Citizens Ins. Co. of Am., Corp. v. Wynndalco Enters., LLC

• Decision Date: 30 March 2022
• Docket Number: 20 C 3873
• Parties: CITIZENS INSURANCE COMPANY OF AMERICA, a Michigan corporation, Plaintiff, v. WYNNDALCO ENTERPRISES, LLC; an Illinois limited liability company; David Andalcio; Jose Flores ; Melissa Thornley; Deborah Benjamin-Koller; and Josue Herrera; individually and on behalf of all others similarly situated; and Mario Calderon and Jennifer Rocio, individually and on behalf of all others similarly situated, Defendant.
• Court: U.S. District Court — Northern District of Illinois

595 F.Supp.3d 668

CITIZENS INSURANCE COMPANY OF AMERICA, a Michigan corporation, Plaintiff,

v.WYNNDALCO ENTERPRISES, LLC; an Illinois limited liability company; David Andalcio; Jose Flores ; Melissa Thornley; Deborah Benjamin-Koller; and Josue Herrera; individually and on behalf of all others similarly situated; and Mario Calderon and Jennifer Rocio, individually and on behalf of all others similarly situated, Defendant.

No. 20 C 3873

United States District Court, N.D. Illinois, Eastern Division.

Signed March 30, 2022

Jeffrey Alan Goldwater, Kelly M. Ognibene, Lewis Brisbois Bisgaard & Smith, LLP, Chicago, IL, for Plaintiff.

David S. Golub, Silver Golub & Teitell LLP, Stamford, CT, Justin William Hanson, Fornaro Law, La Grange, IL, Brian Patrick O'Meara, Kevin Michael Forde, Kevin R. Malloy, Forde & O'Meara LLP, Chicago, IL, Daniel Martin Feeney, Rachel Ellen Simon, Zachary J. Freeman, Miller Shakman Levine & Feldman LLP, Chicago, IL, Emily Wessel Farr, Karin Therese O'Connell, Gould & Ratner LLP, Chicago, IL, for Defendant.

Daniel Martin Feeney, Zachary J. Freeman, Miller Shakman Levine & Feldman LLP, Chicago, IL, Brian Patrick O'Meara, Kevin Michael Forde, Kevin R. Malloy, Forde & O'Meara LLP, Chicago, IL, David S. Golub, Silver Golub & Teitell LLP, Stamford, CT, for Defendants Melissa Thornley, Deborah Benjamin-Koller, Josue Herrera.

David S. Golub, Silver Golub & Teitell LLP, Stamford, CT, Justin William Hanson, Fornaro Law, La Grange, IL, Karin Therese O'Connell, Emily Wessel Farr, Gould & Ratner LLP, Chicago, IL, for Defendants David Andalcio, Jose Flores.

MEMORANDUM OPINION AND ORDER

John Z. Lee, United States District Judge

Plaintiff Citizens Insurance Company of America sold a business liability insurance policy to Defendant Wynndalco Enterprises, LLC. While the policy was in effect, Wynndalco was sued in two separate class action lawsuits for allegedly selling biometric information in violation of the Illinois Biometric Information Privacy Act ("BIPA"), 740 Ill. Comp. Stat. 14/1 et seq.

In turn, Wynndalco and its officers, David Andalcio and Jose Flores, notified Citizens of the lawsuits and requested defense under the insurance policy. Citizens then filed this lawsuit, seeking a declaratory judgment that the policy does not cover the two underlying lawsuits. Wynndalco filed a counterclaim seeking the opposite.

Now Citizens and Wynndalco have filed cross-motions for judgment on the pleadings. Because the policy exclusion invoked by Citizens does not unambiguously preclude coverage for the underlying lawsuits, Citizens’ motion is denied, and Wynndalco's cross-motion is granted.

I. Undisputed Facts

A. The Thornley and Calderon Lawsuits

The litigation that prompted this insurance coverage dispute involves the secret collection of more than three billion facial scans by Clearview AI, an artificial intelligence company that specializes in facial recognition software. See 1st Am. Compl. ("Compl.") ¶ 19, ECF No. 20. Clearview AI allegedly extracted, or "scraped," photographs from social media and content sharing platforms like Facebook, Twitter, Instagram, YouTube, and Venmo to create a database of facial scans ("Clearview Database"). Id. Clearview AI also created a facial recognition application ("Clearview App") that allows its customers to identify individuals by comparing facial pictures they take to the Clearview Database. Id. Wynndalco, an information technology ("IT") services and consulting firm, licensed and sold access to the Clearview Database and Clearview App to customers in Illinois. Id. ¶¶ 21–22.

Melissa Thornley and Mario Calderon, on behalf of themselves and others similarly situated, each filed class action lawsuits (the "Thornley Lawsuit" and the "Calderon Lawsuit;" together, the "Lawsuits") against Wynndalco, alleging that Wynndalco had violated BIPA—an Illinois statute that regulates the collection, disclosure, retention, and destruction of biometric information, by selling Clearview's products in Illinois. Id. ¶¶ 18, 28; see Compl. Ex. B, Class Action Compl., Thornley v. CDW-Gov't, LLC , No. 2020 CH 04346 (Cir. Ct. Cook Cnty. May 27, 2020), ECF No. 20-2; Compl. Ex. C, 1st Am. Class Action Compl., Calderon v. Clearview AI, Inc. , No. 1:20-cv-01296-CM (S.D.N.Y. July 22, 2020), ECF No. 20-3.¹

B. The Citizens Policy

Wynndalco purchased a Business Owners Insurance Policy from Citizens and has asked Citizens to defend it and its officers pursuant to the policy. Compl. ¶ 34; see Compl. Ex. A, Business Owners Policy No. OBC-H062078-00 (the "Policy"), ECF No. 20-1. The Policy provides coverage for "personal and advertising injury," defined, in pertinent part, as "injury, including consequential ‘bodily injury,’ arising out of ... [o]ral or written publication, in any manner, of material that violates a person's right of privacy." Id.

The Policy also contains a number of exclusions. Relevant here is the exclusion entitled "Distribution of Material in Violation of Statutes" ("Statutory Violation exclusion"), which provides that the insurance does not apply to:

"[P]ersonal and advertising injury" arising directly or indirectly out of any action or omission that violates or is alleged to violate:

(1) The Telephone Consumer Protection Act (TCPA) [ 47 U.S.C. § 227 et seq. ] including any amendment of or addition to such law; or

(2) The CAN-SPAM Act of 2003 [ 15 U.S.C. § 7701 et seq. ], including any amendment of or addition to such law;

(3) The Fair Credit Reporting Act (FCRA) [ 15 U.S.C. § 1681 et seq. ], and any amendment of or addition to such law, including the Fair and Accurate Credit Transaction Act (FACTA); or

(4) 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.

Compl. ¶ 17; see Policy at 92. This dispute concerns the interpretation of the last subsection of this exclusion.

II. Legal Standard

Motions for judgment on the pleadings are brought under Federal Rule of Civil Procedure 12(c), which tests the sufficiency of claims based on the pleadings. Fed. R. Civ. P. 12(c) ; see Scottsdale Ins. Co. v. Columbia Ins. Grp., Inc. , 972 F.3d 915, 919 (7th Cir. 2020). A party may move for judgment on the pleadings after the pleadings are closed. Fed. R. Civ. P. 12(c).

When reviewing a Rule 12(c) motion, the Court takes all facts pleaded in the complaint as true and draws "all reasonable inferences and facts in favor of the nonmovant." Wagner v. Teva Pharm. USA, Inc. , 840 F.3d 355, 358 (7th Cir. 2016). The Court will grant a motion for judgment on the pleadings if "it appears beyond doubt that the nonmovant cannot prove facts sufficient to support its position, and that the plaintiff is entitled to relief." Scottsdale Ins. , 972 F.3d at 919.

III. Analysis

As a preliminary matter, the parties agree that Illinois law applies. Compare, e.g. , Citizens’ Mem. Law Supp. Mot. J. Pleadings at 8 ("Citizens’ Mem."), ECF No. 65, with, e.g. , Mem. Law Supp. Wynndalco & Thornley Defs.’ Mots. J. Pleadings & Opp'n Citizens’ Mot. J. Pleadings at 9, ECF No. 86. Furthermore, all material facts are undisputed, and Citizens does not contest that, if it has a duty to defend Wynndalco, it also must defend its officers. With that, the Court turns to the question at hand, namely, whether the policy Citizens issued to Wynndalco provides coverage for the defense of the Lawsuits. See Mashallah, Inc. v. W. Bend Mut. Ins. Co. , 20 F.4th 311, 319 (7th Cir. 2021) ("Under Illinois law, the interpretation of an insurance policy, like any other contract, is a question of law.").

To answer this question, the Court must look to the language of the insurance policy. "The goal in interpreting an insurance policy is to ascertain and give effect to the intention of the parties, as expressed in the policy language." Scottsdale Ins. , 972 F.3d at 919 (cleaned up). Furthermore, under Illinois law, "insurance policies are to be liberally construed in favor of coverage, and where an ambiguity exists in the insurance contract, it will be resolved in favor of the insured and against the insurer." United Servs. Auto. Ass'n v. Dare , 357 Ill.App.3d 955, 294 Ill.Dec. 258, 830 N.E.2d 670, 678 (2005). At the same time, policy language is not ambiguous "simply because the parties disagree as to its meaning[,]" and the court should not "strain to find an ambiguity where none exists." Founders Ins. Co. v. Munoz , 237 Ill.2d 424, 341 Ill.Dec. 485, 930 N.E.2d 999, 1004 (2010).

When seeking coverage, "[a]n insured has the burden of proving that a claim falls within the coverage of the policy.... Once the insured satisfies this burden, the insurer has the burden of proving that the loss was limited or excluded by a contract provision." Travelers Pers. Ins. Co. v. Edwards , 400 Ill.Dec. 349, 48 N.E.3d 298, 303 (Ill. App. Ct. 2016). What is more, "[a]n insurer can only refuse to defend if the allegations of the underlying complaint preclude any possibility of coverage." Ill. Tool Works, Inc. v. Travelers Cas. & Sur. Co. , 389 Ill.Dec. 331, 26 N.E.3d 421, 428 (Ill. App. Ct. 2015). But a single unequivocal exclusion is sufficient to show that an insurer does not have a duty to defend the insured. See, e.g. , Hartford Cas. Ins. Co. v. Dental USA, Inc. , No. 13 C 7637, 2014 WL 2863164, at *4 (N.D. Ill. June 24, 2014) (applying Illinois law).

Finally, to "determine whether the insurer's duty to defend has arisen, the court must compare the allegations of the underlying complaint to the policy language." Id. "If the court determines that these allegations fall within, or potentially within , the policy's coverage, the insurer has a duty to defend the insured against the underlying complaint." Metzger v. Country Mut. Ins. Co. , 369 Ill.Dec. 443, 986 N.E.2d 756, 761 (Ill. App. Ct. 2013) (cleaned up).

In this case, the dispute focuses on whether the Statutory Violation exclusion precludes coverage for the...