By now nearly everyone has heard that a "Year 2000 Problem" or "Y2K Problem," exists. But, outside of information technology professionals not many of us know quite what this means, what this "Millennium Bug" is, or what legal consequences it carries.

Many of us think the "problem" exists only when the year to be filled out in a data entry field uses a two-digit entry for the year (such as 98 for 1998), so that on January 1, 2000, the computer will act as if the data had a date of January 1, 1900. Some software uses six digit dating conventions, in which the year's digits come first instead of last (such as 980401 for April 1, 1998). Some software uses five-digit date conventions where the first two digits represent the year and the remaining digits represent the date counted sequentially in the year (for example April 1, 1998, would be 98091). Each of these is a twist on the two-digit year field.

But, the Y2K problem goes beyond just the year field in data entries. Dates can also play a role in the execution of applications software going beyond data entries. Dates can also play a role in operating software where the computer operator does not see the date. Also, the Year 2000 is a "leap year" even though most years ending in "00" are not leap years (years divisible by 100 are not leap years unless they are also divisible by 400). And, while the arrival of the Year 2000 heralds the problem, the real cause of the problem is that the data space available for an important entry (the year) is too small (two digits instead of four). A number of other, similar problems exist. For example, at the end of August 21, 1999, the dating systems of global positioning satellites will "roll over" and software that uses GPS signals for timing (such as some electronic funds transmission software) will need to convert the re-set GPS timing (which goes back to "0000") to match the "regular" calendar shortly before that software must also grapple with Y2K.

Nor is the potential for trouble limited to mainframe and desktop computers. Many kinds of equipment come equipped with built-in computers and the programs run on them may include date information in which the year has a role.

What is your liability if you sold software, or consulted in developing software, and to save computer memory adopted one of the many two-digit mechanisms to identify the year and you did not offer your client or customer a "fix" in time to avoid a Y2K malfunction? If you are an executive or a business that services clients (such as third-party claims or billing administrator or an accounting firm), might you have liability to shareholders or clients if you have a Y2K software problem in software you use in business and it malfunctions because of the Y2K problem? The answer to both questions is that, yes, you may have liability.

Suppose the software your company developed or sold (or the product your company sold that uses the software) or a computer and related software embedded in the equipment causes the equipment to malfunction. Suppose the malfunction causes someone or something to be hurt or damaged. (Examples could be a medical device or an airplane or an oil rig drill.) Then your company may have "strict liability" for putting out a "defective" product at least if it was reasonably foreseeable that the user would use the product beyond the year 2000.

What if the Y2K problem results in monetary loss (unsent or missent funds transfers, misbillings or mispostings, etc.)? Would your company face liability for not having provided a Y2K "fix"? Maybe. As is so often the case in the commercial world, the outcome depends on what the parties actually agreed when buying the product, or licensing the software. The words used in the transactional documents can make a difference.

But, if the documents do not directly answer the question then liability is certainly possible. For example, advertising that suggests long product life might comprise a warranty that the product would function smoothly into the year 2000. The courts might be called upon to decide whether the Y2K problem should have been foreseen and taken into account. For example, a product that would reasonably be expected to last into the year 2000 might be deemed to come with a warranty that to be "merchantable" it must not malfunction due to Y2K, but if essentially all sellers of similar products made at the time yours was made encounter similar Y2K problems then maybe nothing actionable occurred when they all failed to take it into account.

Suppose you are an executive of a company with outside shareholders (such as a publicly held company) and your business undergoes a serious disruption due to a Y2K problem, can you have personal liability? Maybe. As an executive, or as a director, in the U.S.A. you have an obligation to use prudent, reasonable business judgment to manage the business. That does not mean you cannot make mistakes. But, you need to address problems with reasonable prudence. Also, to comply with the U.S. securities laws, if your publicly held company has a material risk that Y2K will adversely impact its business, then you probably need to publicly disclose that fact to the shareholders. A significant, adverse Y2K incident could thus trigger securities owner class action lawsuits and shareholder derivative suits, one asserting that the company should have made the existence of the Y2K problem and its potential consequences known to the securities marketplace before the incident and the other claiming that management failed to act properly to avoid the problem.

For those who are consultants or professionals, the question is one of possible malpractice. Did you employ reasonable professional judgment in developing the software or in handling a client's affairs using software? If not, then you may have liability.

What about insurance? Does your insurance cover your liability? No global answer exists for those questions. But, people in business usually carry liability insurance and casualty insurance and it would certainly be prudent to examine your insurance policies and see if they may cover your Y2K exposure. Unless the business world as a whole is quite successful in grappling with Y2K, a large number of legal claims of different types may result from Y2K problems as those affected by them seek to recoup the costs of coping.