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US insurer seeks $100m from IT service provider for 'lack of results'

A US insurance company has filed an arbitration proceeding seeking more than $100m from Computer Sciences Corporation (CSC) over an IT project that has not yielded the expected results.

CSC called Monday's arbitration filing from 21st Century Insurance Group "unfounded", claiming it had complied with its contractual obligations and pledged to defend itself "vigorously".

At issue is a software development project 21st Century launched in 1997 and for which it hired CSC. In an October filing with the US Securities and Exchange Commission, 21st Century claimed that it had spent almost $100m on the project and that it had paid "most" of that money directly to CSC.

The system is still in development and "supports less than 2% of the company's business", 21st Century claimed in the filing. Moreover, the company said "material components of this new system do not perform at levels necessary to support the entire operations of the company".

As a result, 21st Century said in the SEC filing, it took a one-time pre-tax charge to write off $37.2m of previously capitalised software costs in its third fiscal quarter, ending 30 September, during which it posted a net loss of $45.2m. 21st Century further said it was looking to find a solution for the matter "with CSC as well as exploring other alternatives".

21st Century launched the software development project in 1997 to "further reduce operating costs for the company", according to an October press release in which the company announced its third-quarter results.

In a statement yesterday, CSC said it had provided 21st Century with "highly customised" and integrated software systems, including database management, workflow, marketing and insurance processing software, and that the company is using them to process car insurance business for customers in Nevada, Oregon and Washington, and that the system "can and should" be implemented in California, where the 21st Century is based.

CSC also stated that 21st Century has made the critical decisions for the direction, priorities and resource allocation for the project, and the work that 21st Century allocated to itself to implement the system in California has not been completed.

CSC added that despite the arbitration proceeding, it continued to work with its client to achieve the objective of implementing the software system in California.

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