Court finds coverage for violations of Biometric Privacy Act
The Appellate Court of Illinois, First District, recently held that an insurer has a duty to defend an underlying class action lawsuit alleging violation of the Illinois Biometric Information Privacy Act 740 ILCS 14/1 et seq. (West 2014). West Bend Mutual Insurance Co. v. Krishna Schaumburg Tan, Inc., 2020 IL App (1st) 191834 (March 20, 2020). In this case of first impression, the court in Krishna Schaumburg Tan was asked to decide whether the allegations of the underlying complaint come within the insurance policies’ definition of “personal injury” and if so, whether an exclusion for violation of statutes applies to bar coverage. Id. at *7-8.
West Bend Mutual issued two separate policies containing a “Business owners Liability Coverage Form" providing coverage for “personal injury” to Krishna Schaumburg Tan. Id. at *2. The West Bend policies defined “personal injury,” in relevant part as “[o]ral or written publication of material that violates a person’s right of privacy.” Id. at *2-3. The policies also contained an endorsement entitled “VIOLATION OF STATUTES THAT GOVERN E-MAILS, FAX, PHONE CALLS OR OTHER METHODS OF SENDING MATERIAL OR INFORMATION.” Id. at *3.
Krishna Schaumburg Tan, a franchisee of L.A. Tan, was sued by one of its clients, Klaudia Sekura. Ms. Sakura brought a proposed class action complaint against Krishna Schaumburg Tan alleging a violation of her rights and the rights of those similarly situated individuals under the Illinois Biometric Information Act. Ms. Sekura alleged that as part of membership her fingerprints were scanned for the purpose of verifying her identification. Ms. Sekura alleges that she was never provided with, nor signed a written release allowing disclosure of her biometric data to a third party. Id. at *4-5. The plaintiff further alleged that Krishna Schaumburg Tan violated the Act by disclosing her fingerprint data to an out-of-state third party vendor, SunLync in violation of Section 15(d)(1) of the Act. Id. at *5.
Krishna Schaumburg Tan tendered the Sekura lawsuit to West Bend. West Bend undertook the defense of the lawsuit diner a reservation of rights and also filed a declaratory judgment action seeking a declaration that it had no duty to defend or indemnify the Sekura action. Id. at *5. Krishna Schaumburg Tan filed a counterclaim seeking a declaration that West Bend had a duty to defend the underlying lawsuit and sought attorney fees under Section 155 of the Illinois Insurance Code. The parties filed cross motions for summary judgment. In denying West Bend’s motion, in part, the trial court found that the underlying allegations fell within the policies’ coverage for “personal injury” as a”publication which violates a person’s right to privacy” and that the statutory violation exclusion did not apply. Id. at *6.
On appeal, the Appellate Court, First District in firming the trial court’s ruling, found that whether West Bend had a duty to defend turned on the meaning of “publication” in the policies. Id. at 8. the court noted that the term “publication” was undefined in the policies. As such, the term was to be given its “plain, ordinary and popular meaning. Id. at *9 (citation omitted). West Bend, citing the Supreme Court of Illinois’ ruling in Valley Forge Ins. Co. v. Swiderski Electronics, Inc., 223 Ill. 2d 352 (2006), argued that the term should be construed narrowly requiring communication of information to the public at large, not simply to a single third party. In rejecting this argument, the court found that it was clear that the “Supreme Court did not define the term ‘publication’ as being limited to requiring communication to any number of persons.” Id. at *10. The court further noted that the court in Valley Forge looked to “what a reasonable person would understand the plain, ordinary meaning of the word ‘publication’ to be and consulted dictionary definitions and common understanding.” Id. at *10-11. Based on a review of common understanding and dictionary definitions, the court concluded that “publication” clearly includes both the broad sharing of information to multiple recipients as viewed in Valley Forge and a more limited sharing of information with a single third party. Id. at *11. based on this, the court concluded that West Bend had a duty to defend.
The court then addressed the argument raised by West Bend concerning the application of the exclusion for violation of a statute. Id. at *12-13. West Bend focused on the language of the endorsement excluding coverage for violation of “any statute, ordinance or regulation . . . that prohibits or limits the sending, transmitting, communication or distribution of material or information.” West bend argued that the underlying claim associated with violation of Section 15(d) of the Act fell within the exclusion for violation of a statute. The court rejected West Bend’s argument finding that the exclusion was intended to apply to a limited type of statute. In reaching this conclusion, the court reasoned that the full title of the exclusion made clear that the exclusion applies to statutes that “govern certain methods of communication, i.e., e-mails, faxes, and phone calls, not to other statutes that limit the sending or sharing of certain information.” Id. at *13 (emphasis in the original). In short, the court found that the exclusion was more reasonably read to apply to statutes regulating the methods of communication, rather than the communication of information itself. Id. at *14.
Interestingly, the court did not find the exclusionary endorsement ambiguous, subject to more than one reasonable interpretation. Rather, the court found, implicitly, that West Bend’s interpretation was be unreasonable. The court did so in a conclusory fashion without addressing the actual language of the endorsement. The Act, itself, regulates the use of biometric information, which, by its nature must also encompass the method of using the information being regulated. As such, even under the Appellate Court’s reasoning, the Act could be construed as regulating the method of transmitting biometric information (i.e., the use of such information). Ignoring this argument ignores the plain meaning of the language of the contract. Insurers whose insured collect and use biometric information may wish to consider adding appropriate exclusionary language to their policies addressing the specific use of biometric information. By doing so, the insurer would avoid the pitfalls that West Bend faced and may avoid future arguments that the policy language in question is somehow ambiguous.