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No Coverage for BIPA Claims Due to "Violation of Statute" Exclusion

ABSTRACT: In a declaratory judgment action filed by two CGL carriers, the Illinois Court of Appeals was presented with the issue of whether the insurers owed a duty to defend against claimed violations of the Biometric Information Privacy Act ("BIPA").

According to the complaint, the insured "collected, stored, used, or disseminated" the fingerprints of an employee without his consent and without any policies in place regarding the retention and deletion of his fingerprints from the database. In addition, the complaint alleged that the insured failed to inform the insured how his biometric information would be used, and that it failed to obtain a release for the use of such information.

The subject policies excluded from coverage injury arising out of a violation of any statute that "addresses, prohibits or limits the printing, dissemination, disposal, collecting, recording, sending, transmitting, communicating or distribution of material or information." 

In a detailed analysis of this exclusion, the court concluded that the "catch-all" provision of the "violation of statute" exclusion was sufficiently related to the theme of protecting personal privacy such that it would apply to defeat coverage, and that the insurers owed no duty to defend the BIPA claims.

The court addressed at length the recent decision of Citizens Insurance Co. of America v. Wynndalco Enterprises, LLC, 70 F4th 987, 997 (7th Cir. 2023), which deemed the "violation of statute" exclusion ambiguous under nearly identical facts and policy language.

Aside from the fact that the title of the "violation of statute” exclusion in the Wynndalco policy was less descriptive of the privacy interests at stake in a BIPA claim, the state court simply disagreed with the 7th Circuit's approach to policy interpretation. In particular, the court took issue with the 7th Circuit's contention that the exclusion eviscerated all coverage for "personal and advertising injury", and that the exclusion was in conflict with other language of the policy conferring coverage.

"[I]t is improper," the court explained, "to comb the policy for other conflicts or ambiguities and use them to rule on the language before us. [...] If the court were allowed to do that, then every insurance coverage case would turn into an overall referendum on the policy as a whole, rather than a pinpoint analysis of a particular coverage provision verses a particular exclusion." Nat'l Fire Ins. Co. of Hartford v. Visual Pak Co., 2023 Ill. App. LEXIS 482, **49.

Because the insurers owed no duty to defend, the court rejected the argument of the insured's assignee that they were estopped from denying coverage due to a failure to defend under a reservation of rights or promptly file a declaratory judgment action. "[E]stoppel does not even factor into the equation of the court ultimately determines that the insurer owed no duty to defend." Id. at **50. “[T]o allow the estoppel question to precede the duty-to-defend question,” the court noted, "would be to give estoppel the power to magically rewrite a policy from one that does not obligate the insurer to defend into one that does." Id. at **53.

This decision is a well-constructed argument that touches on many important concepts of insurance policy interpretation.

Nat'l Fire Ins. Co. of Hartford v. Visual Pak Co.

Appellate Court of Illinois, First District, Second Division

December 19, 2023, Decided

2023 IL App (1st) 221160 *; 2023 Ill. App. LEXIS 482 **