Opinion ID: 3014059
Heading Depth: 3
Heading Rank: 1

Heading: Data Destruction

Text: The policies in this case ensure 18 Some courts have more narrowly against “all risks of physical loss of or interpreted ensuing loss clauses to apply damage to property described herein.” only “in those rare cases where the “Physical loss or damage” is defined to reasonable damage expected to be caused include “any destruction, distortion or by [for example] faulty workmanship corruption of any computer data, coding, leads to another peril that causes damage program except as hereinafter excluded” beyond that normally expected.” (emphasis added). Prudential, 2002 WL 31495830, at  GTE conceded at argument that (emphasis added). The following “[t]here has to be a physical damage illustration is helpful: resulting from design defect or inherent vice.” Tr. of Argument at 21:22-23. GTE [I]f defectively installed agrees with the Court, for example, that if, roof flashing allows water as a consequence of a defective Y2K to leak into the wall cavity, design, the fire retardation system in a then subsequent damage building does not function and the caused by water, such as dry building goes up in flames, “[t]his rot or mold, to the interior provision means that the building gets of the house is caused by covered, because it is a physical damage to the faulty workmanship and the building, but it doesn’t mean that the not covered. If, however, redesign of the software gets covered.” the water migrates into an Id. at 5:15-18. This concession seriously electrical box and causes an undermines GTE’s argument. In this case, electrical short which in GTE is essentially seeking recovery for turn causes a fire, then the measures taken to correct its systems, and fire damage is a covered not for some eventuating physical damage “ensuing loss.” [That is,] . . mold, unlike fire, is not an “ensuing loss” due to the an “intervening cause” or be “beyond that lack of any intervening normally expected.” Rather, we conclude cause other than time that GTE has failed to establish any beyond the initial water physical damage (whether normally damage. expected or not) “wholly separate from the defective property itself.” Swire I, 139 F. Id. We do not reach the issue of whether Supp. at 1380. the “ensuing loss” needs to be the result of 20 sustained to its property. other databases.” Letter from Raymond J. Alletto, GTE Director of Risk GTE argues that because the Y2K Management, to Ronald H. Davis et. al., problem would inflict physical damage to Executive General Adjuster McLarens the system and/or data, it can recover, Toplis N.A., Inc. (Oct. 12, 1999), J.A. at under the Sue and Labor Provisions 992-93. The record, however, does not discussed more extensively below, for appear to provide support for this preventive measures taken to mitigate this allegation of data corruption. Moreover, “ensuing loss.” The problem, however, is at best this establishes that incorrect data that GTE has failed to adequately may have been generated as a result of demonstrate that it was threatened by problems within GTE’s own systems—it “physical loss” in the form of does not establish that data destruction or “destruction, distortion or corruption of corruption would have ensued “to other any computer data, coding, program,” as property wholly separate from the distinct from the otherwise excluded defective property itself.” Swire I, 139 F. defective design and inherent vice. That Supp. 2d at 1380. Here, the plain is, GTE has not illustrated that the language of the policies provides coverage consequences of failing to correct the two- for data destruction or corruption “except digit date designation system, causing data as hereinafter excluded.” As discussed to enter the system in an unrecognizable above, the defective design and inherent format, are a covered loss. vice exclusions bar recovery, and a In response to this Court’s inquiry reading of the ensuing loss provisions to at oral argument, GTE provided record provide coverage would essentially read citations on the issue of the “data these exclusions out of the policy. destruction, distortion and corruption that