Court Finds Coverage for BIPA Liability Effectively Excluded

By Don R. Sampen, published, Chicago Daily Law Bulletin, January 9, 2024

The 1st District Appellate Court, disagreeing with the 7th U.S. Circuit Court of Appeals, recently held that a “catchall” exclusion for certain statutory liabilities applied to a claim against an insured for violation of the Biometric Information Privacy Act, 740 ILCS 14/15.

The case is National Fire Insurance Company of Hartford, et al. v. Visual Pak Co., Inc., 2023 IL App (1st) 221160 (Dec. 19). The two plaintiff insurers, National Fire and Continental Insurance Co., were represented by Tressler LLP of Chicago. Esposito & Staubus LLP of Burr Ridge represented the insured, Visual Pak, and underlying class claimants.

In 2018, Luis Sanchez, an employee of Visual Pak, brought a class action against the company for violation of BIPA. He claimed that the company collected his and others’ fingerprints without consent. He further contended the company had no policies in place regarding retention and deletion of the fingerprints and failed to provide information on how the biometric data would be used.

Value Pak tendered its defense to a third insurer, which provided employment practices coverage and agreed to defend. Value Pak and the claimants also contended Value Pak tendered to the two plaintiff insurers, which provided commercial general liability and excess coverage. The plaintiff insurers denied that any tender was made in 2018, but for purposes of the decision, the court assumed otherwise. Those insurers denied coverage two years later.

The underlying BIPA suit eventually settled for $19.5 million, with Visual Pak agreeing to pay $3.5 million and to assign its rights against the two plaintiff insurers. Those insurers brought the instant declaratory action against Visual Pak and the underlying plaintiffs for a determination of non-coverage. The declaratory defendants counterclaimed seeking coverage.

Upon the insurers’ motion for judgment on the pleadings, the trial court held in favor of the plaintiff insurers and found no duty to defend. This appeal followed.
BIPA claims excluded

In an opinion by Justice David W. Ellis, the 1st District affirmed. He initially determined that the underlying claims of a BIPA violation potentially invoked the insurers’ coverage for “personal and advertising injury” as a violation of the right to privacy, under West Bend Mutual Insurance Co. v. Krishna Schaumburg Tan, Inc., 2021 IL 125978. The issue before the appellate court thus concerned applicability of an exclusion to coverage.

The key exclusion in the plaintiff insurers’ policies was titled “Recording and Distribution of Material Or Information in Violation Of Law.” It excluded coverage for claims for violation of several specific legislative acts, including the Telephone Consumer Protection Act, CAN-SPAM Act of 2003, and the Fair Credit Reporting Act.

The exclusion then contained a catchall provision that barred coverage for any state or federal law or regulation other than those specifically named that addressed or limited the dissemination, disposal, collecting, etc. of material or information.

Ellis observed that the 7th Circuit in Citizens Insurance Co. of America v. Wynndalco Enterprises, LLC, 70 F.4th 987 (7th Cir. 2023), analyzed a similar exclusion and found it inapplicable to a claimed BIPA violation. He noted, however, that the catchall language in the policy currently before the court contained verbiage — such as “disposal” and “collecting” — that was slightly broader than the corresponding provision in West Bend.

Ellis then evaluated the interpretative canon of ejusdem generis, which seeks to identify features “of the same kind” in a list of items, to provide a limitation on more general catchall language.

He opined that, among other differences with the exclusion at issue in West Bend, the exclusion here referred to additional statutory provisions. In Ellis’ view, those provisions went beyond the “methods of communication” with which the 7th Circuit was dealing, to more directly address consumer privacy.

Moreover, wrote Ellis, BIPA itself is a statute that protects personal privacy. Hence, under the ejusdem generis canon, the catchall provision in the exclusion currently before the court “plainly and obviously” was intended to include BIPA lawsuits.

Illusory Coverage and Estoppel Issues

He further explored whether interpreting the exclusion to include BIPA claims would unduly broaden the exclusion so as to “swallow” the policy’s coverage provisions such as to deem the coverage “illusory.” In rejecting that position, he noted that every exclusion to some degree conflicts with the policy’s coverage provision — thus being the purpose of the exclusion.

But so long as the policy provides coverage against some liabilities, it cannot be said to be illusory. While the exclusion here, for example, barred all statutory causes of action falling within its parameters, it did not exclude any common law causes of action whatsoever. The violation-of-law exclusion therefore did not swallow the policies’ coverage for “advertising and personal injury.”

Finally, Ellis found that the plaintiff insurers were not estopped from raising the exclusion on the theory they waited two years to deny coverage after arguably having been notified of the underlying lawsuit. They were not estopped to raise the exclusion because they owed no duty to defend. The estoppel doctrine of Employers Insurance of Wausau v. Ehlco Liquidating Trust, 186 Ill. 2d 127 (1999), applies only where an insurer has breached its duty to defend.

The court therefore affirmed the judgment in favor of the insurers

.Key Points

• The canon of ejusdem generis may be used to identify a common theme among a list of items in a generalized contract provision to limit the provision’s application in accordance with the theme.

• A policy exclusion does not render the policy’s coverage “illusory” so long as the policy provides coverage for some liabilities.

• An insurer may not be estopped from raising policy defenses under Wausau unless it breaches the duty to defend.