Recent BIPA Rulings Chip Away at Insurance Coverage: Analysis

Businesses in Illinois are encountering significant challenges in securing insurance coverage for lawsuits related to the Biometric Information Privacy Act (BIPA), according to a new analysis from Chicago attorney George Bellas of Bellas & Wachowski.

Bellas notes that a recent federal court decision in Chicago, Westfield Insurance Company v. UCAL Systems, Inc., has further complicated the landscape for corporate policyholders, with this ruling being a part of a series of legal setbacks that hinder obtaining coverage for BIPA claims under standard Commercial General Liability (CGL) policies.

BIPA, enacted in 2008, aims to protect individuals’ biometric information, such as fingerprints, voice prints, and iris scans. The law mandates that companies must obtain written consent before collecting biometric data and clearly outline how the data will be used, stored, and for how long. Since its inception, BIPA has led to numerous lawsuits, with plaintiffs seeking substantial damages.

Traditionally, businesses have relied on CGL insurance policies to cover these claims. However, recent court decisions have significantly narrowed the coverage available for BIPA-related lawsuits.

In the Westfield case, UCAL Systems was sued by employees for allegedly using biometric fingerprint scans for time tracking without proper consent. The insurer denied the claim based on a policy exclusion for violations of law related to information collection and dissemination. The court upheld this exclusion, ruling that Westfield was not covered for the BIPA violations. Similarly, in National Fire Insurance Company of Hartford v. Visual Pak Co. Inc., the Illinois Appellate Court confirmed that CGL policy exclusions applied to BIPA claims, preventing coverage for violations related to biometric data.

Bellas writes that these rulings pose a substantial risk for businesses, as BIPA violations can result in hefty financial penalties. Without insurance coverage, companies may face significant out-of-pocket expenses.

To mitigate these risks, Bellas advises that Illinois businesses review their insurance policies for relevant exclusions, consider obtaining additional coverage specifically for biometric privacy claims, and consult with legal and insurance experts to ensure adequate protection against BIPA-related liabilities.

Last month, the Illinois Appellate Court ruled that Lloyd’s of London insurers are not required to defend Tony’s Finer Foods Enterprises in a class action lawsuit under the Illinois Biometric Information Privacy Act (BIPA).

That suit alleges Tony’s collected employees’ biometric data via fingerprint scans without proper consent. The court determined that the case does not trigger coverage under Lloyd’s cyber policies, as it does not involve a data breach or security failure. The ruling reversed a lower court decision favoring Tony’s, with a dissenting judge arguing the insurers should have provided a defense.

Source: Chicago Business Attorney Blog

–

October 9, 2024 – by Ali Nassar-Smith