In a recent decision impacting the interpretation of Illinois’ Biometric Information Privacy Act (BIPA), the Illinois First District Appellate Court, in The National Fire Insurance Company of Hartford and Continental Insurance Company v. Visual Pak Company, Inc. and Luis Sanchez, Individually and on Behalf of All Others Similarly Situated, found that the two insurance companies did not owe a duty to defend an employer in an underlying BIPA class action lawsuit.
In the underlying lawsuit, a temporary employment agency staffed an employee, Luis Sanchez, at Visual Pak. Sanchez was required to enroll in an employee database using a fingerprint scan. Sanchez alleged a violation of BIPA, stating Visual Pak failed to inform him of how his biometric information would be used, and did not provide him with a release for the use of his biometric information. An amended complaint sought certification of a class.
Visual Pak had three different insurance policies in place with affiliates of CNA. One policy, provided by Continental Casualty, was an employment practices liability policy. The other two insurers—National Fire Insurance and Continental Insurance, which provided general liability coverage and an excess/umbrella policy—filed action, seeking a declaration that they owed no duty to defend or indemnify Value Pak in the BIPA action due to various exclusions in their policies barred coverage in that underlying suit.
According to Justice David Ellis, “Plaintiffs moved for judgement on the pleadings, claiming that various exclusions in their policies barred coverage in that underlying suit. The trial court initially disagreed, finding that the insurers were estopped from asserting defenses within the policy. On reconsideration, the trial court reversed itself, ruling that a particular exclusion in the policy barred coverage, and because plaintiff had no duty to defend, the question of estoppel was moot.”
Justice Ellis states, “We affirm the circuit court's judgment. The trial court correctly reconsidered its initial, erroneous ruling and reversed course. Plaintiffs owed Visual Pak no duty to defend under the terms of their policies.”
Justice Ellis specifically pointed to a catchall exclusion in the policy at issue that states insurance does not apply to “[a]ny federal, state or local statute, ordinance or regulation, other than the TCPA, CAN-SPAM Act of 2003 or FCRA and their amendments and additions, that addresses, prohibits, or limits the printing, dissemination, disposal, collecting, recording, sending, transmitting, communicating or distribution of material or information.”
Jurisdictions Collide
Justice Ellis notes that the recent U.S. Court of Appeals of the Seventh Circuit decision in Citizens Insurance Co. of America v. Wynndalco Enterprises, LLC reached a different conclusion on a similar matter. “A few months ago, the United States Court of Appeals for the Seventh Circuit weighed in, holding that nearly identical exclusion language as in our case did not preclude defense of an underlying BIPA lawsuit; the insurer owed a duty to defend,” states Justice Ellis. However, he adds, “But we are obviously not bound by a federal court's interpretation of Illinois law, be it a decision from a district court or a federal appellate court. …So we will consider all the case law, even if some of those decisions, in some sense, are no longer ‘good law’ on the subject, because from our perspective as an Illinois appellate court, we are bound by none of these decisions and are open to persuasion by any of them.”
In pointing to the differences in interpretation, Justice Ellis says the Seventh Circuit found that “the broad language of the catchall exclusion purports to take away with one hand what the policy purports to give with the other in defining covered personal and advertising injuries," the exclusion was ambiguous, and the ambiguity must be resolved in favor of coverage.
However, Justice Ellis disagrees, stating, “It is only when the exclusion has the effect of ‘swallowing’ the coverage entirely that the exclusion can be deemed illusory—and this is plainly not the case here.”
Reactions and Further Analysis
“I am encouraged to read Illinois’s First District Appellate Court decision that the catchall provision to the ‘violations of statutes’ excludes coverage for BIPA claims,” says Sarah Abrams, head of professional liability claims at Chicago, Illinois-based Bowhead Specialty Underwriters, Inc. “While the Seventh Circuit held otherwise, an Illinois appellate panel, applying Illinois law to an Illinois statute to interpret the carve out to personal and advertising injury is informative to insurers writing policies to insure Illinois risk. Given the BIPA private right action and large published settlements, there is an acute awareness of the heightened exposure to companies doing business, especially with a corporate footprint in Illinois.”*
Michael J. O’Malley, attorney at Wilson Elser Moskowitz Edelman & Dicker LLP, opines, “The Visual Pak court got it right. As the Illinois appellate court pointed out, exclusions, by their very nature, conflict with the grant of coverage. That does not make them ambiguous. The Violation-Of-Statutes exclusion does not render coverage for ‘personal and advertising injury’ illusory, and the Seventh Circuit even conceded this fact in Wynndalco. Even if the exclusion totally barred coverage for enumerated offense (e), which would not be the case, the exclusion would still not ‘swallow’ the grant of coverage because there are still six other ‘personal and advertising injury’ offenses for which coverage remains intact,” he explains.
Furthermore, continues O’Malley, “Because the Wynndalco decision provides no real guidance for when an exclusion is broad enough to render it ambiguous, it is an unworkable precedent within the context of insurance coverage law and conflicts with existing Illinois law, as the Illinois Appellate Court notes.
“I fully expect the Illinois Supreme Court to settle this matter. Given existing Illinois precedent and the strength of the Illinois Appellate Court’s analysis, I believe the Illinois Supreme Court should affirm the holding in Visual Pak. In the meantime, because Visual Pak is now the law of the land in state trial courts in Illinois, insurers will be more likely to file declaratory judgment actions involving the matters in state rather than federal court.”
Diving Into Complexities
Joel Bruckman, partner, Smith Gambrell Russell, states, “The Visual Pak opinion creates the potential for forum shopping between Illinois circuit courts and federal district courts, where a plaintiff can establish subject matter jurisdiction in both venues, as they are each bound by now opposing precedent between their respective appellate courts. It is of particular note that in the Northern District of Illinois, prior to the [Seventh] Circuit’s ruling in Wynndalco, district courts were split on the issue of certain common exclusion language, referred to by the Visual Pak court as ‘violation-of-law exclusions.’ It was, in part, in regard to that language that the [Seventh] Circuit weighed-in in Wynndalco, a decision the First District referred to as ‘wrongfully decided,’” he explains.
He continues, “As with any insurance coverage matter, the court’s analysis starts with the insurance policy language. However, where policy terms fail to exclude coverage of BIPA expressly, then the issue becomes one of analysis to interpret the terms of the policy. Traditionally, that analysis first looks to the terms to try and give effect to the intention of the parties. If those terms are clear and unambiguous, the court will apply the plain and ordinary meaning to the language. However, if the language is ambiguous, such ambiguity will be interpreted in the light most favorable to the insured.”
The ambiguity referenced by Bruckman is what led the Illinois Supreme Court to find a “catchall provision not to exclude coverage in the case of West Bend Mutual Insurance Co. v. Krishna Schaumburg Tan, Inc., 2021 IL 125978,” Bruckman explains. “The Visual Pak court spent significant time comparing…the Supreme Court’s ruling in that case to its instant matter and ultimately distinguished it in several ways. First, the First District found the exclusion language at issue to be broader than that in West Bend. Second, if it isolated the catchall provision in the policy exclusion terms, it is simply impossible to deny that it describes BIPA.
“Lastly, and where the Visual Pak court took issue with the Seventh Circuit’s analysis in Wynndalco (note, the First District also cited this holding for several consistent propositions and findings), was the analysis of a common denominator between the specific statutes identified in the exclusion language outside of the catchall provision. The court did so parroting the analysis of the Illinois Supreme Court in West-Bend, analyzing the exclusion language under the doctrine of ejusdem generis, which, in its simplest terms, stands for the proposition that a catchall provision must be limited to that which is similar to what was expressly articulated. Here, that common denominator was statutes that sought to protect individual privacy rights. The disagreement, however, arose in the degree of analysis it took to reach that conclusion.”
Bruckman concludes, “Going back to my comment about ambiguity being interpreted in the light most favorable to the insured, the First District found that an insured looking at this exclusion could reach the conclusion or understanding regarding what commonality was being excluded. In contrast, the Seventh Circuit found that it took complex, nuanced analysis to reach that conclusion, thus resulting in the Seventh Circuit holding BIPA not to be excluded. Meanwhile, the First District found that it was clear to the insured that BIPA was excluded under the policy.”
*All views expressed therein are those of Sarah Abrams alone and do not represent those of Bowhead Specialty Underwriters, Inc.