Privacy Suit Covered by Insurance Policy, Illinois Court Rules

An insurance company has a duty to defend a supermarket facing a former employee’s allegations that it violated her privacy rights, an Illinois federal court said in an opinion Thursday.

Society Insurance had asked the US District Court for the Northern District of Illinois to declare that it owed no insurance coverage to Cermak Produce after former employee Carla Perez filed a lawsuit against the company in 2021.

Perez claimed Cermak collected employees’ biometric information, such as fingerprints, without informing them of its purpose or the duration of its usage, putting the Chicago-area supermarket chain at odds with Illinois’ Biometric Information Privacy Act. The first-of-its-kind state law requires companies to obtain informed consent when collecting such personal data.

The opinion comes as insurance companies grapple with how to craft clearer policies to avoid having to cover for clients’ privacy violations. The US Court of Appeals for the Seventh Circuit last month became the first appellate court to pinpoint policy language that was too vague to exclude coverage—a case the district court cited in its Thursday opinion.

Society argued its policy excludes it from defending the company in Perez’s lawsuit. Specifically, the insurer pointed to its exclusion provision, which includes “personal and advertising injury” alleged to violate federal, state, or local statutes that prohibit the collecting, recording, or transmitting of information. Perez’s claims fall under this provision, it asserted.

While the court said the text of the provision “seems to include BIPA”, it ruled that the text was too ambiguous and therefore Society is not exempt.

“The plain text is extremely broad—so broad that the exclusion would eliminate statutory claims for the ‘personal and advertising injury’ the Society Policies purport to cover elsewhere,” the court said in its opinion.

Society is represented by Purcell & Wardrope, Chtd and Freeman Mathias & Gary LLP. Cermak was represented by Morgan Lewis & Bockius LLP.

Neither company immediately responded to a request for comment on the court’s opinion.

The case is Society Insurance v. Cermak Produce No. 11, Inc. et al, N.D. Ill., No. 1:21-cv-01510, 7/27/23