Citizens Ins. Co. of Am. v. Thermoflex Waukegan, LLC

• Docket Number: 20-cv-05980
• Decision Date: 01 March 2022
• Parties: CITIZENS INSURANCE COMPANY OF AMERICA, and Hanover Insurance Company, Plaintiffs and Counter Defendants, v. THERMOFLEX WAUKEGAN, LLC, Defendant and Counter Plaintiff, v. Gregory Gates, Defendant.
• Court: U.S. District Court — Northern District of Illinois

588 F.Supp.3d 845

CITIZENS INSURANCE COMPANY OF AMERICA, and Hanover Insurance Company, Plaintiffs and Counter Defendants,

v.THERMOFLEX WAUKEGAN, LLC, Defendant and Counter Plaintiff,

v.Gregory Gates, Defendant.

No. 20-cv-05980

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

Signed March 1, 2022

Jeffrey Alan Goldwater, Kelly M. Ognibene, Lewis Brisbois Bisgaard & Smith, LLP, Chicago, IL, for Plaintiffs and Counter Defendants.

David Benjamin Goodman, Kalli Kling Nies, Carrie Ellen Davenport, Goodman Law Group | Chicago, Chicago, IL, for Defendant and Counter Plaintiff Thermoflex Waukegan, LLC.

Anna Ceragioli, Ryan F. Stephan, Stephan Zouras, LLP, Chicago, IL, for Defendant Gregory Gage.

MEMORANDUM OPINION AND ORDER

JOHN F. KNESS, United States District Judge

Citizens Insurance Company of America and Hanover Insurance Company (the "Insurers") sold Thermoflex insurance policies (the "Policies") that, among other things, obligate the Insurers to defend and indemnify Thermoflex in suits arising out of privacy violations. When Gregory Gates—an employee of Thermoflex—brought a purported class action against Thermoflex in state court under the Illinois Biometric Information and Privacy Act (BIPA)—a law that protects against privacy violations—Thermoflex sought coverage under the Policies. After denying Thermoflex's request, the Insurers brought this suit, asking the Court to declare that they owe no duties to defend or indemnify Thermoflex in the Gates Lawsuit. (Dkt. 18.) Thermoflex brought counterclaims, seeking declarations as to the Insurers’ duties to defend it and bringing breach-of-contract claims against each insurer for their failures to meet their obligations under the Policies. (Dkt. 19.) The parties filed separate motions for judgment on the pleadings as to all counts except Thermoflex's breach-of-contract claims. (Dkts. 23, 29.)

For the reasons that follow, Thermoflex's motion is granted, and the Insurers’ motion is denied as to their duties to defend Thermoflex in the Gates Lawsuit. Under Illinois law (which governs the Court's interpretation of the Policies), any ambiguity in the Policies is resolved in favor of the insured; all that Thermoflex needs to establish the Insurers’ duties to defend is to show that the Gates Lawsuit is "potentially or arguably" within the scope of coverage. Because the Policies "arguably" cover the BIPA claims in the Gates Lawsuit, and because none of the exceptions in the Policies unambiguously precludes coverage, the Insurers are obligated to defend Thermoflex. Judgment on the pleadings is granted as to Counts I and II of Thermoflex's amended counterclaims.

Separately, the Insurers’ claims that they owe no duties to indemnify Thermoflex are not ripe because there has not been any determination of liability in the Gates Lawsuit. Accordingly, those claims are dismissed without prejudice.

I. BACKGROUND

Defendant Thermoflex is an automotive accessory development and production company. (Dkt. 18 ¶ 14.) Plaintiffs Citizens Insurance Company of America and Hanover Insurance Company (the "Insurers") issued insurance policies to Thermoflex; Citizens issued a Commercial Lines Policy, and Hanover issued a Commercial Follow Form Excess and Umbrella Liability Policy (together, the "Policies"). (Dkt. 18 ¶¶ 11-12.) Citizens's policy provides coverage for, among other things, "personal and advertising injur[ies]," which includes injuries "arising out of ... [o]ral or written publication, in any matter, of material that violates a person's right of privacy." (Dkt. 19 at 27.) Hanover's policy provides coverage for "those sums in excess of the ‘retained limit’ ... which the insured becomes legally obligated to pay as damages because of ... ‘personal injury’ ... to which this coverage applies." (Id. )

In 2017, Defendant Gregory Gates, on behalf of himself and others similarly situated, filed a class action against Thermoflex in the Circuit Court of Lake County, Illinois (the "Gates Lawsuit"). (Id. at 28; see also Dkt. 18-3 (state-court complaint).) The Gates Lawsuit includes three counts against Thermoflex under the Illinois Biometric Information Privacy Act (BIPA) based on Thermoflex's collection of its employees’ handprint data, which Thermoflex allegedly used for authentication and timekeeping purposes.¹ (Dkt. 18-3 ¶¶ 32-33, 66-96.) Thermoflex sought coverage from Citizens and Hanover—defense and indemnification—for the Gates Lawsuit. (Dkt. 18 ¶ 18). On September 29, 2020, the Insurers "decline[d] to provide coverage." (Dkt. 19-4 at 1.)

On October 7, the Insurers brought this suit against Thermoflex² (Dkt. 1), and, on November 16, they filed a second amended complaint (Dkt. 18). The Insurers allege that certain provisions of the Policies absolve them of their duties "to defend or indemnify Thermoflex in connection with the Gates Lawsuit." (Id. ¶¶ 26, 33, 40, 47, 55, 62, 68, 75.) On November 30, Thermoflex answered and asserted four counterclaims, asking the Court to declare the Insurers’ duties to defend it (Counterclaims I and II) and asserting breach-of-contract claims against the Insurers based on their failure to defend Thermoflex in the ongoing Gates Lawsuit (Counterclaims III and IV). (Dkt. 19 at 31-35.) In January and February 2021, the Insurers and Thermoflex filed separate motions for judgment on the pleadings. (Dkts. 23, 29.)³ The Insurers seek declarations that they have no duties to defend or indemnify Thermoflex in connection with the Gates Lawsuit, as well as a declaration that they did not breach the Policies by declining to defend Thermoflex. (Dkt. 23 at 2.) Thermoflex seeks declarations that the Insurers have duties to defend it in the Gates Lawsuit. (Dkt. 29 at 2.)

II. STANDARD OF REVIEW

Rule 12(c) of the Federal Rules of Civil Procedure permits a party to move for judgment on the pleadings after both the plaintiff's complaint and the defendant's answer have been filed. Fed. R. Civ. P. 12(c). Rule 12(c) motions are reviewed under the same standard as Rule 12(b)(6) motions to dismiss. Pisciotta v. Old Nat'l Bancorp , 499 F.3d 629, 633 (7th Cir. 2007). As with a motion to dismiss, the court must construe the complaint's allegations liberally in favor of the insured. Berg v. N.Y. Life Ins. Co., 831 F.3d 426, 429-30 (7th Cir. 2016). To succeed on a motion for judgment on the pleadings, the moving party "must demonstrate that there are no material issues of fact to be resolved." N. Ind. Gun & Outdoor Shows, Inc. v. City of S. Bend , 163 F.3d 449, 452 (7th Cir. 1998). This standard is demanding and requires a showing "beyond doubt" that the nonmovant cannot prove any facts that support its claim for relief. Id.

III. DISCUSSION

A. The Insurers’ Duties to Defend Thermoflex in the Gates Lawsuit

Under Illinois law,⁴ an "insurer's duty to defend its insured is much broader than its duty to indemnify its insured." Gen. Agents Ins. Co. of Am. v. Midwest Sporting Goods Co. , 215 Ill.2d 146, 293 Ill.Dec. 594, 828 N.E.2d 1092, 1098 (2005). If the complaint in the Gates Lawsuit "states a claim that is within, or even potentially or arguably within, the scope of coverage provided by the policy," the Insurers must provide a defense. Pipefitters Welfare Educ. Fund v. Westchester Fire Ins. Co. , 976 F.2d 1037, 1039 (7th Cir. 1992) (citing U.S. Fid. & Guar. Co. v. Wilkin Insulation Co. , 144 Ill.2d 64, 161 Ill.Dec. 280, 578 N.E.2d 926, 930 (1991) ).⁵

Accordingly, for either insurer to have a duty to defend, Thermoflex need only point the Court to one provision that "potentially or arguably" extends its coverage to the lawsuit. Pipefitters Welfare Educ. Fund , 976 F.2d at 1039. In making that determination, the court should liberally construe both the insurance policies and the underlying complaint in favor of the insured and resolve "[a]ll doubts and ambiguities" in favor of the insured. U.S. Fid. & Guar. Co. , 144 Ill.2d 64, 161 Ill.Dec. 280, 578 N.E.2d at 930 (citations omitted).

Much of the Court's analysis turns on whether provisions of the Policies are ambiguous. An insurance provision "is ambiguous if it is subject to more than one reasonable interpretation." Panfil v. Nautilus Ins. Co. , 799 F.3d 716, 719 (7th Cir. 2015) (citing U.S. Fid. & Guar. Co. , 144 Ill.2d 64, 161 Ill.Dec. 280, 578 N.E.2d at 930 ); see Ambiguity, Black's Law Dictionary (11th ed. 2019) (defining "Ambiguity" as "[d]oubtfulness or uncertainty of meaning or intention"). In making such a determination, the Court must assess "[t]he entire insurance contract, rather than an isolated part." Ind. Ins. Co. v. Pana Cmty. Unit Sch. Dist. No. 8 , 314 F.3d 895, 903 (7th Cir. 2002). If a policy's words are un ambiguous, the "court must afford them their plain, ordinary, and popular meaning," and it "should not search for a nonexistent ambiguity." Id. at 902-03 (citations omitted).

Thermoflex asserts in Counterclaims I and II that the Policies obligate the Insurers to defend it in the Gates Lawsuit because that suit arises out of a "personal [or] advertising injury." (Dkt. 19 at 31-32.)⁶ The Policies define "personal and advertising injur[ies]" to include "[o]ral or written publication[s], in any manner, of material that violates a person's right of privacy." (Id. at 27; Dkt. 18-1 at 203, 432; Dkt. 18-2 at 32-33.)⁷ Thermoflex argues that, "by alleging BIPA violations, the Gates complaint alleges [an] injury arising out of the publication of material that violates the privacy rights of the putative class, and the allegations of the complaint fall within, or at least potentially within, the coverage for personal injury afforded by the policies at issue." (Dkt. 29 ¶ 5 (citing Pipefitters , 976 F.2d at 1039 ).)⁸ The Insurers apparently concede this point, arguing only that the Policies do not apply "by reason of the Employment-Related Practices Exclusion, the Recording and Distribution of Material or Information Exclusion, and the Access or Disclosure of Confidential or Personal Information Exclusion." (Dkt. 24 at 2 (emphasis...