REPORT TITLE:
Y2K claims


DESCRIPTION:
Provides protection for persons who exercise commercially
reasonable efforts to identify and find solutions for computer-
based systems that may be affected by year 2000 errors.  (SD1)

 
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THE SENATE                              S.B. NO.           S.D. 1
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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                                     S.B. NO.           S.D. 1
                                                        
                                                        

 
 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.  As used in this chapter: 
 
17      "Claimant" means the plaintiff in a lawsuit or a person
 
18 otherwise asserting a claim.
 
19      "Computer-based system" includes any computer or other
 
20 information technology system, and any electronic device that
 
21 controls, operates, monitors, or assists in the operation or
 
22 functioning of equipment, machinery, plant, or a device using an
 
23 embedded or installed microprocessor or chip.
 

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

 
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 1           based systems supporting core activities,
 
 2           prioritization of items with potential year 2000 errors
 
 3           to create a remediation schedule, determining whether
 
 4           the item records dates or processes date information,
 
 5           identifying and obtaining resources to address
 
 6           potential year 2000 errors, the development of a
 
 7           remediation strategy for each item with the potential
 
 8           for year 2000 errors, and the development of a recovery
 
 9           plan to handle those year 2000 errors which are
 
10           reasonably likely to occur.
 
11      (3)  The renovation step generally includes the conversion,
 
12           upgrade, replacement, or elimination of computer-based
 
13           systems supporting core activities which are subject to
 
14           year 2000 errors.
 
15      (4)  The validation step generally includes validating
 
16           existing, converted, or replaced computer-based systems
 
17           supporting core activities.  "Validating" means:
 
18           (A)  Testing the item to actually simulate the
 
19                transition from December 31, 1999, to January 1,
 
20                2000, the processing of other date data which may
 
21                reasonably be expected to trigger a year 2000
 
22                error, and a determination that no year 2000 error
 
23                occurs; and
 

 
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 1           (B)  Where the item has been renovated to correct known
 
 2                or suspected year 2000 errors, testing to assure
 
 3                that the item continues to properly perform its
 
 4                functions without error.  This testing includes
 
 5                but is not limited to integration and acceptance
 
 6                testing.  When testing is not reasonably possible,
 
 7                the validation step consists of securing
 
 8                documentation from the developer or vendor of a
 
 9                computer-based system supporting core activities
 
10                that it is free of potential year 2000 errors.
 
11                This includes vendors of core business functions,
 
12                services, or supplies to understand the risk posed
 
13                by the person's supply chain.
 
14      (5)  The implementation step generally includes the placing
 
15           of renovated or replaced computer-based systems into
 
16           production use.  Where a computer-based system cannot
 
17           reasonably be renovated, the implementation step
 
18           generally includes the implementation of a work-around
 
19           designed to avoid the effect of the potential year 2000
 
20           error.  Additionally, this step includes the
 
21           implementation of contingency or recovery plans for
 
22           those year 2000 errors which are reasonably likely to
 
23           occur.
 

 
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 1 Where applicable, the person's highest level of management should
 
 2 determine what efforts are to be made and what resources are to
 
 3 be used in carrying out the remediation steps, and should monitor
 
 4 the progress of the remediation steps.
 
 5      "Respondent" means the defendant in a lawsuit or a person
 
 6 otherwise defending against a claim, and includes those persons
 
 7 who are liable on a claim, but who were not made a party to the
 
 8 lawsuit or other assertion of the claim.
 
 9      "Year 2000 error" means the failure of a computer-based
 
10 system to accurately store, display, transmit, receive, process,
 
11 calculate, compare, or sequence date and time data from, into, or
 
12 between the twentieth and twenty-first centuries, the years 1999
 
13 and 2000 and beyond, and leap year calculations.
 
14      �    -2  Applicability.(a)  Claims properly filed by
 
15 consumers in the small claims division of the district courts
 
16 shall be excluded from the error dispute resolution process and
 
17 the limitations on liability provisions contained in sections
 
18   -5 and   -6.  
 
19      (b)  Claims alleging physical injury as the direct and
 
20 proximate result of a year 2000 error shall be excluded from the
 
21 error dispute resolution process provisions contained in section
 
22   -5.
 
23      (c)  The provisions in this chapter shall not apply to
 

 
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                                     S.B. NO.           S.D. 1
                                                        
                                                        

 
 1 claims asserted by or against the State, its political
 
 2 subdivisions, a board, or a government employee, arising out or
 
 3 relating to a year 2000 error produced, calculated, or generated
 
 4 by a government computer system or other computer-based system,
 
 5 regardless of the cause for the year 2000 error; provided that
 
 6 nothing in this subsection shall be deemed to apply to any claim
 
 7 asserted against a government employee to enforce a mortgage
 
 8 obligation or other similar personal obligation of the government
 
 9 employee which is unrelated to the government employee's
 
10 employment.  
 
11      As used in this subsection:  
 
12      "Board" means any agency, board, commission, authority, or
 
13 committee of the State or its political subdivisions that is
 
14 created by constitution, statute, rule, or executive order to
 
15 have supervision, control, jurisdiction, or advisory power over
 
16 specific matters. 
 
17      "Government employee" includes an officer or employee of the
 
18 State, its political subdivisions, or board, including a person
 
19 acting on behalf of a board in an official capacity, temporarily
 
20 or permanently, 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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                                     S.B. NO.           S.D. 1
                                                        
                                                        

 
 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)  At the
 
16 request of any party, any dispute in which a year 2000 error is
 
17 alleged in good faith as a claim or a defense shall be submitted
 
18 to nonbinding arbitration.  Unless otherwise agreed by the
 
19 parties, the arbitrator shall be bound by the substantive and
 
20 procedural provisions of this chapter, but shall not be bound by
 
21 rules of evidence, whether or not set out by statute, except for
 
22 provisions relating to privileged communications.  The arbitrator
 
23 shall permit discovery as provided for in the Hawaii rules of
 

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

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

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

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

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

 
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                                     S.B. NO.           S.D. 1
                                                        
                                                        

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

 
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 1           electronic information which was impacted by the
 
 2           alleged year 2000 error.
 
 3      (d)  Except for claims where physical injury was directly
 
 4 and proximately caused by a year 2000 error, upon a finding that
 
 5 either:
 
 6      (1)  A claimant did not engage in commercially reasonable
 
 7           efforts; or
 
 8      (2)  The respondent engaged in commercially reasonable
 
 9           efforts, the respondent's liability shall be limited to
 
10           recovery of the claimant's actual out-of-pocket damages
 
11           directly caused by the year 2000 error, and no
 
12           consequential damages, such as loss of business
 
13           opportunities or loss of profits, or other special
 
14           damages shall be awarded under any theory of recovery.
 
15      (e)  The amount awarded to any claimant shall be reduced to
 
16 the extent that the claimant's failure to engage in commercially
 
17 reasonable efforts contributed in whole or part to the damages
 
18 sustained.  Where two or more respondents are found liable for
 
19 the claimant's damages, the proportion of liability assessed
 
20 against each respondent shall be proportionately adjusted based
 
21 on the extent to which it engaged in commercially reasonable
 
22 efforts."
 
23      SECTION 3.  Nothing in this Act is intended to affect the
 

 
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                                     S.B. NO.           S.D. 1
                                                        
                                                        

 
 1 indemnity and defense coverage rights and obligations under any
 
 2 contract of insurance.
 
 3      SECTION 4.  If any provision of this Act, or the application
 
 4 thereof to any person or circumstance is held invalid, the
 
 5 invalidity does not affect other provisions or applications of
 
 6 the Act which can be given effect without the invalid provision
 
 7 or application, and to this end the provisions of this Act are
 
 8 severable.
 
 9      SECTION 5.  If any portion of this Act is found to be
 
10 preempted by federal law or regulation, the remainder shall
 
11 remain in full force and effect to the fullest extent consistent
 
12 with the preemption.
 
13      SECTION 6.  This Act shall not be deemed to impose any
 
14 increased obligation, duty, or standard of care than is otherwise
 
15 applicable under federal or state law.  It is not intended to
 
16 create any new cause of action or remedy.
 
17      SECTION 7.  The intention of this Act is to protect the
 
18 people of the State of Hawaii against harm which is pervasive and
 
19 which was generally unknown to businesses and consumers.  For
 
20 that reason, its provisions are remedial, and shall be read to
 
21 provide the greatest level of protection.
 
22      SECTION 8.  This Act shall take effect upon its approval;
 
23 provided that it shall not affect any claim which has been filed
 

 
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                                     S.B. NO.           S.D. 1
                                                        
                                                        

 
 1 in the courts on the date of its enactment.
 
 2      Section 2 of this Act, shall be repealed on December 31,
 
 3 2010; provided that nothing in this section shall be deemed to
 
 4 affect rights and obligations which have accrued as of that date.
 

 
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