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

Heading: External Threats

Text: Co. v. Elmore & Stahl, 377 U.S. 134, 136 (1964); Employers Cas. Co. v. Holm, 393 In concluding that GTE’s claims S.W.2d 363, 367 (Tex. App. 1965)) were barred by the defective design and (additional citations omitted). In other inherent vice exclusions, the District Court words, the question is whether the rejected GTE’s argument that its claim “insured property . . . contain[s] its own cannot be barred by these provisions seeds of destruction . . . [or whether it] because it faced risk from Y2K-related was threatened by an outside natural events caused by external systems. The force.” American Home Assurance Co. v. District Court explained that while “[t]his J. F. Shea Co., Inc., 445 F. Supp. 365, 368 argument gives the Court pause[,] . . . (D.D.C. 1978). [t]he record does not reflect that the program was intended to eliminate any Port of Seattle went on to conclude external threats, as described by GTE.” that the Y2K problem fell within the 258 F. Supp. 2d at 378-79. inherent vice exclusion: “[B]ut for the two-digit date field code programmed into In support of its contention that it the Port’s software, the arrival of January faced external threats, GTE provided 1, 2000, would not result in loss. Thus, numerous citations to the record in both its the Port’s Y2K problem is an excluded brief, see Appellant Br. at 49 & n.12 inherent vice because the date field is an (citing J.A. at 3881, 3884-96, 3871, 3877, internal quality that brought about its own 3840, 4789-90, 5053), and at argument, problem.” 48 P.3d at 339, quoted in 258 see Tr. of Argument at 15:21-22 (citing F. Supp. 2d at 376. J.A. at 1598-1601, 1764, 1008-09, 1004, 4122-23, 1014). GTE provides minimal The District Court found the Port of explanation for how these citations Seattle analysis persuasive, and concluded support its argument. Moreover, upon that the inherent vice exclusion is examination, we are not satisfied that the applicable. We agree. As the District record supports the conclusion that GTE Court explained, “[h]ere . . . the insured faced an “external threat” such that the property, GTE’s computer systems, do defective design and inherent vice c o n t a in t h e i r o wn ‘ s e e d s o f destruction’—that is, the two-digit date limitation.” 258 F. Supp. 2d at 377. 16 exclusions do not apply.13 At best, these We disagree with the suggestion citations appear to support the claim that that the Y2K threat is “external” merely the Y2K problem is particularly complex because GTE’s systems interacted with because of the manner in which GTE’s other systems or read data from outside systems interface with third party sources. Such a conception of external systems.14 would essentially allow all defective designs and inherent vices to be characterized as external problems. For 13 example, if a car is defectively designed so In fact, some of GTE’s citations that the tires come off when the car is actually seem to support a contrary driven at 10 miles per hour, the threat is conclusion. For example, GTE cites to a not external merely because the “external” letter responding to a “request for event of the road contacting the tire information concerning the steps that GTE caused the tires to fly off. The road has taken to avoid or minimize imminent contacting the tire is an entirely loss or damage to its insured property.” predictable event that is inherent to the Letter from Raymond J. Alletto, GTE very function and purpose of the Director of Risk Management, to Ronald automobile—there is no problem H. Davis et. al., Executive General independent of the automotive design. Adjuster McLarens Toplis N.A., Inc. (Oct. To take another example, if a dam whose 12, 1999), J.A. at 971. In response to one very purpose is to hold water falls apart question, GTE explains, “Some of the when the water rises to an entirely costs and expenses associated with the predictable level, the rising of the water is conversion of third party hardware and not an “external” problem—the problem is software have been borne by GTE’s that the dam was not properly designed to suppliers. We do not believe that the allow it to perform precisely the function insurers need this information to carry out it was intended to perform, the holding of their analysis because the figures that GTE water. submitted in its proof of loss do not include any of the costs and expenses that By contrast, if as a consequence of were borne by GTE’s suppliers.” J.A. at a defective Y2K design the fire retardation 1014. system in a building does not function and the building goes up in flames, the fire 14 For example, the 1996 Year End would be an external event. The fire Report explains that “the interdependence represents an independent problem of systems required to support today’s external to the design of the computer telecommunications business compounds system. the complexity of the Year 2000 problem [because] [p]lann ing of system conversions requires coordination of all an understanding of all software and data underlying hardware, operating systems, interfaces between systems.” J.A. at 1599. third party software layered products and 17 In this case, there was no Supp. at 368.16 unpredictable external threat posing a risk