A federal appeals panel has ruled an insurance company can’t use a so-called "statutory violations" catch-all policy exclusion to avoid its obligation to participate in the defense of a class action under Illinois' stringent biometrics privacy law against a Broadview-based condiment manufacturer that led to a $1 million settlement.
The underlying litigation is a class action complaint accusing Mullins Foods Products of violating the Illinois Biometric Information Privacy Act. Otis Winslow and Ricardo Galan each sued the sauce and spread maker for using a fingerprint time clock for employees allegedly without complying with BIPA provisions requiring written consent, data retention and destruction and disclosure of worker data to third-party payroll and timekeeping vendors.
Cook County Circuit Court Judge Eve Reilly granted preliminary approval of a settlement in July 2024, with terms calling for 40% going to the lawyers who represented the men, including from the firms of McGuire Law, of Chicago; Hedin, of Miami; Hammervold Law, of Elmhurst; Dapeer Law, of Aventura, Fla.; and Hiraldo, of Fort Lauderdale, Fla. Winslow and Galan each would get a $4,500 service award, while the firms would split $423,084 in fees and expenses. That would leave about $600 to $700 for each of nearly 740 class members.
Before the settlement, Citizens Insurance Company declined to cover Mullins in state court, instead asking U.S. District Judge Jorge Alonso to declare its commercial liability policies with Mullins contain valid exclusions for allegations of statutory violations. Alonso agreed, prompting Citizens to challenge the issue before the U.S. Seventh Circuit Court of Appeals.
Seventh Circuit Judge Ilana Rovner wrote the panel’s opinion, filed May 2; Circuit Judges Michael Brennan and Joshua Kolar concurred.
Galan sued in February 2021, according to court records, but Citizens said Mullins didn’t give notice of an insurance claim until January 2022. In March, Citizens began asking federal courts to agree it wasn’t obligated to participate in the defense of the BIPA allegations, prompting a Mullins counterclaim for breaching the policy obligations. Judge Alonso disposed of that attempt, finding Citizens acted timely enough to avoid a breach claim even if the end result is a conclusion Citizens had to defend Mullin.
According to Rovner, the annual policies in question are from 2015 through 2017. While 2016 and 2017 policies include coverage exclusions for allegations of improper disclosure of or allowing access to confidential or personal information that unambiguously bar coverage for BIPA claims, Rovner said all three policies have a so-called statutory violation exclusion that doesn’t carry the same weight.
“What makes this provision more challenging to construe is that it lists several statutory violations that are expressly excluded by name from coverage,” Rovner said, while concluding “with a broad catchall” clause that courts have found ambiguous, allowing for parties like Citizens and Mullins to make conflicting claims about what is and isn’t covered.
“For a proper understanding of the scope of the catchall, we look to the three statutes expressly identified immediately preceding (and cited in the ‘other than’ clause of) the catchall for guidance as to what other types of statutory violations are subsumed within the catchall,” Rovner wrote.
The named laws — the Telephone Consumer Protection Act, CAN-SPAM Act and the Fair Credit Reporting Act — regulate issues that are “patently different” from the kind of personal privacy protections lawmakers enshrined in BIPA, Rovner said, meaning although Mullins faced accusations of a statutory violation, it was the kind of claim Citizens is obligated to defend.
The panel then reasoned Judge Alonso incorrectly granted summary judgment on Mullins’ counterclaim. While Citizens acknowledged a finding it should’ve participated on the defense would obligate it to pay in arrears, Rovner said, “its quarrel is with the label ‘breach of the duty to defend’ and the baggage that carries as a matter of Illinois insurance law” along with the concern it retain the ability to properly make its arguments about what its policies did and did not obligate.
“In the ideal course of events, the declaratory judgment action would resolve the insurer’s duty to defend before the underlying claim proceeds to litigation, so that if the insured is owed a defense under the insurance policy, it is given one,” Rovner wrote. “But events do not always play out as the parties might wish. Not infrequently, the underlying claim against the insured may proceed to litigation, even judgment, before the declaratory judgment action finally re-solves the duty to defend. In that eventuality, the insured will have been left to defend the underlying action entirely on its own, as Mullins was here, before the parties learn whether the insured was owed a defense.”
On remand, the panel said, Judge Alonso could find in Mullins’ favor and, if so, must provide an appropriate remedy for its expenses in litigating and settling the underlying class action with employees. As such, it vacated the entirety of the counterclaim summary judgment.
The remaining dispute concerned whether Mullins gave Citizens sufficiently expedient notice of the BIPA lawsuit. Rovner said the appeals panel would leave that issue for remand as Alonso had already vacated his initial denial of summary judgment after finding Citizens didn’t need to provide any coverage. That leaves no ruling ripe for appellate review, and even so, denials of summary judgment typically can’t reach the appellate stage.
“Citizens may therefore owe Mullins a duty of defense and indemnification under the 2015 policy, assuming that Mullins gave timely notice of the underlying claim to Citizens,” Rovner wrote in conclusion. “The question of timely notice is to be resolved on remand. In the event the district court concludes that Mullins did provide Citizens with timely notice of the underlying claim and was thus owed a defense by Citizens in the Galan litigation, the judgment must incorporate reimbursement to Mullins for the fees and costs it incurred defending the Galan suit on its own while Citizens pursued this declaratory action.”