By Rosa M. Tumialán and Alyssa Vranak
The First District Illinois Appellate Court’s opinion in National Fire Ins. Co., et al. v. Visual Pak Co., Inc., 2023 IL App (1st) 221160, represents the first case to address the application of the Recording and Distribution of Material in Violation of Statute since the Illinois Supreme Court’s opinion in West Bend Mut. Ins. Co. v. Krishna Schaumburg Tan, Inc., 2021 IL 125978. Until Visual Pak was issued in 2023, the rule of law in Illinois was that violations of BIPA qualify as “advertising injury” and the version of the exclusion construed in Krishna did not apply to violations of the Illinois Biometric Information Privacy Act (“BIPA”).
These Krishna holdings were eroded by subsequent rulings. The Supreme Court in Tims v. Black Horse Carriers, Inc., 2023 IL 127801, acknowledged that not all violations of BIPA involve a publication which should prompt consideration of whether a tendered complaint alleging BIPA violations satisfies the personal and advertising injury grant in the first instance.
Visual Pak further erodes the Krishna analysis because it construes a more robust version of the Recording and Distribution exclusion that is “materially different” from that construed in Krishna. Visual Pak also clarifies the Seventh Circuit’s application of Illinois law in Citizens Ins. Co. of Am. v. Wynndalco Enters., LLC, 70 F.4th 987 (7th Cir. 2023), was incorrect. The Visual Pak opinion (leave to appeal pending), should have been sufficient guidance for federal courts sitting in diversity jurisdiction and applying Illinois law post Wynndalco. But the Seventh Circuit’s opinion in Thermoflex Waukegan, LLC v. Mitsui Sumitomo Ins. USA, Inc., 2023 WL 2237977 (7th Cir. 2024), shows it was not.
The Thermoflex court instead took extreme measures to avoid the binding effect of Visual Pak to determine that, among other things, the Recording and Distribution exclusion at issue in that case (the same version construed in Visual Pak) did not apply to an alleged BIPA violation. Curiously, the court recognized that Visual Pak rejected Wynndalco as misunderstanding Illinois law. But the court then defaulted to Krishna, despite the material difference recognized between the policy language construed by the Illinois Supreme Court in 2021 and the language as it exists in policies today with no discussion of how the outdated analysis was relevant. Thermoflex also noted the absence of Illinois state court rulings addressing other exclusions asserted by the insurer to justify its resort to the Krishna analysis.
Visual Pak represents the best indicia of Illinois law on the application of the current version of the Recording and Distribution exclusion in liability policies. See e.g., Citizens Ins. Co. of Am. v. Mullins Food Prods. Inc., 2024 WL 809111 (N.D. Ill. Feb. 27, 2024). The Thermoflex court’s evasion of that binding precedent should be viewed as a signal to insurers challenging their duty to defend BIPA violations under general liability policies to do so exclusively in state court. This much is underscored by the Thermoflex court’s observation that other exclusions asserted as defenses to BIPA liability coverage still await a ruling by the Illinois state court judiciary. Insurers should accept that invitation and strive to develop this body of case law in Illinois state courts.
Alyssa Vranak is an associate attorney in the Insurance Practice Group. She focuses her practice on insurance coverage analysis and litigation. Alyssa provides comprehensive coverage analysis and defense in matters involving a wide range of policies, including commercial general liability coverage and professional liability coverage.