Introduction

In the landmark case Thermoflex Waukegan, LLC v. Mitsui Sumitomo Insurance USA, Inc., the United States Court of Appeals for the Seventh Circuit addressed critical issues pertaining to insurance coverage under the Biometric Information Privacy Act (BIPA). The case revolved around Thermoflex Waukegan’s requirement for hourly workers to use biometric handprints for clocking in and out, which led to claims of privacy violation under BIPA. Thermoflex sought defense and indemnification from its insurance provider, Mitsui Sumitomo Insurance, alleging that the latter's policies should cover the potential liabilities arising from BIPA claims. The central legal question was whether specific exclusions in Mitsui Sumitomo’s insurance policies precluded coverage for such BIPA-related claims.

Summary of the Judgment

The Seventh Circuit affirmed the decision of the United States District Court for the Northern District of Illinois, Eastern Division, which had previously ruled in favor of Mitsui Sumitomo Insurance. The appellate court primarily analyzed three insurance policies: the Basic, Excess, and Umbrella policies, each containing various exclusions that Thermoflex argued were either ambiguous or did not apply to BIPA claims.

The court concluded that the exclusions within the Basic policy explicitly barred coverage for claims arising from access to or disclosure of confidential or personal information, which includes biometric data as defined under BIPA. Consequently, the Excess policy, which incorporates all limitations of the Basic policy, similarly excluded coverage for the BIPA claims. However, the Umbrella policy did not contain any explicit exclusions related to nonpublic information, leading the court to determine that Mitsui Sumitomo Insurance owed Thermoflex a duty to defend under this policy, contingent upon the exhaustion of underlying policy limits.

Importantly, the court addressed and clarified the applicability of prior cases, specifically distinguishing its current decision from Citizens Insurance Co. v. Wynndalco and National Fire Insurance Co. v. Visual Pak Co., affirming that the exclusions in Thermoflex's policies did not suffer from the interpretative flaws identified in Wynndalco. The judgment thus set a clear precedent on how insurance policy exclusions are to be interpreted in the context of BIPA claims.

Analysis

Precedents Cited

The judgment extensively referenced several key cases to substantiate its reasoning:

• Sanders v. Illinois Union Insurance Co. (2019 IL) was cited to support the principle that Illinois enforces unambiguous language in insurance policies. This precedent underscored the court's interpretation of the exclusions within the Basic policy as clear and encompassing biometric information.
• Citizens Insurance Co. v. Wynndalco (70 F.4th 987, 7th Cir. 2023) addressed the scope of policy exclusions related to statutory violations, particularly whether they apply to BIPA. While Wynndalco initially held that such exclusions do not cover BIPA claims, the Seventh Circuit noted that a subsequent state appellate decision (National Fire Insurance Co. v. Visual Pak Co. 2023 IL App (1st) 221160) corrected this understanding by recognizing that such exclusions can indeed apply to BIPA claims.
• West Bend Mutual Insurance Co. v. Krishna Schaumburg Tan, Inc. (2021 IL) was pivotal in interpreting exclusions with a similar structure to the Statutory Violation Exclusion in Thermoflex's Umbrella policy. The Supreme Court of Illinois in Krishna clarified that general exclusions should not be expansively interpreted to cover statutes unlike those explicitly listed, such as BIPA.
• The district court's findings were also referenced, particularly the decision in Citizens Insurance Co. v. Thermoflex Waukegan, LLC (588 F.Supp.3d 845, N.D. Ill. 2022), which held that an exclusion in the Basic policy rendered it inapplicable to claims based on BIPA.

These precedents collectively influenced the court’s determination that the exclusions in the Basic and Excess policies of Mitsui Sumitomo Insurance effectively precluded coverage for BIPA-related claims, whereas the Umbrella policy did not inherently exclude such coverage.

Legal Reasoning

The court’s legal reasoning was methodical and grounded in statutory interpretation and precedent analysis. Key elements of the reasoning include:

• **Statutory Interpretation of BIPA**: The court analyzed the definition of "confidential or personal information" under BIPA, concluding that biometric data, including handprints used by Thermoflex, fall squarely within this category.
• **Policy Exclusion Clarity**: Emphasizing the principle that Illinois courts uphold the explicit language of insurance policies, the court found that the exclusions in the Basic policy unambiguously excluded coverage for claims involving the disclosure or access to nonpublic information, thereby including BIPA claims.
• **Application of Precedent**: By referencing Wynndalco and Visual Pak, the court reconciled conflicting interpretations and affirmed that policy exclusions similar in structure to those disputed within Thermoflex’s policies do apply to BIPA claims, provided the policy language is clear.
• **Ejusdem Generis Doctrine**: The court applied this doctrine to determine that general terms in exclusions (e.g., "any other type of nonpublic information") should be interpreted in the context of the specific examples provided (e.g., patents, trade secrets), reinforcing that biometric data is included.
• **Distinguishing Statutory Exclusions**: Regarding the Umbrella policy, the court evaluated whether the Statutory Violation Exclusion could be analogously applied to BIPA claims. Drawing distinctions between specific statutes listed and BIPA, the court concluded that the exclusion did not extend to BIPA without explicit language to that effect.

Through this comprehensive analysis, the court established that while the Basic and Excess policies exclude coverage for BIPA-related claims, the Umbrella policy requires Mitsui Sumitomo Insurance to defend Thermoflex once the limits of the underlying policies are exhausted.

Impact

This judgment has significant implications for both insurance providers and employers utilizing biometric data:

• **Clarification of Insurance Coverage**: By affirming that clear policy exclusions apply to BIPA claims, insurance companies can more confidently define the scope of their coverage, reducing ambiguity in policy terms related to biometric data.
• **Employer Liability**: Employers using biometric systems must be aware that insurance coverage may not extend to BIPA violations unless explicitly included. This may prompt employers to seek specialized coverage or adjust their risk management strategies.
• **Legal Precedent**: The decision serves as a binding precedent within the Seventh Circuit, guiding lower courts in interpreting similar insurance policy exclusions in future cases involving biometric and other privacy-related claims.
• **Policy Drafting**: Insurers may revisit and revise policy language to either explicitly include or exclude coverage for biometric data breaches, ensuring clarity and legal compliance.
• **Future Litigation**: The affirmation provides a clear framework for upcoming cases involving BIPA, influencing how courts interpret policy language and apply statutory definitions in the context of privacy laws.

Complex Concepts Simplified

The judgment addresses several intricate legal constructs that are pivotal in understanding the court’s decision. Below are simplified explanations of these concepts:

• Biometric Information Privacy Act (BIPA): A state law in Illinois that regulates the collection, use, and storage of biometric data (like fingerprints and facial recognition data). It requires organizations to obtain informed consent before collecting such data and mandates strict data security measures.
• Policy Exclusions: Clauses in insurance policies that exclude coverage for certain types of claims or events. In this case, the exclusions pertained to claims arising from access to or disclosure of confidential or personal information.
• Ejusdem Generis Doctrine: A rule of statutory interpretation where general words following specific examples are interpreted to include only items of the same kind as those listed. Here, the court used it to determine that "nonpublic information" includes biometric data, similar to the specific examples provided in the policy.
• Duty to Defend vs. Duty to Indemnify: The duty to defend refers to the obligation of an insurance company to provide legal defense for the insured in case of a claim, regardless of the claim’s validity. The duty to indemnify involves covering the financial losses or damages awarded against the insured. The court differentiated between these duties, holding Mitsui Sumitomo Insurance responsible for the duty to defend under the Umbrella policy.
• Statutory Violation Exclusion: A policy exclusion that denies coverage for claims arising out of violations of specified statutes or regulations. The court analyzed whether BIPA falls under this exclusion based on the structuring of the policy language.
• Ambiguous Policy Provisions: Where policy language is unclear or open to multiple interpretations, courts typically construe such language in favor of the insured. However, in this case, the court found the exclusions to be unambiguous.

Conclusion

The Seventh Circuit's decision in Thermoflex Waukegan, LLC v. Mitsui Sumitomo Insurance USA, Inc. serves as a pivotal reference point for interpreting insurance policy exclusions in the realm of biometric data privacy laws. By meticulously analyzing policy language and aligning it with statutory definitions under BIPA, the court provided clear guidance on the extent of insurance coverage in such contexts. This judgment not only clarifies the responsibilities of insurance providers but also underscores the importance for employers and organizations to carefully consider their insurance policies when implementing biometric systems. As data privacy concerns continue to evolve, this ruling will undoubtedly influence future legal interpretations and policy formulations, ensuring that both insurers and insured parties navigate the complexities of privacy law with greater clarity and precision.