Court rules in favor of insurers under a CGL-exclusion

January 30, 2024 6:53 AM

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In December, an Illinois appeals court disagreed with a Seventh Circuit Court decision and found that insurers, National Fire Insurance and Continental Insurance, a CNA Insurance company, were not required to pay claims to Visual Pak, a packaging company and its policyholder, under a commercial general liability-exclusion that excludes claims under the Illinois Biometric Information Privacy Act.

BIPA, a state-wide regulation, requires companies to receive written consent from people before collecting, storing or using their biometric data, as well as written policies related to destroying the data.

Jason Rosenthal, an Illinois-based attorney at the law firm Much Shelist, spoke with Digital Insurance about the decision.

Can you explain the significance of this decision?

It's the first Illinois court of review that has opined on whether or not this particular exclusion found in a standard commercial general liability policy applies to exclude claims under the Illinois Biometric Information Privacy Act.

In this particular case, the appellate court found that the exclusion does apply,

and excluded coverage for the claim. It was a remarkable decision. Prior to December 19, there had been a string of decisions in the U.S. District Court for the Northern District of Illinois, where different federal judges had interpreted this exclusion differently. So there were conflicting decisions in the Northern District of Illinois, as to whether or not this exclusion applied to BIPA claims. So the law was unsettled, at least at that level. The Seventh Circuit Court of Appeals resolved that conflict among the district court judges. And in a lengthy opinion, held that this exclusion, which is commonly referred to as the violation of statutes exclusion, did not apply to BIPA.

The Illinois Court of Appeals addressed that opinion, but said that it disagreed with the judges who were on the panel for that Seventh Circuit decision, and said that the Seventh Circuit essentially, either misinterpreted or misapplied Illinois law.

I wouldn't call the law settled at this point unless and until the Illinois Supreme Court, which would have the last say in this chimes in on the issue. I think to some extent, it is unsettled as to where this will ultimately end up. Now, the insured in the Visual Pak decision can file a petition for leave to appeal to the Illinois Supreme Court.

There are a lot of BIPA cases and in turn, there are a lot of insurance coverage cases dealing with BIPA. So it's an issue that affects a lot of Illinois companies and even companies outside of Illinois that may have operations here. So it's an important issue for those dealing with these lawsuits.

Why have there been various interpretations of these exclusions?

You have very experienced judges, reading an insurance policy, and applying Illinois law, and coming out differently on these issues. So, one consideration or concern is how is the average policyholder or the risk manager at a company, or even a lawyer, who is responsible for reviewing these policies, is supposed to determine whether it might apply–if some judges are getting it wrong in terms of how they've read, applied and interpreted this exclusion. It raises a question as to how the average policyholder, or average person reading their insurance policy, is supposed to get this right, and supposed to know what their policy covers and does not cover?

Does that not suggest that the language is ambiguous, or at least not entirely clear? And ordinarily under Illinois law, for an exclusion to apply to a claim and preclude coverage for a claim, that exclusion needs to apply free from doubt. Under most state laws if an exclusion is ambiguous, it's interpreted in favor of the policyholder and in favor of coverage. That doesn't appear to be an argument that was advanced or at least, not strongly advanced by the insured in this appeal, but that's certainly an issue that I think is germane to what we're talking about here.

What can we expect to see over the next few weeks?

Well, if there is a petition filed, I don't know how quickly the Illinois Supreme Court will rule on that petition. Regardless, there will be a briefing schedule set by the court, which would take several months to complete, there would be an oral argument date set, so you're probably talking months and it could even be longer before we may hear from the Illinois Supreme Court on this issue. It remains to be seen what will happen if and when the Illinois Supreme Court agrees to hear this issue.

Anything else insurance professionals should know about these cases?

In the Commercial General Liability policy, as they apply to BIPA, there are other cases percolating dealing with these other exclusions, and again, it remains to be seen how those, you know, where those will ultimately land.

There are a lot of different policies that we've seen provide coverage for BIPA claims, not just CGL policies, but cyber policies, employment practices, liability policies, D&O policies, etc.

Most insurers at this point know about BIPA, it has been around for many years, for several years now. Most insurers are catching up with this and many of them are including express exclusions in their policies for BIPA violations, or similar statutory claims. That said, there are still insurers that have not included those exclusions and with the CGL policy, given the five- year limitations period, we're still finding that some policies, depending on how far you go back, don't have the exclusion.

It's important not to take no for an answer. We've been told by insurance companies that there's no coverage. We've seen brokers tell their clients, there's no coverage. But we've been able to get coverage under a lot of these policies. You need to know where to look and you need to know when you should not take no for an answer, because insurance coverage, particularly with some of these larger claims, is really the only viable way out for companies.