Factors Restricting the Precedential Value of Krishna

Although Krishna provides some helpful initial guidance, certain factors may limit its usefulness in BIPA coverage disputes moving forward.  First, the violation of statutes exclusion at issue was narrower than some exclusions insurers have been utilizing in recent years.  In fact, the Middle District of North Carolina recently analyzed a broader version in Mass. Bay Ins. Co. v. Impact Fulfillment Servs., LLC, No. 1:20CV926, 2021 U.S. Dist. LEXIS 182970 (M.D.N.C. Sept. 24, 2021), and concluded it applied to exclude coverage for a BIPA lawsuit.

The violation of statutes exclusion in Impact Fulfillment was entitled "Recording and Distribution of Material or Information," and it precluded coverage for injury arising out of alleged violations of the TCPA, the CAN-SPAM Act, the Fair Credit Reporting Act ("FCRA"), the Fair and Accurate Credit Transaction Act ("FACTA"), or "[a]ny federal, state or local statute, ordinance or regulation, other than the TCPA, CAN-SPAM Act of 2003 or FCRA . . . , that addresses, prohibits, or limits the printing, dissemination, disposal, collecting, recording, sending, transmitting, communicating or distribution of material or information."  Relying on coverage opinions outside of the BIPA context, the court reasoned this exclusion "applies to any statute that prohibits or limits 'the printing, dissemination, disposal, collecting, recording, sending, transmitting, communicating or distribution of material or information,'" which "is consonant with BIPA's prohibition against collection and disclosure of biometric[s]."  The court also noted the TCPA and FCRA were broadly intended to protect privacy, and therefore reasoned the purpose of the exclusion is "to exclude from coverage statutes that protect and govern privacy interests in personal information."  Because "BIPA protects and governs a person's privacy interest in their biometric information," the court held the violation of statutes exclusion precluded coverage.  Insurers will almost certainly rely on this decision to distinguish Krishna in litigation involving a violation of statutes exclusions.

Another factor likely to limit the precedential effect of Krishna is that it involved allegations regarding customer biometrics.  Where employee biometrics are at issue instead, obtaining coverage under the terms of a CGL policy may be difficult due to Employment-Related Practices exclusions.  Although no court has addressed the applicability of these exclusions to employment-based BIPA suits, insurers are seeking declarations that such exclusions bar coverage.  See, e.g., Complaint for Declaratory Judgment, Atlantic Specialty Ins. Co. v. Returns 'R' Us, Inc., et al. (N.D. Ill. Oct. 21, 2021) (No 1:21-cv-05619).  In these situations, courts will have to address an issue left open by Krishna.

Employment Practices Liability Coverage for BIPA Class Actions Involving Employee Biometrics

Policyholders facing this issue should look to Employment Practices Liability ("EPL") policies for coverage.  In Twin City Fire Ins. Co. v. Vonachen Servs., No. 20-cv-1150-JES-JEH, 2021 U.S. Dist. LEXIS 201174 (C.D. Ill. Oct. 19, 2021), the Central District of Illinois found coverage for a BIPA class action under an EPL policy.  The insured, Vonachen Services ("Vonachen"), was named defendant in class actions alleging violations of BIPA due to its collection of employee fingerprints for its timekeeping system.  Vonachen had purchased EPL coverage from Twin City Fire Insurance Co. ("Twin City") for claims arising out of any "Employment Practices Wrongful Act," which was defined, in relevant part, as the "breach of any oral, written, or implied employment contract, including, without limitation, any obligation arising from a personnel manual, employee handbook, or policy statement."  Importantly, Vonachen had implemented an employee handbook memorializing employee timekeeping requirements and stating Vonachen would comply with applicable laws and regulations. 

Against this backdrop, the court held "the conduct alleged in the underlying complaints potentially falls within the EPL coverage."  As the court noted, the underlying complaints alleged Vonachen "required employees to clock-in and clock-out . . . using [a] finger-print timekeeping system which collects biometrics," and this requirement originated in the employee handbook.  Moreover, the handbook obligated Vonachen to comply with applicable laws and regulations, which arguably included BIPA because the handbook imposed the fingerprint timekeeping requirements.  Accordingly, given that the EPL policy provided coverage for "breach of . . . any obligation arising from a[n] . . . employee handbook," the court held it at least "'arguably provid[ed] coverage' based on the allegations in the underlying complaint."  Twin City, therefore, had a duty to defend. 

Reed Smith Partner John Vishneski is a member of the firm's Insurance Recovery Group in the Chicago office. He focuses his practice on complex coverage litigation involving various types of insurance, including Employment Practices Liability, Directors & Officers Liability, General Liability, First Party Property policies and Title Insurance policies. He can be reached at [email protected].

Andrew Barrios is an associate in the Reed Smith Chicago office and a member of the Insurance Recovery Group. He represents corporate policyholders in a wide range of insurance coverage matters, including general and excess liability, first party property, business interruption, and data breach and cyber liability. He can be reached at [email protected].

These views are the author's own.