In a recent landmark legal development, the 1st District Appellate Court of Illinois rendered a pivotal decision addressing the interplay between "catchall exclusions" in insurance coverage and claims involving the Biometric Information Privacy Act (BIPA). This seminal case, National Fire Insurance Company of Hartford, et. al. v. Visual Pak Co., 2023 IL App (ast) 221160, carries profound implications for both the business and insurance sectors. In this article we delve into the reverberations of this court ruling, exploring its ramifications for businesses, insurers, and policyholders alike.
Background
At the crux of this matter lies a class action lawsuit initiated by employees of Visual Pak against the company, alleging unauthorized collection and retention of biometric data, specifically fingerprints, in contravention of BIPA. The employer used a staffing company to assist in its hiring and as part of that process participants were required to submit a fingerprint for identification. The subsequent settlement of $19.5 million with Visual Pak agreeing to pay $3.5 million and assign its rights against insurers, catalyzed a declaratory action brought forth by the insurers seeking a determination of non-coverage. Concurrently, the insured and underlying claimants counterclaimed for coverage. Ultimately, the court found in favor of the insurers.
The Catchall Exclusion
Central to the dispute is the interpretation of a catchall exclusion embedded within the insurance policy in question, entitled the "Recording and Distribution of Material or Information in Violation of Law." This exclusion, while delineating certain legislative acts, also encompasses a catchall provision extending to any state or federal law or regulation governing the dissemination, disposal, and collection of material information.
This catchall language is what the insurers used to deny Visual Pak's claim as well as avoiding their duty to defend Visual Pak in any litigation that ensued. The trial court agreed with the insurers and found that they did not have a duty to defend Visual Pak. The Appellate Court of Illinois affirmed that decision. The court stated, "It is simply impossible to deny that the catchall language of the policy includes BIPA as it regulates the collection, dissemination, and disposal of biometric identifiers and information."
This decision flew in the face of a prior opinion handed down in West Bend Mutual Insurance Company v. Krishna Schaumburg Tan, Inc. 202 Ill.App. 191834 (Ill. App. Ct.2020). In that case the Illinois Supreme Court looked at a similar exclusion in an insurance policy and found that the insurer did have a duty to defend against a BIPA claim. It analyzed the exclusion through the lens of the interpretative canon, ejusdem generis, which seeks to identify commonality among a list of items to limit the provision's application. After careful consideration, the court determined that the language at issue in the West Bend case was broader in scope than that presented in the policy at issue here. Specifically, the West Bend policy did not include language in its catch-all that accounted for the disposal, collection and recording of personal information. Therefore, the court concluded that the catchall provision in the exclusion here clearly intended to include BIPA claims.
Illusory Coverage and Estoppel Issues
Amid concerns about expanding the exclusion to the point of causing coverage to be treated as illusory, the court emphasized that while every exclusion conflicts to some extent with the policy's coverage provisions, so long as the policy provides coverage for some liabilities, the court will not deem it illusory. In this case, the exclusion barred statutory causes of action falling within its parameters but did not exclude any common law causes of action.
Further, the court dismissed the argument that the insurers were estopped from raising the exclusion due to a delay in denying coverage. The insurers had no duty to defend, and the estoppel doctrine is only triggered when an insurer breaches its duty to defend.
Implications for Businesses and Insurers
The ramifications of the court's ruling extend far beyond the confines of this singular case. Businesses entrusted with the collection and retention of biometric data must now reckon with potential coverage exclusions under their insurance policies, mandating a meticulous review of those documents moving forward. Conversely, insurers are afforded clarity in utilizing catchall exclusions, which in turn may influence and guide their approach to coverage determinations regarding BIPA claims.
Practice Pointers Moving Forward
- Employers should revisit their insurance policies and review the content of the exclusions to ensure that coverage includes claims involving the use of biometric data.
- Review the purpose and usage of biometric data in hiring, onboarding and other procedures involving employee as well as applicants.
- Obtain informed consent from participants before collecting or utilizing biometric information.
The attorneys at Wood Smith Henning & Berman are available to address any questions or concerns you may have regarding the use of biometric data and insurance coverage implications. Please do not hesitate to reach out to a member of our team if we can be of assistance.