21st Century Insurance Group is demanding more than $100m from Computer Sciences Corporation in an arbitration claim after the insurance firm decided a software system supplied by the services company did not come up to scratch.
CSC said this week the arbitration claim was unfounded, that it would defend itself vigorously in the action, and it would seek the recovery of all sums it is due. It added that damages, if any, should be limited to modest, non-material sums.
Woodland Hills, California-based 21st Century said on Monday that it had commenced an arbitration proceeding against CSC, arising out of CSC’s obligation to provide its COGEN and 3r insurance information technology software and other software programs to 21st Century Insurance.
The insurance firm said it had recently written off $37m of its investment in CSC software, and that it would seek more than $100m from CSC in the case.
21st Century refused to elaborate on why it had decided to bring the claim. However, its 10-Q filing dated October 24, offers some further information. In the filing, 21st Century said it had been working with CSC since 1997 to build an advanced personal lines processing system, with four main components: policy, claims, billing and customer service. It said the system was still in development and supported less than 2% of its business. The insurance firm said it had spent $100m on the project to date, most of it paid direct to CSC.
However, the statement continues, in the third quarter, it became evident through a series of tests and reviews conducted by the company, that material components of this new system do not perform at levels necessary to support the entire operations of the company. As a result, said 21st Century, it had recorded a one-off charge to write-off $37.2m of previously capitalized software costs, and was pursuing solutions with CSC as well as exploring other alternatives.
In a statement, El Segundo, California-based CSC said it had provided state of the art, integrated software systems to 21st Century, which was using the system to support customers in Nevada, Oregon and Washington. It added the systems had been highly customized at 21st Century’s direction and that staff from both companies had collaborated on their development. CSC said it believed it had complied with its contractual obligations and it believed 21st Century can and should implement the system in California.
As well as saying 21st Century’s arbitration demand was unfounded, CSC said claims asserted by the insurance firm were barred or otherwise limited by the parties’ contract, course of conduct and by law.
The arbitration hearing is due to be heard by the American Arbitration Association.