Twin City Fire Ins. Co. v. Vonachen Servs., Inc.

• Decision Date: 19 October 2021
• Docket Number: Case No. 20-cv-1150-JES-JEH
• Citation: 567 F.Supp.3d 979
• Parties: TWIN CITY FIRE INSURANCE CO., Plaintiff, v. VONACHEN SERVICES, INC., Annastasia Rodriguez, individually and on behalf of all others similarly situated, and Jessi Gumm, individually and on behalf of all others similarly situated, Defendants. Vonachen Services, Inc., Counter Claimant, v. Twin City Fire Insurance Co., Counter Defendant.
• Court: U.S. District Court — Central District of Illinois

567 F.Supp.3d 979

TWIN CITY FIRE INSURANCE CO., Plaintiff,

v.VONACHEN SERVICES, INC., Annastasia Rodriguez, individually and on behalf of all others similarly situated, and Jessi Gumm, individually and on behalf of all others similarly situated,¹ Defendants.

Vonachen Services, Inc., Counter Claimant,

v.Twin City Fire Insurance Co., Counter Defendant.

Case No. 20-cv-1150-JES-JEH

United States District Court, C.D. Illinois.

Signed October 19, 2021

Michael J. O'Malley, Michael John Duffy, Wilson Elser Moskowitz Edelman & Dicker LLP, Chicago, IL, for Plaintiff/Counter Defendant.

John S. Vishneski, III, Reed Smith LLP, Chicago, IL, for Defendant/Counter Claimant.

ORDER AND OPINION

James E. Shadid, United States District Judge

This matter is now before the Court on Defendant Vonachen Services, Inc.'s Motion (Doc. 20) for Summary Judgment, Memorandum (Doc. 21) in Support, and Statement (Doc. 22) of Undisputed Facts, and Plaintiff Twin City Fire Insurance Company's Cross Motion (Doc. 24) for Summary Judgment and Response to Vonachen's Motion, Memorandum (Doc. 25) in Support, and Statement (Doc. 23) of Undisputed Facts and Response to Vonachen's Statement. Vonachen has also filed a Response (Doc. 27) in Opposition to Twin City's Cross Motion for Summary Judgment and Reply, also (Doc. 27), to Twin City's Response to Vonachen's Motion. Twin City has filed a Reply (Doc. 28) to Vonachen's Response. For the reasons set forth below, Vonachen's Motion (Doc. 20) for Summary Judgment is GRANTED and Twin City's Cross Motion (Doc. 24) for Summary Judgment is GRANTED in part and DENIED in part.

I. BACKGROUND

This insurance coverage dispute concerns a policy issued by Twin City to Vonachen and two class actions that were filed against Vonachen in Illinois circuit courts alleging violations of the Illinois Biometric Information Privacy Act, 740 ILCS 14/1 et seq. (2018) ("BIPA"). Both Parties have moved for summary judgment and agree the following facts are undisputed.

A. Underlying Lawsuits

On November 1, 2019, Annastasia Rodriguez filed a putative class action lawsuit against Caterpillar, Inc. in the Circuit Court of Cook County, Illinois – Chancery Division, Case No. 2019-CH-12773 ("the Rodriguez Action"). Doc. 23, at 5. On March 3, 2020, the Rodriguez Action was amended to dismiss without prejudice the action against Caterpillar and to convert Vonachen from a respondent in discovery to the sole named defendant. Id. In her complaint, Rodriguez alleged various statutory violations of BIPA: Vonachen required its workers to use their fingerprints "as a means of authentication" via a biometric tracking system; Vonachen violated its employees' rights to privacy when it captured, collected, stored, used and/or disclosed those fingerprints; and Vonachen failed to inform its workers of the extent and purposes for which it collected their biometric data and whether the data was disclosed to third parties. Id. at 6, 10. The complaint also listed requirements imposed upon an entity under 740 ILCS 14/15(b)² : (1) inform the subject or the subject's legally authorized representative in writing that a biometric identifier or biometric information is being collected or stored; (2) inform the subject in writing of the specific purpose and length of time for which a biometric identifier or biometric information is being collected, stored, and used; and (3) receive a written release executed by the subject. Id. at 5–6 (citing Doc. 22-3, at 25–26).³

On November 6, 2019, Vonachen provided notice of the Rodriguez Action to Twin City. Id. at 6. Twin City responded to Vonachen with a denial letter on January 20, 2020, which disclaimed any obligations to defend or indemnify Vonachen regarding the Rodriguez Action. Id. After the Rodriguez Action was amended, counsel for Vonachen provided the amended complaint to Twin City on March 18, 2020. At that time, counsel disputed the previous coverage denial and provided a copy of Vonachen's Employee Handbook. Id. at 7. On April 10, 2020, Twin City acknowledged counsel's submission and again denied coverage to Vonachen. Id. at 8, 11. Twin City further stated, "Underlying Action ha[s] no relationship to any alleged violation of the Employee Handbook and BIPA is a statute unrelated to any employee-employer relationship."⁴ Id. at 11-12. That same day, Twin City filed the instant lawsuit seeking a declaration that Twin City owes no insurance obligations to Vonachen with respect to the Rodriquez Action. Id. at 8.

On June 12, 2020, Jessi Gumm filed a putative class action suit against Vonachen in the Tenth Judicial Circuit, Peoria County, Illinois, Case No. 20-CH-00139 ("the Gumm Action"). Id. at 5. Like Rodriguez, Gumm alleged BIPA violations in that Vonachen used, collected, and indefinitely stored employees' fingerprints without informed consent and failed to inform its employees of the specific purpose and length of time for which their biometric identifiers or information would be collected, stored, and used. Id. at 10–11. Gumm also accused Vonachen of "invad[ing] Plaintiff's statutorily protected right to privacy in her biometrics." Id.

On July 10, 2020, Vonachen provided notice of the Gumm Action to Twin City. Id. at 8. Thereafter, Twin City issued a coverage denial letter to Vonachen and filed an Amended Complaint seeking a declaration that it additionally owes no insurance obligations to Vonachen regarding the Gumm Action. Id. at 9.

B. The Employee Handbook⁵

It is undisputed that both Rodriguez and Gumm signed a copy of Vonachen's Employee Handbook (the "Handbook"). Id. at 7–8 (citing Doc. 22-2).⁶ The Parties do not dispute the stated portions of the Handbook but disagree on the effect of such wording and their relevance to this lawsuit.

The Handbook require all employees to record their working hours through the use of a designated time system to "punch-in" and "punch-out." Doc. 22-2, at 28. An employee who fails to punch in or out within seven minutes before or after her designated work time "will be subject to progressive discipline up to and including termination." Id. The "Employee Conduct and Disciplinary Action" section of the Handbook also lists misuse of timekeeping records as a basis for progressive disciplinary action. Id. at 14.

The Handbook does not discuss privacy risks related to the collection, storage, use, or disclosure of the employees' biometric information. Doc. 23, at 8. The "Ethical Standards and Conduct" section states, "[w]e will comply with all applicable laws and regulations and we expect our leadership and employees to conduct business in accordance with the letter, spirit and intent of all relevant laws and to refrain from any illegal, dishonest or unethical conduct." Doc. 22-2, at 13. There is also statement set forth in the "Overview and Employment Policies" section noting, "[p]olicies set forth in this handbook are not intended to create a contract, nor are they to be construed to constitute contractual obligations of any kind or a contract of employment between Vonachen Group and any of its employees." Id. at 11. That same paragraph ends with the statement, "The provisions of this handbook are subject to any limitations required by federal or state law." Id.

C. The Insurance Policy⁷

Twin City issued a Private Choice Premier Policy to Vonachen, Policy Number 83 KB 0336944-19, with a policy period of May 17, 2019 to May 17, 2020 (the "Policy"). Doc. 23, at 2. It is undisputed by the Parties that the Rodriguez Action and the Gumm Action are considered a single Claim under the Policy because they are based upon the same "Wrongful Act" or "Interrelated Wrongful Acts"⁸ as defined by the Policy's Common Terms and Conditions section. Id. at 9 (citing Doc. 22-1, at 17). Other common definitions include:

• "Damages" shall have the meaning specified for such term in each Coverage Part.

* * *

• "Defense Costs" means:

(1) Reasonable legal fees and expenses including but not limited to e-discovery expenses, incurred in the defense or appeal of a Claim;

* * *

• "Loss" means Defense Costs and Damages.

Doc. 22-1, at 10–11. The Policy contains two coverage parts at issue here, the Directors, Officers and Entity Liability Coverage Part and the Employment Practices Liability Coverage Part.

1. Directors, Officers and Entity Liability Coverage Part

The Directors, Officers and Entity Liability Coverage Part ("D&O") has four "insuring agreements" contained within it. The agreement at issue as it relates to D&O coverage is "(C) Entity Liability," which states, in part, "the Insurer shall pay Loss on behalf of an Insured Entity resulting from an Entity Claim first made against such Insured Entity during the Policy Period or Extended Reporting Period, if applicable, for a Wrongful Act by an Insured Entity." Id. at 23. Relevant definitions from the D&O coverage include the following:

• "Claim" means any:

(1) Insured Person Claim;

(2) Entity Claim;

(3) Derivative Demand.

* * *

• "Entity Claim" means any:

(2) Civil proceeding, including an arbitration or other alternative dispute proceeding, commenced by the service of a complaint, filing of a demand for arbitration, or similar pleading;

* * *

• "Insured Person" means any:

(1) Manager; or

(2) Employee.

* * *

• "Insured(s)" means any:

(1) Insured Entity; or

(2) Insured Person.

* * * • "Whistleblowing" means an Insured Person's lawful act of providing information, causing information to be provided, or otherwise assisting in an investigation regarding any conduct which the Insured Person reasonable believes constitutes a violation of any federal, state or foreign law.

• "Wrongful Act" means any actual or alleged:

(1) Error, misstatement, misleading statement, act, omission, neglect, or breach of duty committed by an Insured Person in their capacity as such or in their Outside Capacity, or, with regard to Insuring Agreement (C) an Insured Entity;

* * *

Id. at 25–27. D&O also contains "exclusions appliable to all insuring agreements," which states the "Insurer shall not pay Loss":

* * *

(G) in

...