On September 24, 2021, the Honorable William L. Osteen Jr., U.S.D.J. of the Middle District of North Carolina, granted a motion for judgment on the pleadings filed by Massachusetts Bay Insurance Company (MBIC), The Hanover American Insurance Company (Hanover American) and The Hanover Insurance Company (Hanover) (collectively, the Insurers). The court held the Insurers owed no duty to defend Impact Fulfillment Services, LLC (Impact) or IFS Holdings, LLC (IFS) (collectively, the Insureds) in connection with a putative class action lawsuit alleging violations under the Illinois Biometric Information Privacy Act, 740 ILCS 14/1 et seq. (BIPA). 

Employing North Carolina law, the federal court held the “Recording and Distribution of Material or Information” exclusion bars coverage, finding the newer wording of the exclusion to be broader than a similar, older exclusion recently addressed by the Illinois Supreme Court in West Bend Mutual Ins. Co. v. Krishna Schaumburg Tan Inc. The Krishna decision found the older version of the exclusion did not bar coverage under Illinois law. 

BIPA Generally

In 2008, Illinois enacted BIPA to regulate the collection, use and storage of biometric data. In short, BIPA requires private entities to (1) obtain informed, written consent from individuals prior to collecting their biometric information and (2) develop a written, publicly available policy on retention and destruction of such information (collectively, sections 15(a), (b), and (e)). BIPA also prohibits entities from profiting from the biometric data and permits only a limited right to disclosure of the information (collectively, sections 15(c) and (d)). 

BIPA creates a private right of action for individuals “aggrieved” by a violation of the statute. With the increase in BIPA-related suits being filed since 2015, and little established case law, insurance companies have seen a corresponding increase in coverage litigation involving the lawsuit. 

The Ruling

In Massachusetts Bay Insurance Company et al. v. Impact Fulfillment Services, LLC, Case No. 20-cv-926-WLO (M.D.N.C. Sept. 24, 2021), the district court assessed whether the Insurers owed a duty to defend and indemnify the Insureds in connection with a class action brought by the Insureds’ employees for violations of BIPA. The policies at issue spanned two coverage periods and included an umbrella policy, which had a “follow form” endorsement. 

The Insurers argued there was no duty to defend or indemnify the Insureds because (1) coverage was not triggered because the policy did not cover the allegations in the BIPA lawsuit; (2) the Recording and Distribution of Material or Information exclusion barred coverage; (3) the Employment-Related Practices Exclusion barred coverage; and (4) the Access or Disclosure of Confidential or Personal Information and Date-Related Liability Exclusion barred coverage. 

Finding the issue to be dispositive, the court addressed only the argument concerning the Recording and Distribution of Material or Information exclusion, which barred coverage for personal and advertising injury arising from the violation of statutes such as the Telephone Consumer Protection Act (TCPA) and the CAN-SPAM Act of 2003, the Fair Credit Reporting Act (FCRA), the Fair and Accurate Credit Transactions Act (FACTA), and statutes that limit the “printing, dissemination, disposal, collecting, recording, sending, transmitting, communicating or distribution of material or information.” The court largely relied on Hartford Cas. Ins. Co. v. Greve, Case No. 3:17CV183-GCM, 2017 WL 5557669 (W.D.N.C. Nov. 17, 2017), which addressed a similar exclusion in connection with violations of the Driver’s Privacy Protection Act, and found BIPA to be a statute that regulates the collection and dissemination of information, which is barred under the exclusion. 

The court noted the Illinois Supreme Court case, Krishna, which found coverage (1) was not barred under an earlier version of the exclusion and (2) was distinguishable because it only listed the TCPA and CAN-SPAM and not the FRCA or FACTA. Moreover, the court found it more appropriate to rely on Greve, as that case assessed coverage under North Carolina, not Illinois, law. 

Implications

The decision provides arguments to overcome the ruling in Krishna. First, it illustrates that the newer wording of the Recording and Distribution of Material or Information exclusion is broader than the earlier version assessed under Krishna. Thus, insurers should be aware of which version of the exclusion is at issue and not automatically presume the exclusion does not bar coverage. 

Second, if coverage for a BIPA-related lawsuit is brought or can be brought in a jurisdiction other than Illinois, insurers can argue cases in that jurisdiction involving similar statutes, and exclusions should govern the coverage determination as opposed to the ruling in Krishna.