Opinion ID: 3014059
Heading Depth: 3
Heading Rank: 2

Heading: Inherent Vice Exclusion

Text: trying to get away from. There is an additional ground to reject GTE’s coverage claim: the Deposition of Michael Lawrence Brodie at insurance policies explicitly do not insure 194:20-195:6, J.A. at 2363-64. In other against “inherent vice.” The District words, Y2K remediation, like other Court concluded that, in addition to the database and code upgrades, is targeted at defective design exclusion, the inherent changing an existing system because of a vice provision barred GTE from problem or limitation within that system. recovering for Y2K remediation measures. The fact that GTE may have In reaching this conclusion, the District utilized the best available system, and Court relied heavily, as persuasive subsequently faced the need to remedy a authority, on the Washington Court of problem with that system, does not save Appeal’s conclusion in Port of Seattle v. GTE from the defective design exclusion. Lexington Ins. Co. that the Y2K problem Taken to its logical conclusion, GTE’s was an inherent vice. 48 P.3d 334 (Wash. argument would render virtually every Ct. App. 2002). business upgrade an insurable risk. For As noted by the District Court, the example, GTE could argue that upgrades Port of Seattle Court began by surveying to its software or computers undertaken in definitions of “inherent vice”: the name of mitigating an insurable risk would be insurable as long as it used the An inherent vice is defined best system at the time of initial by various courts as “‘any installation. existing defects, diseases, decay or the inherent nature GTE also suggests that a design of the commodity which cannot be faulty if it meets the will cause it to deteriorate specifications at the time of its design. with a lapse of time.’” It is That is unpersuasive. If, for example, an also defined “as a cause of airplane is built pursuant to specifications loss not covered by the and is unable to take-off, it is “defective” policy, does not relate to an or contains an “imperfection or extraneous cause but to a shortcoming” despite the fact that it loss entirely from internal conformed with the specifications. More decomposition or some 15 quality which brings Furthermore, “GTE is not threatened by about its own injury any external force; the threat is entirely or destruction. The internal.” Id. vice must be inherent On appeal, GTE’s principal in the property for objection to this conclusion, as elaborated which recovery is below, is that the threats posed by Y2K sought.” were not exclusively internal. 48 P.3d at 338-39 (quoting Mo. Pac. R.R.