Disappointed client seeks $100 million from CSC

21st Century Insurance Group has filed an arbitration proceeding seeking more than $100 million from Computer Sciences (CSC) over an IT project that the insurer says hasn’t yielded the expected results.

CSC, a provider of IT services, called Monday’s arbitration filing “unfounded,” said it had complied with its contractual obligations and pledged to defend itself “vigorously,” according to a statement issued Tuesday.

A 21st Century spokeswoman said the company isn’t commenting on the matter beyond Monday’s statement. CSC couldn’t be reached immediately for comment.

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

The system is still in development and “currently supports less than 2% of the company’s business,” 21st Century said in the filing. Moreover, the company stated that “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 $37.2 million of previously capitalized software costs in its third fiscal quarter, ended Sept. 30, during which the it posted a net loss of $45.2 million, or $0.53 per share. 21st Century further said it was looking to find a solution for the matter “with CSC as well as exploring other alternatives.”

Ironically, 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 Tuesday’s statement, CSC said it had provided 21st Century with “highly customized” and integrated software systems, including database management, workflow, marketing and insurance processing software, and that the insurer is using them to process its personal automobile insurance business for customers located in Nevada, Oregon and Washington, and that the system “can and should” be implemented in California, where the insurer is based in Woodland Hills.

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

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

21st Century offers insurance in California, Nevada, Oregon, Arizona and Washington, according to Monday’s statement.