Illinois court rejects federal ruling in freeing insurers from privacy coverage

Illinois courts continue to sort out the implications of the state's far-reaching privacy protection law on insurance companies.

In the latest significant ruling, a state appellate court sided with two insurers Tuesday, ruling that they are not responsible for part of a $19 million settlement in a biometric privacy case.

The decision affirms a trial court's finding that National Fire Insurance Co. of Hartford and Continental Insurance Co. owed Visual Pak no duty to defend under the terms of their policies. The court acknowledged that its decision is contrary to a recent decision from the U.S. Court of Appeals for the Seventh Circuit, which reached the opposite conclusion under Illinois law.

"Though we do not do so lightly, we believe that this federal decision was wrongly decided and decline to follow it," the decision states.

Illinois is ground zero for the fight over biometric data thanks to the state Biometric Information Privacy Act, which took effect in 2008 and provides a comprehensive set of rules for those entities choosing to collect biometric data from Illinois residents. A series of privacy rulings in recent years have ensnared insurers who could be on the hook for jury awards.

Two Illinois companies

In a class-action lawsuit filed in 2018, lead plaintiff Luis Sanchez claimed his rights under the BIPA were violated. Sanchez was an Elite Staffing employee provided to Visual Pak as a warehouse worker from February to April 2016, the lawsuit says,

Sanchez was required to scan his fingerprint at the beginning and end of each workday. According to the amended complaint, Visual Pak “collected, stored, used, or disseminated” Sanchez’s fingerprints without his consent and without any policies in place regarding the retention and deletion of his fingerprints from the database.

"Visual Pak failed to inform him of how his biometric information would be used," the lawsuit says. "Nor did Visual Pak provide him with a release for the use of his biometric information."

Visual Pak had a commercial general liability policy with National Fire, and an excess/umbrella policy of general liability coverage with Continental Insurance, court documents say. Visual Pak estimated that the class of former employees whose BIPA rights were allegedly violated numbered over 13,000 people.

Eventually, the BIPA suit settled for $19.5 million and Visual Pak agreed to pay $3.5 million, court documents say. The insurers sought a declaration in 2020 that they "owed no duty to defend or indemnify Visual Pak in the BIPA action," the lawsuit says.

General exclusion at issue

The insurers are relying on a Violation of Statutes exclusion that exempts coverage for violations of the Telephone Consumer Protection Act, the CAN-SPAM Act, the Fair Credit Reporting Act, the Fair and Accurate Credit Transaction Act, and "any statute, ordinance or regulation ... that prohibits or limits the sending, transmitting, communicating or distribution of material or information.”

The appellate court found that the latter "catchall" language in the exclusion applies to the Visual Pak case.

"[I]f we merely isolated this catchall language, it is simply impossible to deny that it describes BIPA," wrote Justice David Ellis. "BIPA regulates the collection, dissemination, and disposal of one’s biometric identifiers and information."

The Seventh Circuit reached the opposite conclusion in a June ruling on the lawsuit, Citizens Insurance Company of America v. Wynndalco Enterprises. The federal court ruled that Citizens must defend its client under a business liability policy in two putative class actions filed under the BIPA.

"The Seventh Circuit held a broad version of the Violation-of-Statutes exclusion is ambiguous because it appears to nullify significant portions of coverage provided under 'personal and advertising injury,'" the law firm Wilson Elser wrote. "Because ambiguities are construed in favor of the insured, the Court held the BIPA claims at least potentially fall within coverage, thus triggering the duty to defend."

InsuranceNewsNet Senior Editor John Hilton covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected]. Follow him on Twitter @INNJohnH.

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InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected]. Follow him on Twitter @INNJohnH.