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How Clear Does Your Policy Exclusion Need To Be In The AI Age?

March 31, 2023

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<p style="text-align: justify;">In most jurisdictions, courts interpret policy language in favor of the insured, especially when it comes to ambiguous exclusions. With the rise of the Artificial Intelligence and its implication towards data privacy, insurance companies are facing potentially large claims from class action suits. In 2022, the Illinois Eastern Division District Court heard a coverage case arising from AI technology.</p>
<p style="text-align: justify;"><em><a href="https://www.wcmlaw.com/wp-content/uploads/2023/03/Wynndalco.pdf">Wynndalco</a></em> is an IT consulting firm that is licensed to sell Clearview AI products in Illinois. Clearview AI is an artificial intelligence company that specializes in facial recognition software. A class action suit was filed against Wynndalco for violating an Illinois statute (Biometric Information Privacy Act) that regulates the collection of biometric information by selling Clearview products in Illinois. Wynndalco purchased a business owners insurance policy from Citizens and the policy provides coverage for “personal and advertising injury” with a number of exclusions including a statutory violation exclusion which excludes coverage for violation of TCPA, FCRA and state statutes regarding collecting or distributing of material or information.</p>
<p style="text-align: justify;">The court ruled that the exclusion was ambiguous on its face because the exclusion is overinclusive since most statutes regulate information to some degree. Further, the court could not interpret the language based on the exclusion purpose since the exclusion also applied to federal statutes like FCRA that regulates the credit reporting industry, not only to statutes that regulated distribution of information. In turn, the court ruled that Citizen owed a duty to defend Wynndalco and the exclusion above did not apply.</p>
<p style="text-align: justify;">As we are seeing the unparalleled advancement of AI technology and its implementation in various industries, policy exclusions can be the determining factor in potentially high liability exposures.</p>
<p style="text-align: justify;">Thanks to Yifan Lin for her contribution to this post. Please contact <a href="haquino@wcmlaw.com">Heather Aquino</a> with any questions.</p>

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