CHICAGO — A federal judge will allow an insurance company to continue seeking a court order freeing it from obligations to defend a vendor linked to Clearview A.I., a purveyor of facial recognition technology embroiled in a slew of lawsuits concerning Illinois’ biometrics law.
Citizens Insurance Company of America asked U.S. District Judge John Lee to issue a declaratory judgment asserting it doesn’t need to defend or indemnify Mokena-based Wynndalco Enterprises in connection with class action suits pending in other courts. Wynndalco executives David Andalcio and Jose Flores sought a stay on that motion, which Lee denied in an opinion issued Jan. 27.
In May, Chicago law firm Miller Shakman Levine & Feldman filed two class actions for the same named plaintiffs in Cook County Circuit Court. In one, New York-based Clearview is named as a defendant. The company scrapes images from public websites to create facial recognition databases marketed nationwide to law enforcement agencies, banks and loss prevention specialists. The other suit targets Wynndalco and CDW-Government, which are licensed to sell Clearview’s app and database in Illinois.
Citizens issued a business owners policy to Wynndalco effective for a year starting Oct. 2, 2019. According to Lee’s opinion, the policy has a provision excluding liability coverage for federal laws like the Telephone Consumer Protection Act and Fair Credit Reporting Act, as well as “Any 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.”
Wynndalco faces allegations about how Clearview customers access its database through the company’s software. Lee said the complaints allege the company violated the Biometric Information Privacy Act by failing to adhere to its requirements for collecting, storing and using personal information, as well as for improperly profiting from such data.
In arguing for the stay, Wynndalco said the class actions are still in early pleading and discovery stages and stated there are factual issues that would force Lee to resolve factual questions affecting those lawsuits: whether it is exempt under BIPA as a government contractor and whether it legally “possessed” biometric information.
Lee agreed those questions are central to the class actions, but said he doesn’t need to resolve either to rule on Citizens’ obligations. Pointing to a 1995 U.S. Seventh Circuit Court of Appeals opinion in Nationwide Insurance v. Zavalis, Lee said he must only consider whether the allegations, if proven, would establish a legal injury the policy covers.
“Defendants implicitly recognize as much in their briefs,” Lee wrote in his opinion, “where they cite multiple precedents for the proposition that the insurer’s ‘duty to defend exists as long as the allegations of the underlying complaint are potentially within the scope of coverage.’ ”
Lee further said Wynndalco’s attempt to differentiate itself from the Nationwide precedent failed because although that case concerned a motion to dismiss, and not a motion to stay, the legal question is the same. He further said an argument the policy exclusion is limited only to statutory violation fails because a resolution of that claim wouldn’t prove Citizens is obligated to defend Wynndalco in both suits.
“Wynndalco need only argue that the allegations of the underlying complaints, ‘if proven,’ would establish an injury covered by the policy,” Lee wrote. “The task of answering the complaint in this case does not amount to a ‘dress rehearsal’ for the underlying cases.”
As such, he concluded, a stay is unwarranted, and the motion for declaratory judgment survives.
Wynndalco is represented by attorneys Karin O’Connell and Emily Wessel Farr, of the firm of Gould & Ratner LLP, of Chicago.
Citizens Insurance is represented by attorneys Jeffrey A. Goldwater and Kelly M. Ognibene, of the firm of Lewis Brisbois Bisgaard & Smith LLP, of Chicago.