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


                   A  BILL  FOR  AN  ACT

RELATING TO YEAR 2000 ERRORS BY COMPUTER-BASED SYSTEMS.



BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

 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.
 

 
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 1 This diversion of resources has the potential to impair
 
 2 completion of these essential year 2000 compliance programs.
 
 3      The pervasive nature and fixed deadline of the year 2000
 
 4 problem creates a unique situation which justifies a modification
 
 5 to the usual legal rights, remedies, and dispute resolution
 
 6 procedures available under the law.
 
 7      This Act is intended to provide protection for persons who
 
 8 exercise commercially reasonable efforts to identify and find
 
 9 solutions for computer-based systems that may be affected by year
 
10 2000 errors.
 
11      SECTION 2.  The Hawaii Revised Statutes is amended by adding
 
12 a new chapter to be appropriately designated and to read as
 
13 follows:
 
14                             "CHAPTER
 
15            YEAR 2000 ERRORS IN COMPUTER-BASED SYSTEMS
 
16      �    -1  Definitions.  A "year 2000 error" is the failure of
 
17 a computer-based system to accurately store, display, transmit,
 
18 receive, process, calculate, compare, or sequence date and time
 
19 data from, into, or between the twentieth and twenty-first
 
20 centuries, the years 1999 and 2000 and beyond, and leap year
 
21 calculations.
 
22      A "computer-based system" includes any computer or other
 
23 information technology system, and any electronic device that
 

 
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 1 controls, operates, monitors, or assists in the operation or
 
 2 functioning of equipment, machinery, plant, or a device using an
 
 3 embedded or installed microprocessor or chip.
 
 4      "Consumer" means a natural person who, primarily for
 
 5 personal, family, or household purposes, purchases, attempts to
 
 6 purchase, or is solicited to purchase goods or services.
 
 7      "Core activities" means those business activities of a
 
 8 person which are supported by computer-based systems and which
 
 9 have been identified by the person, based on reasonable internal
 
10 criteria, as being central to the continued operation of the
 
11 business.
 
12      "Remediation Steps" for a person addressing potential year
 
13 2000 errors generally consist of awareness, assessment,
 
14 renovation, validation, and implementation.  The reasonableness
 
15 of those steps will be determined by the circumstances, including
 
16 the sophistication of and resources available to the person
 
17 carrying them out.
 
18      (1)  The awareness step generally includes providing any
 
19           supervisory personnel with information about the year
 
20           2000 problem and the designation of personnel to deal
 
21           with the person's potential for year 2000 errors.
 
22      (2)  The assessment phase generally includes a determination
 
23           of the impact of potential year 2000 errors on the
 

 
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 1           person (including those caused by computer-based
 
 2           systems controlled by the person and those controlled
 
 3           by others), identification of core activities, a
 
 4           physical inventory of potentially affected computer-
 
 5           based systems supporting core activities,
 
 6           prioritization of items with potential year 2000 errors
 
 7           to create a remediation schedule, determining whether
 
 8           the item records dates or processes date information,
 
 9           identifying and obtaining resources to address
 
10           potential year 2000 errors, the development of a
 
11           remediation strategy for each item with the potential
 
12           for year 2000 errors, and the development of a recovery
 
13           plan to handle those year 2000 errors which are
 
14           reasonably likely to occur.
 
15      (3)  The renovation step generally includes the conversion,
 
16           upgrade, replacement, or elimination of computer-based
 
17           systems supporting core activities which are subject to
 
18           year 2000 errors.
 
19      (4)  The validation step generally includes validating
 
20           existing, converted, or replaced computer-based systems
 
21           supporting core activities.  "Validating" means:
 
22           (A)  Testing the item to actually simulate the
 
23                transition from December 31, 1999 to January 1,
 

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

 
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 1           error.  Additionally, this step includes the
 
 2           implementation of contingency or recovery plans for
 
 3           those year 2000 errors which are reasonably likely to
 
 4           occur.
 
 5 Where applicable, the person's highest level of management should
 
 6 determine what efforts are to be made and what resources are to
 
 7 be used in carrying out the remediation steps, and should monitor
 
 8 the progress of the remediation steps.
 
 9      A "claimant" is the plaintiff in a lawsuit or a person
 
10 otherwise asserting a claim.
 
11      A "respondent" is the defendant in a lawsuit or a person
 
12 otherwise defending against a claim, and includes those persons
 
13 who are liable on a claim, but who were not made a party to the
 
14 lawsuit or other assertion of the claim.
 
15      �    -2  Applicability.(a) The following claims shall be
 
16 excluded from the error dispute resolution process and the
 
17 limitations on liability provisions contained in sections   -5
 
18 and   -6:
 
19      (1)  Claims properly filed by consumers in the small claims
 
20           division of the district courts.
 
21      (b)  The following claims shall be excluded from the error
 
22 dispute resolution process provisions contained in section   -5:
 
23      (1)  Claims alleging physical injury as the direct and
 

 
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 1           proximate result of a year 2000 error.
 
 2      (c)  The provisions in this chapter shall not apply to
 
 3 claims asserted by or against the State, its political
 
 4 subdivisions, a board, or a government employee, arising out or
 
 5 relating to a year 2000 error produced, calculated, or generated
 
 6 by a government computer system or other computer-based system,
 
 7 regardless of the cause for the year 2000 error, provided that
 
 8 nothing in this subsection shall be deemed to apply to any claim
 
 9 asserted against a government employee to enforce a mortgage
 
10 obligation or other similar personal obligation of the government
 
11 employee which is unrelated to the government employee's
 
12 employment.  "Board" means any agency, board, commission,
 
13 authority, or committee of the State or its political
 
14 subdivisions that is created by constitution, statute, rule, or
 
15 executive order to have supervision, control, jurisdiction, or
 
16 advisory power over specific matters.  "Government employee"
 
17 includes an officer or employee of the State, its political
 
18 subdivisions, or board, including a person acting on behalf of a
 
19 board in an official capacity, temporarily or permanently,
 
20 whether with or without compensation.
 
21      (d)  The provisions in sections    -5 and    -6 may be
 
22 modified or waived by express agreement.  Any such modification
 
23 or waiver shall be explicit, and no intent to modify or waive
 

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

 
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 1 of recovery for any claim arising out of a year 2000 error except
 
 2 for physical injury directly and proximately caused by a year
 
 3 2000 error.  In any physical injury claim, the amount recoverable
 
 4 for noneconomic damages shall be limited to a maximum award of
 
 5 $375,000.
 
 6      (c)  Joint tortfeasors, as defined in section 663-11, shall
 
 7 not be held jointly and severally liable under any theory of
 
 8 recovery for any claim arising out of a year 2000 error.
 
 9      �    -4  Limitation of actions.  Any other provision of law
 
10 notwithstanding, all claims arising out of a year 2000 error
 
11 shall be brought no later than two years after the claimant
 
12 discovers, or through the use of reasonable diligence should have
 
13 discovered, the damage or injury, but in any event not more than
 
14 four years after the date of the alleged year 2000 error.
 
15      �    -5 Error Dispute Resolution requirement.(a)
 
16 Arbitration of disputes.  At the request of any party, any
 
17 dispute in which a year 2000 error is alleged in good faith as a
 
18 claim or a defense shall be submitted to nonbinding arbitration.
 
19 Unless otherwise agreed by the parties, the arbitrator shall be
 
20 bound by the substantive and procedural provisions of this
 
21 chapter, but shall not be bound by rules of evidence, whether or
 
22 not set out by statute, except for provisions relating to
 
23 privileged communications.  The arbitrator shall permit discovery
 

 
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 1 as provided for in the Hawaii rules of civil procedure; provided
 
 2 that the arbitrator may restrict the scope of such discovery for
 
 3 good cause to avoid excessive delay and costs to the parties.
 
 4      (b)  Determination of unsuitability.  At any time within
 
 5 twenty days of being served with a written demand for
 
 6 arbitration, any party so served may apply to the circuit court
 
 7 in the judicial circuit in which a respondent resides or has its
 
 8 principal place of business for a determination that the subject
 
 9 matter of the dispute is unsuitable for disposition by
 
10 arbitration.  In determining whether the subject matter of a
 
11 dispute is unsuitable for disposition by arbitration, a court may
 
12 consider:
 
13      (1)  The magnitude of the potential award, or any issue of
 
14           broad public concern raised by the subject matter
 
15           underlying the dispute;
 
16      (2)  Claims where court regulated discovery is necessary;
 
17      (3)  The fact that the matter in dispute is a reasonable or
 
18           necessary issue to be resolved in pending litigation
 
19           and involves other matters not covered by or related to
 
20           this chapter;
 
21      (4)  The fact that the matter to be arbitrated is only part
 
22           of a dispute involving other parties or issues which
 
23           are not subject to arbitration; or
 

 
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 1      (5)  Any matters of dispute where disposition by arbitration
 
 2           would not afford substantial justice to one or more of
 
 3           the parties.
 
 4 Any such application to the circuit court shall be made and heard
 
 5 in a summary manner and in accordance with procedures for the
 
 6 making and hearing of motions.  If the application is denied, the
 
 7 prevailing party shall be awarded its attorneys' fees and costs
 
 8 in an amount not to exceed $750.
 
 9      (c)  Selection of arbitrator:
 
10      (1)  Once the parties have agreed to suitability or
 
11           suitability has otherwise been determined, the parties
 
12           shall proceed to select one arbitrator to hear the
 
13           case.  If the parties cannot agree on an arbitrator,
 
14           they shall proceed under chapter 658 to have the
 
15           circuit court select the arbitrator.  The parties and
 
16           court shall endeavor to select the best qualified
 
17           arbitrator for the issues to be tried, which arbitrator
 
18           need not be an attorney.  The parties may also select
 
19           an administering agency such as the American
 
20           Arbitration Association, at the discretion of the
 
21           parties.
 
22      (2)  Once selected, the arbitrator and parties shall
 
23           cooperate to process the arbitration expeditiously and
 

 
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 1           as informally as possible so that the arbitration
 
 2           hearing commences within six months after selection of
 
 3           the arbitrator.  The arbitrator shall have the power
 
 4           and authority to sanction any party who does not so
 
 5           cooperate.
 
 6      (3)  The parties shall deposit the estimated fee and
 
 7           expenses of the arbitrator prior to the commencement of
 
 8           the arbitration hearing in equal pro rata amounts.
 
 9      (d)  Award; confirming award; attorneys' fees and costs:
 
10      (1)  Within seven days after the conclusion of the
 
11           arbitration hearing, the arbitrator shall serve copies
 
12           of the award on the parties or their attorneys of
 
13           record.  Awards shall be in writing and signed by the
 
14           arbitrator. The arbitrator shall determine all issues
 
15           raised by the pleadings that are subject to arbitration
 
16           under this chapter, including a determination of
 
17           comparative fault, if any, damages, if any, and costs.
 
18           Findings of fact and conclusions of law are not
 
19           required.  After an award is made, the arbitrator shall
 
20           return all exhibits to the parties who offered them
 
21           during the hearing.
 
22      (2)  The award of any costs of arbitration, expenses, and
 
23           legal fees shall be in the sole discretion of the
 

 
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 1           arbitrator, and the determination of costs, expenses
 
 2           and legal fees shall be binding upon all parties.
 
 3      (e)  Judgment on award.  If no party has served a written
 
 4 request for a trial de novo within ten days after the award is
 
 5 served upon all parties, any party may apply under chapter 658 to
 
 6 have a judgment entered on the award.  Once a judgment is so
 
 7 entered, it shall have the same force and effect as a final
 
 8 judgment, but may not be appealed.
 
 9      (f)  Trial de novo:
 
10      (1)  The submission of any dispute to arbitration shall in
 
11           no way limit or abridge the right of any party to a
 
12           trial de novo.
 
13      (2)  Written demand for a trial de novo by any party
 
14           desiring a trial de novo shall be made upon the other
 
15           parties within ten days after service of the
 
16           arbitration award upon all parties.
 
17      (3)  All discovery permitted during the course of the
 
18           arbitration proceedings shall be admissible in the
 
19           trial de novo subject to all applicable rules of civil
 
20           procedure and evidence.
 
21      (4)  The award of arbitration shall not be made known to the
 
22           court at a trial de novo, except that the award shall
 
23           be made available to the court by the clerk of court
 

 
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 1           upon the rendering of judgment by the trier of fact for
 
 2           the purpose of determining whether the party which
 
 3           demanded trial de novo must pay costs, expenses, and
 
 4           fees under paragraph 6.
 
 5      (5)  No arbitration award shall be admitted into evidence in
 
 6           any subsequent trial, nor shall any party to the
 
 7           arbitration, or the counsel or other representative of
 
 8           such party, refer to or comment on the award or any
 
 9           statement or testimony made in the course of the
 
10           arbitration hearing in an opening statement, an
 
11           argument, or at any other time, to the court or jury.
 
12      (6)  In any trial de novo, if the party demanding a trial de
 
13           novo does not improve its position by thirty per cent
 
14           or more, the party demanding the trial de novo shall be
 
15           charged with all reasonable costs, expenses, and
 
16           attorneys' fees of the trial.  When there is more than
 
17           one party on one or both sides of an action, or more
 
18           than one issue in dispute, the court shall allocate its
 
19           award of costs, expenses, and attorneys' fees among the
 
20           prevailing parties and tax such fees against those
 
21           nonprevailing parties who demanded a trial de novo in
 
22           accordance with the principles of equity.
 
23      �    -6  Limitation of liability.(a)  Determination of
 

 
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 1 commercially reasonable efforts by claimant and respondent.  All
 
 2 arbitration awards and all judgments in a court proceeding which
 
 3 award damages on a claim arising out of a year 2000 error shall
 
 4 state whether the claimant and the respondent engaged in
 
 5 commercially reasonable efforts to avoid the impact of year 2000
 
 6 errors.
 
 7      (b)  The trier of fact shall make an independent
 
 8 determination that the actions taken by a claimant or respondent
 
 9 constitute commercially reasonable efforts, based on the totality
 
10 of the circumstances, and notwithstanding that the party's
 
11 efforts failed to avoid all year 2000 errors affecting its
 
12 computer-based systems.  In making the determination, the trier
 
13 of fact shall examine the party's efforts as a whole, and shall
 
14 take into consideration the sophistication of and resources
 
15 available to the party.  The burden of proof shall be on the
 
16 party claiming that it engaged in commercially reasonable
 
17 efforts, and the standard of proof shall be a preponderance of
 
18 the evidence.
 
19      (c)  A claimant or respondent shall be presumed to have
 
20 undertaken commercially reasonable efforts if it has, at minimum:
 
21      (1)  Implemented the remediation steps; and
 
22      (2)  Complied with any data formats established by a
 
23           government regulation, a governing body (such as the
 

 
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 1           National Automated Clearing House Association for
 
 2           certain financial transactions) or reasonably requested
 
 3           by the other party where the parties exchange
 
 4           electronic information which was impacted by the
 
 5           alleged year 2000 error.
 
 6      (d)  Effect of finding.  Except for claims where physical
 
 7 injury was directly and proximately caused by a year 2000 error,
 
 8 upon a finding that either:
 
 9      (1)  A claimant did not engage in commercially reasonable
 
10           efforts; or
 
11      (2)  The respondent engaged in commercially reasonable
 
12           efforts, the respondent's liability will be limited to
 
13           recovery of the claimant's actual out-of-pocket damages
 
14           directly caused by the year 2000 error, and no
 
15           consequential damages, such as loss of business
 
16           opportunities or loss of profits, or other special
 
17           damages shall be awarded under any theory of recovery.
 
18      (e)  Allocation of liability based on exercise of
 
19 commercially reasonable efforts.  The amount awarded to any
 
20 claimant will be reduced to the extent that the claimant's
 
21 failure to engage in commercially reasonable efforts contributed
 
22 in whole or part to the damages sustained.  Where two or more
 
23 respondents are found liable for the claimant's damages, the
 

 
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 1 proportion of liability assessed against each respondent will be
 
 2 proportionately adjusted based on the extent to which it engaged
 
 3 in commercially reasonable efforts."
 
 4      SECTION 3.  Effect on insurance.  Nothing in this Act is
 
 5 intended to affect the indemnity and defense coverage rights and
 
 6 obligations under any contract of insurance.
 
 7      SECTION 4.  Constitutionality.  If any provision of this
 
 8 Act, or the application thereof to any person or circumstance is
 
 9 held invalid, the invalidity does not affect other provisions or
 
10 applications of the Act which can be given effect without the
 
11 invalid provision or application, and to this end the provisions
 
12 of this Act are severable.
 
13      SECTION 5.  Preemption.  If any portion of this Act is found
 
14 to be preempted by federal law or regulation, the remainder shall
 
15 remain in full force and effect to the fullest extent consistent
 
16 with the preemption.
 
17      SECTION 6.  No intent to create causes of action.  This Act
 
18 shall not be deemed to impose any increased obligation, duty, or
 
19 standard of care than is otherwise applicable under federal or
 
20 state law.  It is not intended to create any new cause of action
 
21 or remedy.
 
22      SECTION 7.  Remedial intent.  The intention of this Act is
 
23 to protect the people of the State of Hawaii against harm which
 

 
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 1 is pervasive and which was generally unknown to businesses and
 
 2 consumers.  For that reason, its provisions are remedial, and
 
 3 shall be read to provide the greatest level of protection.
 
 4      SECTION 8.  This Act shall take effect upon its approval,
 
 5 provided that it shall not affect any claim which has been filed
 
 6 in the courts on the date of its enactment. Section 2 of this
 
 7 Act, shall be repealed on December 31, 2010, provided that
 
 8 nothing in this section shall be deemed to affect rights and
 
 9 obligations which have accrued as of that date.
 
10 
 
11                           INTRODUCED BY:  _______________________
 

 
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