  Where the item has been renovated to correct known
 8                or suspected year 2000 errors, testing to assure
 9                that the item continues to properly perform its
10                functions without error.  This testing includes
11                but is not limited to integration and acceptance
12                testing.  When testing is not reasonably possible,
13                the validation step consists of securing
14                documentation from the developer or vendor of a
15                computer-based system supporting core activities
16                that it is free of potential year 2000 errors.
17                This includes vendors of core business functions,
18                services, or supplies to understand the risk posed
19                by the person's supply chain.
20      (5)  The implementation step generally includes the placing
21           of renovated or replaced computer-based systems into
22           production use.  Where a computer-based system cannot
23           reasonably be renovated, the implementation step

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                                     S.B. NO.           S.D. 2

 1           generally includes the implementation of a work-around
 2           designed to avoid the effect of the potential year 2000
 3           error.  Additionally, this step includes the
 4           implementation of contingency or recovery plans for
 5           those year 2000 errors which are reasonably likely to
 6           occur.
 7 Where applicable, the person's highest level of management should
 8 determine what efforts are to be made and what resources are to
 9 be used in carrying out the remediation steps, and should monitor
10 the progress of the remediation steps.
11      (e)  Except for claims where physical injury was directly
12 and proximately caused by a year 2000 error, upon a finding that
13 either:
14      (1)  A claimant did not engage in commercially reasonable
15           efforts; or
16      (2)  The respondent engaged in commercially reasonable
17           efforts;
18 the respondent's liability shall be limited to recovery of the
19 claimant's actual out-of-pocket damages directly caused by the
20 year 2000 error, and no consequential damages, such as loss of
21 business opportunities or loss of profits, or other special
22 damages shall be awarded under any theory of recovery.
23      (f)  The amount awarded to any claimant shall be reduced to

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                                     S.B. NO.           S.D. 2

 1 the extent that the claimant's failure to engage in commercially
 2 reasonable efforts contributed in whole or part to the damages
 3 sustained.  Where two or more respondents are found liable for
 4 the claimant's damages, the proportion of liability assessed
 5 against each respondent shall be proportionately adjusted based
 6 on the extent to which it engaged in commercially reasonable
 7 efforts."
 8      SECTION 3.  Nothing in this Act is intended to affect the
 9 indemnity and defense coverage rights and obligations under any
10 contract of insurance.
11      SECTION 4.  If any provision of this Act, or the application
12 thereof to any person or circumstance is held invalid, the
13 invalidity does not affect other provisions or applications of
14 the Act which can be given effect without the invalid provision
15 or application, and to this end the provisions of this Act are
16 severable.
17      SECTION 5.  This Act shall take effect upon its approval;
18 provided that it shall not affect any claim which has been filed
19 in the courts on or before the date of its enactment.
20      Section 2 of this Act shall be repealed on December 31,
21 2003; provided that nothing in this section shall be deemed to
22 affect rights and obligations which have accrued as of that date.