Numerous businesses facing class action lawsuits brought under the Illinois Biometric Information Privacy Act (BIPA), 740 ILCS 14 et seq., have sought insurance coverage under general liability policies only to receive blanket denials. It appears some relief may be on the way as the first Illinois Appellate Court to consider the issue affirmed the decision of the trial court and found in favor of coverage. West Bend Mut. Ins. Co. v. Krishna Schaumburg Tan, Inc., 2020 IL App (1st) 191834 (March 20, 2020).
As background, BIPA allows for a private cause of action with statutory damages against companies that collect, capture, purchase, receive, otherwise obtain, disclose, or disseminate biometrics and negligently or intentionally fail to provide notice in writing and to obtain a written release. BIPA also requires companies that possess biometrics to publish a publicly available retention schedule, and prohibits selling, leasing, trading, or otherwise profiting from biometrics. The volume of pending BIPA class action lawsuits, and the damages sought in those matters, is staggering. At the same time, there is a growing number of declaratory judgment actions filed by general liability insurers seeking to avoid any coverage for BIPA claims. Some insurers, like the one in West Bend, are providing a defense under a reservation of rights, but have filed a lawsuit to terminate that defense. Others are seeking to obtain confirmation of their decision to entirely deny coverage and are providing no defense.
Although policy language may vary, virtually all of these denials rest primarily on two arguments: (i) a BIPA claims is not a “personal injury” where there is no “publication” violating a right of privacy; and (ii) BIPA is a statutory scheme that falls under a violation of statutes exclusion catch-all. The Court in West Bend rejected both of these arguments and ordered the insurer to continue to provide a defense. As such, the decision in West Bend is instructive for other coverage disputes involving BIPA.
Broad Understanding of Publication for Personal Injury
General liability policies contain a coverage for “personal injury” arising out of an “oral or written publication of material that violates a person’s right to privacy.” Insurance carriers routinely argue that the distribution of biometrics from a policyholder to a private third party is not a “publication of material” under the policy language, because the information is not being communicated to the public. Instead, as in West Bend, the information is being communicated to a third-party vendor maintaining a database or providing a discrete service such as payment processing.
The West Bend Court rejected that argument by giving “publication” a broad definition. The Court reasoned that when a term is undefined in an insurance policy it should be given its plain, ordinary, and popular meaning, including consulting dictionary definitions. Referring to classic dictionary definitions, the Court concluded that any reasonable person would understand “publication” to include both sharing with the public and sharing with a single third party.
BIPA Does Not Fall Under the Statutory Exclusion Catch-All
After facing considerable class-action liability under the Telephone Consumer Protection Act (TCPA) and the CAN-SPAM ACT of 2003, insurers began inserting “distribution of material in violation of statutes” exclusions in to general liability policies. The exclusion is often written to say that the insurance does not apply to “personal injury” arising out of any action or omission that violates the TCPA, the CAN-SPAM ACT of 2003, or other acts like those two. In this instance the catch-all provided:
Any statute, ordinance or regulation, other than the TCPA or CAN-SPAM ACT of 2003, that prohibits or limits the sending, transmitting, communicating or distribution of material or information.
Insurers argue, as did the insurer in in West Bend, that this catch-all provision should include BIPA claims. The Court disagreed. In addition to reading the title of the catch-all to limit the exclusion to enumerated types of communication, the Court found that the catch-all should be read in conjunction with the TCPA and CAN-SPAM to include only those statutory acts that regulate certain methods of communication. BIPA does not regulate methods of communication. Nor was the Court impressed by the insurer’s argument that those two acts and BIPA are the same because they all “lend themselves to class action litigation.” If an insurer wanted to exclude statutes that lead to class action litigation, it should write the exclusion to say so. As such, the Court determined the BIPA claim at issue was not excluded.
West Bend provides guidance to policyholders seeking to obtain coverage under general liability policies. Policyholders should not simply accept a denial letter from a general liability carrier for a BIPA
claim. Instead, companies should carefully review their insurance policies and the allegations of a BIPA complaint to determine if they contain language or circumstances similar to that considered in West Bend. Coverage counsel can assist with this process, including responding to denials and working with insurers to resolve disputes.