(Article from Insurance Law Alert, June 2023)
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Holding
The Seventh Circuit ruled that a policy exclusion was ambiguous and therefore that an insurer was obligated to defend a suit against an insured alleging violations of Illinois’ Biometric Information Privacy Act (“BIPA”). Citizens Ins. Co. of Am. v. Wynndalco Enters., LLC, 2023 U.S. App. LEXIS 14834 (7th Cir. June 15, 2023).
Background
The coverage dispute arose out of two putative class action lawsuits initiated against Wynndalco Enterprises, LLC (“Wynndalco”), alleging BIPA violations. Citizens Insurance Company of America (“Citizens”) sought a declaration that it had no duty to defend or indemnify Wynndalco based on a violation-of-statutes exclusion. The exclusion, entitled “Distribution of Material in Violation of Statutes,” encompassed bodily injury and property damage arising out of four specified statutes: the Telephone Consumer Protection Act (the “TCPA”), the CAN-SPAM Act of 2003, the Fair Credit Reporting Act, and the Fair and Accurate Credit Transaction Act. The exclusion also contained a “catch-all” provision that applied to “[a]ny other laws, statutes, ordinances, or regulations, that address, prohibit or limit the printing, dissemination, disposal, collecting, recording, sending, transmitting, communicating or distribution of material or information.” The Illinois district court held that the catch-all provision was facially ambiguous and therefore unenforceable. As a result, the court granted Wynndalco’s motion for judgment on the pleadings. The district court reasoned that “a literal reading of the expansive wording of that provision would preclude coverage not only for violations of privacy-related statutes like BIPA, but a number of other statutory causes of action that the policy in the first instance purported to cover, including slander, libel, trademark, and copyright.” The Seventh Circuit affirmed.
Decision
The Seventh Circuit acknowledged that “[t]here is no dispute that a literal, plain-text reading of the catch-all provision would include BIPA violations.” Nonetheless, the court concluded that the provision was ambiguous because a liberal and broad reading of it would exclude from coverage injuries or damage arising from a large category of claims (including intellectual property claims, in particular) that the policy by its express terms otherwise purported to cover.
Citizens argued that the catch-all provision in the exclusion was not overbroad because it applied only to privacy-related statutory claims, as indicated by the four privacy-related statutes specified in the exclusion immediately prior to the catch-all provision. Rejecting this contention, the Seventh Circuit noted that neither the title of the exclusion nor the catch-all provision evidenced an intention to limit its application to privacy-related statutory claims. While the interpretative canon of ejusdem generis holds that broad or general contract terms are construed according to the specific terms that precede them, the court held that this interpretative canon did not resolve the ambiguity in this case because there was no “readily discernible theme” among the four specified statutes in the exclusion that “points to privacy as the focus of the exclusion.”
Comments
Illinois courts are divided on the proper application of similar catch-all provisions in violation-of-statues exclusions; some have concluded that such provisions apply squarely to BIPA claims, while others have deemed them ambiguous. As discussed in our May 2021 Alert, the Illinois Supreme Court ruled that an insurer was obligated to defend a suit alleging BIPA violations, finding that a violation-of-statutes exclusion did not apply. West Bend Mut. Ins. Co. v. Krishna Schaumburg Tan, Inc., 2021 Ill. LEXIS 430 (Ill. May 20, 2021). In that case, the exclusion specifically referenced only two statutes, the TCPA and the CAN-SPAM Act of 2003, and it also included a “catch-all” provision that applied to “any statute, ordinance or regulation” that prohibits or limits the distribution of material or information. The Illinois Supreme Court, applying the interpretative canon of ejusdem generis, reasoned that the catch-all provision applied only to statutes that regulate methods of communication (such as telephone calls, emails, or faxes) and therefore did not extend to BIPA, which regulates the collection of personal data.
In Wynndalco, the Seventh Circuit distinguished Krishna Schaumburg, explaining that the exclusion in that case presented a clear theme relating to claims involving methods of communication, which allowed the Krishna Schaumburg court to limit the catch-all provision in a reasonable way, whereas the exclusion at issue in Wynndalco failed to establish a cohesive or clear theme relating to privacy claims. It is notable that, in making this distinction, the Seventh Circuit focused on the title of the exclusion in each case as a relevant factor, emphasizing the absence of the word “privacy” in the title of the exclusion in Wynndalco. In a footnote, the Seventh Circuit acknowledged that the title of an exclusion plays only a limited role in its construction, but noted that titles “are permissible indicators of the meaning of the text that follows them.”