Illinois biometric law amendment brings relief to carriers

A recent amendment to the Biometric Information Privacy Act in Illinois could help insurance carriers avoid heavy damages, which insurance lawyers believe could make them more willing to provide coverage to corporate policyholders.

Senate Bill 2979, which limits the number of claims that can be brought concerning a violation of BIPA to just one per person and also specifies that a written release includes electronic signatures, was signed into law on August 2.

Andrew Barrios, partner in the Insurance Recovery Group at Reed Smith in its Chicago office, and Scott Seaman, a partner at Hinshaw & Culbertson who represents insurers and reinsurers, explained the ramifications this has on carriers in the state.

“Prospectively, BIPA liability — though still significant — is more readily containable,” Seaman noted.

“I think the biggest upshot of all of it is that insurers with exposure in Illinois [will] likely be more willing to underwrite this risk,” Barrios added. “This amendment makes it a possibility that insurers will be willing to take a look at this and… I could definitely see policyholders trying to obtain coverage for this explicit coverage.”

Biometric privacy

Illinois passed its Biometric Information Privacy Act in October 2008. One of its main purposes is to protect individuals’ biometric data including fingerprints, voiceprints, facial recognition and more.

While this law did not apply to government entities, it affected a wide range of corporations, such as employers collecting data for employees to log into secure systems or businesses such as grocery stores or gas stations using biometric data for payment systems.

BIPA regulates the way companies in Illinois are permitted to collect, store and handle this biometric data. It requires companies to obtain clear consent before obtaining an individual’s biometrics, safely store that data and then dispose of it in a set amount of time.

Prior to the latest amendment, the law allowed companies to be held liable multiple times for infractions dating as far back as five years, even if there was no demonstrable injury to the individual involved.

‘Out of control’ litigation

Prior to this amendment, companies in Illinois faced billions of dollars in lawsuits over BIPA violations.

“Although the legislation has been on the books since 2008, for some reason, businesses were very slow to appreciate the significance of BIPA and sometimes to comply. This resulted in a delayed flurry of litigation and class actions exposing companies to large liabilities,” Seaman said.

He explained that the “out of control” social inflation created challenges for Illinois companies seeking coverage, while Barrios noted that it created a “scary situation” for policyholders.

“Companies facing that amount of exposure are, obviously, going to look to their insurers, and insurers have been fighting those claims for a while,” Barrios added. “Some companies have successfully obtained coverage. Others didn’t. So, it’s kind of a scary situation to be in, essentially facing astronomical damages and then also insurers fighting tooth and nail to avoid coverage”

More manageable risk

With the new amendment significantly reducing the number of allowable BIPA violations and thereby lowering the potential damages resulting from these claims, Barrios expects that carriers will be a lot more willing to underwrite this coverage going forward.

“Obviously, [damages are] still potentially significant, depending on how large the company is and given how high the damages per person can be. But I think it’s a lot more palatable for an insurer to try to underwrite this risk when it’s capped at an individual level rather than not capped at all and according to how many different disclosures or how many different collections there are,” he said.

At the same time, corporate clients who previously struggled to obtain coverage for biometric data may seek to obtain specific coverage now. Barrios explained that insurers in Illinois had been writing exclusions for BIPA violations and biometric violations into their policies because of the significant exposure that existed before this amendment.

“Given that there’s a lot more certainty as to what the potential damages are as a result of BIPA violations now, I could see insurers being willing to come back to the table and underwrite these risks going forward. I could see it being a coverage that policyholders are actually able to obtain now, whereas previously, I don’t think insurers would have been willing to expressly underwrite this sort of risk.”

On the other hand, Seaman noted that companies may change their approach to biometric information collection to avoid liability entirely now that the intense litigation has raised awareness about the risk.

“Now that most companies are aware of BIPA, they can avoid liability by not capturing biometric information or by obtaining proper consent. Though more needs to be done, the recent amendment helps to limit liability. These developments, including the amendment to BIPA, figure to reduce insurers’ exposures insofar as their policyholders’ exposures are reduced,” Seaman said.

Room for arguments

However, Barrios acknowledged that the situation for existing policies and claims may not necessarily be so clear-cut because the BIPA amendment does not specify whether it applies retroactively. That leaves room for arguments and some level of uncertainty.

“There’s definitely still room to argue. I’m not sure that insurers are going to agree to start covering these claims or not fighting them just because of this amendment,” he noted.

However, Barrios speculated that policyholders facing BIPA claims may be able reasonably argue that the amendments apply retroactively and work with their carrier to settle claims at a lower level rather than have the carrier fight as hard as they would if damages continued to be astronomical.

Reed Smith LLP is an international law firm founded in 1877. Its headquarters is in Pittsburgh, PA, and it has over 30 offices around the world.

Hinshaw & Culbertson LLP is an American law firm founded in 1934. Its headquarters is in Chicago, IL, and it has offices nationwide.

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