An Illinois Federal Appellate Court ruled in favor of an insured information technology company in a coverage dispute relative to coverage for BIPA-related claims against the insured IT company. The underlying matter involved two class-action lawsuits against the IT company alleging it collected biometric data (facial scans) from more than 3 billion individuals’ social media accounts and sold that information to the Chicago Police Department to use for facial recognition purposes.

The IT company tendered the matter to its business owner’s liability policy, and the carrier denied the claim, asserting that the matter was barred under an exclusion for “Distribution of Material in Violation of Statutes.”  The exclusion identified several specific statutes for which matters were excluded (the TCPA, CAN-SPAM Act of 2003 and the FCRA), but also included a catch-all provision for any other laws or statutes that involve the printing, disseminating, disposing, collecting, recording, sending, transmitting, communicating, or distributing material or information. The lower court held that a literal reading of the expansive wording of that provision would preclude coverage not only for violations of privacy-related statutes like BIPA but a number of other statutory causes of action that the policy in the first instance purported to cover. After the District Court ruled that the carrier owed a duty to defend, as the catch-all is facially ambiguous and therefore not enforceable against the IT company, the matter was taken up on appeal.

The Appellate Court agreed with the lower court’s ruling, in that a strict reading of the exclusion would “swallow” the coverage granted in the policy. As this creates an ambiguity in the policy, the exclusion must be construed against the insurer and in favor of coverage. The carrier attempted to argue that the catch-all provision applies only to causes of action involving privacy.  The court disagreed with this argument (calling it “sleight of hand”) as “privacy” is not mentioned whatsoever in the catch-all provision. The court affirmed the lower court ruling and held that the insurer had a duty to defend the BIPA actions.

Update – Continental Western Ins. Co. v. Tony’s Finer Foods Enterprises, et.al., 22-CV-3375 (N.D. Ill, July 5, 2023).

An Illinois District Court has already applied the ruling above in finding a defendant employer in Continental Western Ins. Co. v. Tony’s Finer Foods Enterprises, et.al. In that case, the employer also sought coverage for a BIPA lawsuit from its general liability carrier. The district court held that the exclusion in the policy at issue was the same as the exclusion in the matter above, and, found in favor of the insured employer, holding that “the opinion in Wynndalco Enterprises directly controls, and is dispositive of, the parties’ dispute over the Recording And Distribution Of Material Or Information In Violation Of Law Exclusion in this case. The exclusion is ambiguous and so does not apply here to bar coverage . . ..”