The legal battle over biometric privacy in Illinois has reached a new crossroads as a prominent insurance provider has petitioned an Illinois federal court for a declaratory judgment, asserting that it bears no obligation to defend or indemnify a group of automotive dealerships facing a high-stakes class action lawsuit. The underlying litigation centers on alleged violations of the Illinois Biometric Information Privacy Act (BIPA), a stringent state law that has become a flashpoint for privacy advocates and the business community alike. At the heart of the dispute is the use of biometric timekeeping systems—specifically fingerprint scanners—used by the dealerships to track employee hours. The insurer’s recent filing argues that the specific language of its policies, including various exclusions related to statutory violations and data privacy, precludes coverage for the claims brought by the dealership employees.
The Genesis of the Litigation
The conflict began when a group of current and former employees of several Illinois-based car dealerships filed a proposed class action. The plaintiffs alleged that the dealerships required them to scan their fingerprints to clock in and out of their shifts but failed to meet the rigorous transparency and consent requirements mandated by BIPA. Specifically, the lawsuit claims the dealerships did not provide written notice regarding the purpose and duration of the biometric data storage, nor did they obtain the necessary written releases from employees before collecting their sensitive biological identifiers.
Under BIPA, private entities are prohibited from collecting, capturing, or otherwise obtaining a person’s biometric identifier or information unless they first inform the individual in writing that the information is being collected and stored, state the specific purpose and length of time for which the data will be used, and receive a written release. Furthermore, companies must develop and make available to the public a written policy establishing a retention schedule and guidelines for permanently destroying the biometric data.
The dealerships, facing potentially ruinous statutory damages, sought coverage from their commercial general liability (CGL) and employment practices liability insurance (EPLI) providers. However, the insurer responded with a preemptive legal strike, filing a complaint in the U.S. District Court for the Northern District of Illinois to clarify its duties.
The Insurer’s Legal Arguments and Policy Exclusions
In its complaint, the insurer outlines several key reasons why it believes the dealerships are not entitled to a defense or indemnification. The primary argument hinges on the interpretation of "personal and advertising injury" coverage, which is a standard component of many CGL policies. While this category often covers injuries arising from the "oral or written publication, in any manner, of material that violates a person’s right of privacy," the insurer contends that the BIPA allegations do not fall within this scope.
Furthermore, the insurer points to specific exclusions that it claims are "clear and unambiguous." One such exclusion is the "Violation of Statutes" provision, which denies coverage for injuries resulting from the violation of any federal, state, or local statute that addresses the sending, transmitting, or communicating of information. The insurer argues that BIPA is precisely the type of statute envisioned by this exclusion.
Another critical point of contention involves the "Recording and Distribution of Material or Information in Violation of Law" exclusion. This clause generally bars coverage for liabilities arising out of any action or omission that violates or is alleged to violate any federal, state, or local statute that prohibits or limits the printing, dissemination, disposal, collecting, recording, sending, transmitting, communicating, or distribution of material or information.
The insurer also raises the "Employment-Related Practices" (ERP) exclusion. Given that the underlying lawsuit was brought by employees in the context of their employment, the insurer argues that the claims are inextricably linked to employment-related acts and omissions, which are often carved out of general liability policies to be covered by specialized EPLI policies—which the insurer claims do not apply here either.
A Chronology of Biometric Privacy in Illinois
To understand the weight of this case, one must look at the timeline of BIPA and its impact on the Illinois legal landscape:
- 2008: The Illinois General Assembly passes the Biometric Information Privacy Act (BIPA) in response to the bankruptcy of Pay By Touch, a company that handled fingerprint data for grocery stores. Illinois becomes the first state to allow a private right of action for biometric privacy violations.
- 2019: The Illinois Supreme Court issues a landmark ruling in Rosenbach v. Six Flags Entertainment Corp., holding that a plaintiff does not need to prove an actual "injury" or "adverse effect" beyond a violation of their legal rights under BIPA to be considered an "aggrieved" person entitled to seek liquidated damages.
- 2021: In West Bend Mutual Insurance Co. v. Krishna Schaumburg Tan, Inc., the Illinois Supreme Court rules that an insurer did have a duty to defend a tanning salon in a BIPA suit under a CGL policy, finding that the "violation of statutes" exclusion in that specific policy only applied to statutes governing methods of communication (like the TCPA) rather than privacy statutes like BIPA.
- 2023: The Illinois Supreme Court clarifies in Cothron v. White Castle System, Inc. that BIPA claims accrue with every individual scan of a biometric identifier, not just the first instance. This decision exponentially increased the potential liability for businesses.
- 2024: Following the Cothron decision, insurers began aggressively rewriting policy language to explicitly exclude BIPA and other privacy-related claims, leading to the current wave of declaratory judgment actions.
Supporting Data: The Rising Cost of BIPA Compliance and Litigation
The stakes for the car dealerships are astronomical. BIPA allows for statutory damages of $1,000 for each "negligent" violation and $5,000 for each "intentional or reckless" violation. In the context of a workplace where employees scan their fingers multiple times a day (clocking in for the shift, out for lunch, in from lunch, and out for the day), the number of violations can reach into the thousands for a single employee over the course of a year.
Data from legal analytics firms show that:
- Over 2,000 BIPA class actions have been filed in Illinois since 2017.
- The average settlement for a BIPA class action ranges between $500,000 and $5 million, though some high-profile cases have reached hundreds of millions.
- The automotive sector has become a frequent target, with over 150 dealerships in the Chicagoland area alone facing biometric-related litigation in the last 36 months.
For a mid-sized dealership group with 200 employees, even a conservative estimate of damages could exceed tens of millions of dollars if a court finds that each scan constitutes a separate violation. Without insurance coverage, such a judgment would likely result in insolvency for many local businesses.
Industry Reactions and Official Responses
While the car dealerships involved in the suit have not issued a formal public statement, industry advocates like the Illinois Automobile Dealers Association (IADA) have long expressed concern over the "predatory" nature of BIPA litigation. In previous legislative sessions, business groups have lobbied for amendments to BIPA that would require plaintiffs to show actual harm or allow businesses a "right to cure" administrative errors before being sued.
"The current state of BIPA litigation in Illinois is unsustainable for small and medium-sized businesses," said a legal consultant for the retail automotive industry. "Dealerships adopted these technologies for security and efficiency, not to exploit employee data. Being denied insurance coverage for what many consider a technical paperwork error is a worst-case scenario."
On the other side, privacy advocates and plaintiffs’ attorneys argue that the law is working exactly as intended. "Biometric data is unique and cannot be changed if it is compromised," said a representative from a prominent Chicago-based privacy rights group. "Companies have had since 2008 to comply with these very simple requirements. If insurers are backing out, it highlights the need for businesses to take data privacy seriously from the outset."
Broader Impact and Legal Implications
The outcome of this declaratory judgment action will be closely watched by the insurance industry and the Illinois business community. If the court sides with the insurer, it will reinforce the trend of "BIPA exclusions" becoming an industry standard, effectively leaving businesses to self-insure against biometric privacy risks.
Legal analysts suggest that this case could hinge on the "narrowness" or "breadth" of the policy exclusions. Since the Illinois Supreme Court’s West Bend decision in 2021, many insurers have moved away from general "violation of statutes" language toward specific "Biometric Exclusion Endorsements." If the policy in question contains this modern, specific language, the dealerships face an uphill battle.
Furthermore, this case underscores a growing gap in the insurance market. Traditional CGL policies are increasingly inadequate for modern digital risks, and even specialized Cyber Liability or EPLI policies are being tightened to limit exposure to BIPA’s unique statutory damage structure.
Fact-Based Analysis of the Legal Path Forward
As the case moves through the federal court system, the focus will remain on the principles of contract interpretation. In Illinois, insurance policies are generally construed in favor of the insured if there is any ambiguity. However, if the insurer can prove that the policy language clearly intended to exclude BIPA-related claims, the court will likely grant the declaratory judgment.
The dealerships may argue that the "personal and advertising injury" provision provides a "duty to defend" even if the "duty to indemnify" is uncertain. In Illinois, an insurer’s duty to defend is broader than its duty to indemnify; an insurer must defend its insured if the underlying complaint alleges facts that are even potentially within the policy’s coverage.
If the court finds no duty to defend, the dealerships will be forced to fund their own legal defense in the underlying class action, which can cost hundreds of thousands of dollars in legal fees alone, regardless of the eventual settlement or judgment.
This case serves as a stark reminder of the volatility surrounding biometric data. As more states consider legislation similar to BIPA—such as California, Washington, and Texas—the intersection of privacy law and insurance coverage will remain one of the most significant legal battlegrounds of the decade. For now, Illinois car dealers find themselves in a precarious position, caught between a strict privacy statute and an insurance industry that is increasingly unwilling to foot the bill for the resulting litigation.
