Mid-Atlantic Health Law TOPICS

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Federal Limits on Year 2000 Liability

Maryland's attempt to limit liability for Year 2000 problems was vetoed by Governor Glendening. However, a federal bill, dealing with some of the same issues, was signed by President Clinton on July 20, 1999.

The federal Y2K Act makes the filing of Year 2000 lawsuits less attractive, and offers relatively innocent parties some protections from lawsuits and penalties. (The Y2K problem refers to the inability of some computers to recognize that the year designation "00" refers to the Year 2000, instead of 1900.)

The federal Y2K Act generally applies only to business damages. Accordingly, although the Y2K Act is relevant to the health care industry in its business dealings, the Act does not apply to patients who might be physically injured by a Y2K problem.

A. Deterrents to Litigation

Under the Y2K Act, the cap for punitive damages payable by individuals or small businesses for a Y2K problem is the lesser of $250,000 or 3 times the amount of any compensatory damages. (Punitive damages are damages intended to punish the wrongdoer, while compensatory damages are intended to compensate a party for calculable monetary losses.) There is no punitive damages cap for larger companies.

As a further disincentive to sue, before any suit is filed based on a Y2K claim, the plaintiff must give the defendant notice, in a manner prescribed by the Y2K Act, itemizing the allegations and requesting redress. The defendant then has a 30-day period in which to respond, and an optional 60-day period in which to attempt alternative dispute resolution.

Also, in an effort to stop relatively small class action suits, the threshold for federal class actions, otherwise set at $1 Million, is raised to $10 Million for Y2K claims.

B. Tolerances

On the flip side, in an effort to protect consumers, the Y2K Act institutes a 7-day notice and grace period on foreclosures on residential mortgages when the non-payment is attributable to a Y2K failure.

Similarly, if a business temporarily fails to comply with an applicable federal standard, the Y2K Act exonerates such a business if its non-compliance is "exceptional" and due to a Y2K glitch. The elements of this defense are based on the business' otherwise good faith efforts to prevent Y2K related failures.

In a related "safe harbor," small businesses that are first-time violators of a federally enforceable rule or regulation related to Y2K failures may be eligible for a suspension or a waiver of penalties, if the offender can meet certain criteria related to its efforts to control the effects of the Y2K related problem.

Also, the Y2K Act provides that a Y2K related failure occurring in a facility, system or product that is merely within the control of an otherwise "innocent bystander" cannot, without more culpability, be the basis for recovery in a suit against such a person or company.

The Y2K Act also requires a party filing a lawsuit to mitigate damages, that is, to take steps to lessen damages. Further, a person will be presumed to know what remedies a prospective defendant has made available to fix a Y2K problem. For example, if a Year 2000 "fix" is available through the defendant's notices or Website, a person who does not follow the recommended procedures might not recover damages.

C. Coverage

The Y2K Act does not apply to all lawsuits. Claims for personal injury or wrongful death, as well as most securities law claims, are not affected or limited. In addition, in a contract claim, the Y2K Act does not supersede the obligations or limitations written in the contract. Also under a contract-based suit, the terms of the contract determine the amount of damages that may be recovered.

Congress and President Clinton intended the Y2K Act to apply to non-personal injury claims based on state or federal law. However, parties should not rule out the possibility that courts may determine on constitutional grounds that the Y2K Act is inapplicable to lawsuits based on state law.

Another part of the Y2K Act that may not be enforceable in state courts is the provision allowing for comparative negligence. Under current Maryland law, for example, even a small amount of negligence on the part of the person bringing a negligence suit serves as a complete defense for the other party. Under the Y2K Act, however, a defendant remains liable for the portion of the judgment that corresponds to the relative responsibility of that person.

To the extent that the Y2K Act does apply, it only applies to lawsuits filed after January 1, 1999, and to events occurring before January 1, 2003.

The Y2K problem is complicated, and so is the Y2K Act. Nevertheless, the Y2K Act appears well intended, and will likely put a damper on some of the otherwise expected Y2K litigation.