SDV Insights

Trouble persists for policyholders seeking coverage for Biometric Information Privacy Act (“BIPA”) litigation after the recent decision by the U.S. District Court for the Northern District of Illinois in Westfield Insurance Company v. UCAL Systems, Inc. d/b/a AMTEC PRECISION PRODUCTS, et al.¹   The District Court held that the Recording and Distribution of Material of Information of Law Exclusion applies to violations of BIPA and, thus, excludes coverage under Commercial General Liability (CGL) policies with similar exclusionary language . Relying heavily on the recent Appellate Court of Illinois, First Judicial District decision in National Fire Ins. Co. of Hartford v. Visual Pak Co. Inc.², the Westfield decision creates more challenges for corporate policyholders facing exposure to BIPA liability. 

In 2008, the Illinois General Assembly enacted the BIPA to protect individuals’ privacy and security rights in connection with their biometric identifiers. Under BIPA, private companies may only collect and store biometric information, such as voice identifiers, iris or retina scans, fingerprints, or other identifying biological information, under limited circumstances. Since its passage, Illinois Courts have been inundated with BIPA liability claims seeking hundreds of millions of dollars in damages. Many BIPA claims assert allegations under Section 15(b) of the Act, which forbids private entities from collecting, capturing, purchasing, receiving through trade, or otherwise obtaining a person’s biometric identifier without prior written consent and disclosure of the purpose and length of term of collection, storage, or use of the data. Historically, the Illinois Supreme Court and the United States Court of Appeals for the Seventh Circuit held in favor of coverage for BIPA liability claims. However, a series of cases have recently derailed policyholders’ pathway to coverage for BIPA liability claims in Illinois state and federal courts. 

National Fire Ins. Co. of Hartford v. Visual Pak Co. Inc.

The underlying dispute in Visual Pak arose when Elite Staffing, a staffing and temporary employment agency, provided staffing services to Visual Pak. New employees placed by Elite Staffing at Visual Pak, including plaintiff Luis Sanchez, were required to enroll in an employee database using a fingerprint scan to monitor daily time worked. Sanchez alleged that Visual Pak violated BIPA when it “collected, stored, used, or disseminated” his fingerprints without his consent and without any policies in place regarding the retention and deletion of his fingerprints from the database. 

The insurers for Visual Pak filed a declaratory judgment action in state court, claiming they did not have a duty to defend or indemnify Visual Pak pursuant to the Recording and Distribution of Material or Information in Violation of Law Exclusion (“Violation of Law Exclusion”) in their CGL policies. In relevant part, the Violation of Law Exclusion barred coverage for injury arising out of “Any federal, state or local statute, ordinance or regulation . . . 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.” (emphasis added). Upholding the Circuit Court’s decision, the Appellate Court found that the exclusion bars a carrier’s duty to indemnify liability (and, thus, defend potential liability) arising from BIPA lawsuits, stating ““[t]here is no dispute that a literal, plain-text reading of the catch-all provision would include BIPA violations.’” Notably, the Illinois Supreme Court denied the litigants in Visual Pak leave to appeal. The Visual Pak ruling coupled with the Illinois Supreme Court's refusal to grant review created uncertainty in the state trial courts and set a daunting precedent for federal courts as demonstrated by the recent Westfield decision.

Westfield Ins. Co. v. UCAL Systems, Inc. d/b/a AMTEC PRECISION PRODUCTS, et al.

The underlying facts in Westfield are very similar to those in Visual Pak. In Westfield, the underlying class action was brought in federal court by UCAL employees who accused UCAL of violating BIPA by distributing data collected from employees who used fingerprint biometrics to clock in to work. UCAL sought coverage under its CGL po licy issued by Westfield Insurance Company (“Westfield”). Westfield denied coverage to UCAL and commenced a declaratory judgment action seeking a declaration that it owed no duty to defend or indemnify UCAL in connection with the BIPA class action. Westfield raised several exclusions in support of its coverage denial, including a Violation of Law Exclusion nearly identical to the exclusion in the policies at issue in Visual Pak. 

Finding no Illinois Supreme Court decision that directly addressed the issue of whether the Violation of Law Exclusion bars coverage for BIPA claims, the District Court relied on the Illinois Appellate Court decision in Visual Pak. Ultimately, the District Court found that because of prior precedent (i.e., Visual Pak), the Westfield Violation of Law Exclusion “applies to violations of BIPA” and Westfield had no duty to indemnify UCAL in connection with BIPA claims.

The outcome in Westfield is especially concerning given the massive exposure Illinois businesses face in BIPA litigation. Prior to the ruling in Visual Pak, corporate policyholders could rely on CGL coverage for BIPA claims. Unless or until the Illinois Supreme Court intervenes, policyholders will face an uphill battle obtaining coverage for BIPA claims in Illinois. In the interim, policyholders with BIPA liability risk should review their CGL policies to determine whether supplemental coverage is needed for BIPA claims and seek coverage counsel when needed to resolve confusion or disputes concerning policy language. 

The author would like to thank Andie Catania, Law Clerk, for research assistance with this case alert.

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¹No. 21CV3227 (N.D. Ill. Aug. 5, 2024)
²No. 1-22-1160 (Ill. App. Ct. Dec. 19, 2023)