In West Bend Mutual Insurance Co. v. Krishna Schaumburg Tan, Inc., 2021 IL 125978, the Supreme Court of Illinois held that coverage existed for a class action alleging violations of the Illinois Biometric Information Privacy Act (BIPA) under the terms of a general liability policy. Although a win for the policyholder bar, the precedential value of Krishna was arguably limited by the fact that the underlying class action targeted the insured’s use of customer biometrics. Where the use of employee biometrics is at issue instead, policyholders are likely to face unique coverage issues left open by Krishna, such as the applicability of certain exclusions that bar coverage for injuries arising out of the employment relationship. This blog post provides a brief overview of the employment-related practices (ERP) exclusion and explains why it should not apply to preclude coverage for employment-based BIPA class actions.
Employment-related practices exclusions
The ERP exclusion is a common provision in commercial general liability policies. As it is usually drafted, the exclusion bars coverage for bodily injury or personal and advertising injury to a person arising out of any of the following:
- Refusal to employ that person
- Termination of that person’s employment
- Employment-related practices, policies, acts or omissions, such as coercion, demotion, evaluation, reassignment, discipline, defamation, harassment, humiliation, or discrimination directed at that person
In coverage disputes arising out of employment-based BIPA class actions, the issue will be whether the conduct at issue is an employment-related practice that falls within the third prong of the exclusion.
Case law analyzing employment-related practices exclusions
Several courts that have analyzed the scope of the ERP exclusion have concluded that it should be interpreted narrowly. For instance, in Peterborough Oil Co. v. Great American Insurance Co., after the insured fired an employee for theft and pressed charges, the employee sued the insured for malicious prosecution and intentional infliction of emotional distress. 397 F. Supp. 2d 230, 234 (D. Mass. 2005). The insured tendered the lawsuit under its commercial general liability policy, and the insurer denied coverage in reliance on the policy’s ERP exclusion. Id. at 235. The insured filed a coverage action and argued that the exclusion did not apply. Id.
In siding with the insured, the court began its analysis by explaining that the term “‘employment-related’ cannot be synonymous with ‘related to an employee’ or ‘involving an employee,’” because otherwise, the exclusion would effectively swallow any employer’s coverage, as employer’s act through their employees. Id. at 238. Thus, the term is “necessarily narrower” than those constructions. Id. In an attempt to determine its meaning, the court noted that “[o]ne clue lies in the nine examples of ‘employment-related’ acts or omissions (or practices or policies) set forth in the exclusion,” which consist “almost entirely of events that concern the relationship between an employer and an employee,” that is, “personnel management, employee discipline, and similar matters.” Id. A second clue, the court explained, “derives from the two other provisions of the exclusion, one of which excludes injuries arising out of a ‘refusal to employ’ a person (i.e., hiring), and one of which excludes injuries arising out of the ‘termination of [a] person’s employment’ (i.e., firing).” Id. The court reasoned that “[t]aken together, both clues strongly suggest the common-sense conclusion that the term ‘employment-related’ has a relatively narrow meaning: it is intended to refer to matters that directly concern the employment relationship itself, such as the demotion, promotion, or discipline of employees by employers, and tortious acts that may accompany such personnel decisions, such as discrimination, harassment, or defamation.” Id. at 238-39.
The court ultimately concluded that, applied to the facts at issue, the exclusion was ambiguous, because the employee’s lawsuit could have rationally been “said to arise out of an act of personnel management or employee discipline (and thus an ‘employment-related act or omission’) or an act of vindication or loss prevention that happened to involve an employee (and thus not an ‘employment-related act or omission’).” Id. at 242. Because exclusions must be read narrowly, with any ambiguities construed strictly against the insurer, the court held that the ERP exclusion did not preclude coverage for the employee’s malicious prosecution claim. Id. at 243.
Other courts have reached the same conclusion after conducting similar analyses. See, e.g., Perkins v. Maryland Casualty Co., 388 F. App’x 641, 643 (9th Cir. 2010) (noting that the ERP exclusion qualifies “employment-related” with a “list of examples,” and concluding that it did not bar coverage for false imprisonment claim); Acceptance Insurance Co. v. Lifecare Corp., 89 S.W.3d 773, 786 (Tex. App. 2002) (applying principle of edjusdem generis to conclude that “employment-related practices” would have to “be in the class of coercion, demotion, evaluation, reassignment, discipline, defamation, et cetera” to fall within the scope of the ERP exclusion); but see Capitol Indemnity. Corp. v. 1405 Associates, 340 F.3d 547, 550 (8th Cir. 2003) (quoting Old Republic Insurance Co. v. Comprehensive Health Care Associates, Inc., 2 F.3d 105, 109 (5th Cir. 1993)) (holding that the ERP exclusion bars coverage for “virtually any claim arising out of the employment relationship”).
Employment-related practices exclusions and general liability coverage for BIPA claims
Against this backdrop, insurers may have a difficult time convincing courts that ERP exclusions bar coverage for employment-based BIPA claims. Employee lawsuits asserting violations of BIPA typically allege that the employer collected and used employee biometrics in connection with some aspect of their employment, such as in fingerprint-based timekeeping systems. While insurers certainly will make the argument, it is difficult to see how such claims can reasonably be deemed to arise out of employment-related practices of a kind similar to the nine examples listed in the third prong of the ERP exclusion. Given that insurance policies must be construed liberally in favor of coverage, and that exclusions must be construed narrowly, policyholders facing a denial of coverage for an employment-based BIPA suit based on the ERP exclusion have well-founded counterarguments available to them.