IBM ordered to pay $105 million to insurer over tech project's collapse

Appeals court takes previous payout ruling and multiplies by six

IBM must pay five times more in compensation to a customer whose £175 million ($230 million) Agile software platform contract was ripped up in 2017 following a series of failures on the project, the Court of Appeal in England has ruled.

The legal spat between Big Blue and the client, formerly known as CIS General Insurance Ltd (CISGIL), a subsidiary of Co-Op Group, pertained to a 2015 agreement to build software to manage the customer's insurance and underwriting operations.

The out-of-the-box platform provided was described by Co-Op CEO Mark Summerfield as "terrible." It was said to be unfit for purpose, and the project ultimately collapsed after payment to IBM was withheld. Co-Op was not blameless.

The original claim from CISGIL was for £128 million ($170 million) in damages.

Things seemingly came to a head in February last year when a judge blamed IBM for "critical delays" that caused the agreement between the companies to collapse.

Mrs Justice O'Farrell ruled the US IT giant had unlawfully terminated the contract and awarded £13 million ($17 million) in compensation to Co-Op Insurance, which had sold the underwriting business to Soteria Insurance for £185 million ($243 million) in December 2020.

At the time, the claim for wasted costs, however, was dismissed on the grounds that under section 23.3 of the contract it was "caught by a clause excluding recovery of loss of profits, revenue and anticipated savings," Soteria's legal brief told The Register.

However, in the latest judgment, handed down in the Court of Appeals by Lord Justice Coulson in late February and published recently, the judge said there were "separate reasons" why his predecessor was "wrong" to construe a clause as precluding Soteria from trying to recoup monies for "wasted expenditure following IBM's repudiation of the contract."

These, he said, included the use of language in the exclusion clauses and the clarity of what was contained within it – the term "wasted expenditure" was not used. Coulson said being able to claim for wasted expenditure was a "valuable claim" and one that was "easy to ascertain" via invoices, contracts, receipts, etc.

He said that "wasted expenditure is a recognised and recoverable type of loss, well within the compensatory principle."

"For the recoverability of such a likely claim to be excluded, the exclusion must be clear and obvious. Yet here, there were no relevant exclusionary words [in the contract], let alone clear and obvious ones. The convoluted argument on which IBM rely to avoid this difficulty only confirms the absence of the necessary clarity."

He added that although "there is a rebuttable presumption that the wasted expenditure would have been recouped out of profits/savings/revenue if the contract had been performed, that does not make an ascertainable claim for monies paid to, say, a third party supplier in the expectation that the contract will be completed the same as, or impliedly included within, a claim for lost profits, revenue or savings."

All three judges ruling on the appeal agreed, with Justice Coulson concluding that "the sum of £80,574,168 is due," which equates to $105.9 million.

Previously, in February 2021, a spokesperson at IBM told us it was "pleased to conclude this dispute" and that "CISGIL's inflated damages claim [amount] to a fraction of what was claimed." This time round, IBM didn't respond to a call for comment. ®

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