631 F.Supp.3d 638
S.D. Ill.2022Background
- State Auto issued commercial general liability policies to Fruit Fusion, Inc. (ice cream/fro-yo shops) for Belleville and Fairview Heights, Illinois; policies renewed annually.
- Taylor Patt filed a putative class action under Illinois BIPA alleging Fruit Fusion recorded, collected, stored, and shared employees’ fingerprint biometric data without required disclosures or written consent and seeking statutory damages and other relief.
- Fruit Fusion tendered defense; State Auto accepted under a reservation of rights and filed this declaratory-judgment action seeking a ruling that it owes no duty to defend.
- Fruit Fusion and Patt defaulted for failure to answer; State Auto moved for a default declaratory judgment.
- The court applied Illinois law and the eight‑corners rule to assess whether the underlying complaint potentially alleges covered "personal and advertising injury," considered a Data Compromise Plus endorsement, and examined policy exclusions.
- The court concluded the Recording and Distribution exclusion (which covers statutes that address the collection/recordation/ dissemination of information, including the FCRA) barred coverage and granted State Auto’s motion: no duty to defend.
Issues
| Issue | Plaintiff's Argument (State Auto) | Defendant's Argument (Fruit Fusion / Patt) | Held |
|---|---|---|---|
| Whether Patt’s underlying complaint alleges a covered "personal and advertising injury" (publication that violates right of privacy) | Patt’s allegations do not actually plead disclosure to any third party; therefore no "publication" and no coverage | Complaint, construed liberally for insured, alleges Fruit Fusion shared biometric data and failed to disclose third‑party recipients, which could be a "publication" | Court: Complaint must be construed for the insured; allegations could plausibly allege "publication," so duty to defend is potentially triggered on this theory (i.e., coverage question remained open) |
| Applicability of the Data Compromise Plus endorsement for Fairview Heights policies | Endorsement provides limited coverage for loss/theft/accidental release/publication of personal data | Patt does not allege loss, theft, or accidental release — she alleges collection/retention and nondisclosure | Court: Endorsement does not apply because underlying complaint does not allege a covered "personal data compromise" event |
| Whether the Employment‑Related Practices (ERP) exclusion bars coverage for BIPA claim | ERP exclusion removes coverage for employee claims arising from employment‑related practices, policies, acts or omissions | ERP applies only to adverse employment actions (demotion, discipline, termination), not to data‑privacy statutory claims like BIPA | Court: ERP exclusion is ambiguous as applied to BIPA and was read narrowly; it does not unambiguously bar coverage here |
| Whether the "Recording and Distribution of Material or Information in Violation of Law" exclusion bars coverage for BIPA claims | Exclusion covers statutes that address collecting/recording/dissemination of information (it explicitly lists FCRA and excludes TCPA/CAN‑SPAM), so BIPA claims fall within the exclusion and bar coverage | Following Krishna (West Bend), such exclusions were ambiguous and do not clearly reach BIPA because BIPA regulates collection/retention rather than methods of communication | Court: The policy’s language (title + inclusion of FCRA + "collecting/recording") broadens the exclusion; court agrees BIPA claim falls within that exclusion and bars coverage |
Key Cases Cited
- West Bend Mut. Ins. Co. v. Krishna Schaumburg Tan, Inc., 183 N.E.3d 47 (Ill. 2021) (Illinois Supreme Court defined "publication" to include disclosure to a single party and construed related exclusions narrowly)
- Bradley Hotel Corp. v. Aspen Specialty Ins. Co., 19 F.4th 1002 (7th Cir. 2021) (insurance policies interpreted as contracts; unambiguous terms applied as written)
- Am. Alternative Ins. Corp. v. Metro Paramedic Servs., Inc., 829 F.3d 509 (7th Cir. 2016) (applies the eight‑corners rule for duty to defend)
- Hunt v. Wash. State Apple Adver. Comm’n, 432 U.S. 333 (1977) (amount in controversy for declaratory relief measured by the value of the object of the litigation)
- Pekin Ins. Co. v. United Contractors Midwest, Inc., 997 N.E.2d 235 (Ill. 2013) (insurer cannot refuse to defend unless underlying complaint clearly falls outside coverage)
- VLM Food Trading Int’l, Inc. v. Illinois Trading Co., 811 F.3d 247 (7th Cir. 2016) (default establishes liability but plaintiff must still prove entitlement to the requested relief)