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Ill. Residents Say Insurer On Hook For $20M BIPA Settlement

December 16, 2021

By Daniel Tay | Law360 (December 14, 2021) -- A proposed class of Illinois residents told a state court that Axis Insurance Co. must cover a $20 million settlement between them and its policyholder, which the residents sued over alleged violations of the state's Biometric Information Privacy Act.

Axis wrongly denied coverage because the policy's exclusion for claims arising from a "violation of statute" applies only to claims arising from statutes named in the exclusion or those similar to statutes named in the exclusion, the residents' Friday complaint said.

Referring to the state high court's decision in West Bend Mutual Insurance Co. v. Krishna Schaumburg Tan Inc. the residents said Axis' policy did not name BIPA and the statutes it did name were not similar to the BIPA provision Wynndalco Enterprises LLC allegedly violated, which barred selling or profiting from biometric data.

The state high court held in West Bend that an exclusion that does not name BIPA or a similar statute does not preclude BIPA claims coverage, meaning that Axis could not exclude Wynndalco's claim, the residents said.

The residents, Melissa Thornley, Deborah Benjamin-Koller and Josue Herrera, are suing Axis after reaching a settlement with Wynndalco under which the information technology company assigned its rights to the residents. The residents first sued Wynndalco in May 2020 as representatives of a proposed class whose biometric information was in a database compiled by facial-recognition company Clearview AI Inc. and purchased by Wynndalco. That data was eventually sold to the Chicago Police Department, according to court records.

The residents say Clearview, whose platform allows users to identify someone by comparing a photo against its collection of images scraped from websites, secretly created a database that contained more than 3 billion facial scans.

Under BIPA, employers are required to get informed, written consent from workers before collecting, using and storing their biometric information, such as fingerprints. The law also mandates the development of a written, publicly available policy establishing a data retention schedule and guidelines for permanently destroying the information.

According to Friday's complaint, Wynndalco timely sought coverage from Axis for the underlying suit, but the insurer denied coverage despite knowing that its policy exclusions potentially did not apply. Axis then refused to seek a court judgment to clarify its obligations because it wished to avoid expensive liability in the suit brought by the residents as well as avoid "an adverse precedent that would expose it to coverage for BIPA and BIPA-related claims in other lawsuits," the residents said.

Wynndalco and the residents in February agreed to settle their lawsuit. Wynndalco agreed to certify a settlement class and agreed to a $20 million settlement amount, under which it would pay $50,000 and assign its rights to payment from Axis and another insurer, Citizens Insurance Co. of America, to the class.

In Friday's complaint, the residents proposed a class that would comprise all members of the settlement class in the underlying suit against Wynndalco.

In addition to wrongly denying Wynndalco coverage under an exclusion for violations of statute, Axis incorrectly claimed that an exclusion for "unlawful use of information" applied, the residents said. The unlawful use exclusion applies to claims arising out of the unlawful collection of personal information and the residents had not brought such a claim against Wynndalco, they said. Instead, their claim was under Section 15(c) of BIPA, which bars the selling of or profiting from biometric information, the residents said, meaning that the claim is not barred by the exclusion for unlawful use of information.

Representatives for Axis and the residents did not respond to requests for comment.

Citizens Insurance has filed its own lawsuit arguing that it has no duty to defend Wynndalco against the residents' claims, saying that its violation of statutes exclusion bars coverage. Wynndalco in June pushed back on those arguments saying again that the exclusion does not name BIPA and its named statutes are not similar to Section 15(c) of BIPA.

The residents are represented by David Golub of Silver Golub & Teitell LLP, Daniel Feeney, Zachary Freeman and Rachel Simon of Miller Shakman Levine & Feldman LLP, and Kevin Forde, Brian O'Meara and Kevin Malloy of Forde & O'Meara LLP.

Counsel information for Axis was not available.

The case is Melissa Thornley et al. v. Axis Insurance Co., case number 2021CH06168, in the Circuit Court of Cook County, Illinois.

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