Zillow learns timing is key to infringement claim coverage

On July 8, 2015, nearly a year after sending the demand letter, VHT sued Zillow in a federal district court in Washington.

VHT's complaint requested relief for:

1. Direct infringement based on alleged display and distribution of the photographs by Zillow;
2. Contributory infringement based on the alleged facilitation of users posting the photographs; and
3. Vicarious liability for failing to prevent users from posting the alleged copyrighted works on the Digs site.

In support of its allegations, VHT cited its 2014 demand letter to demonstrate that Zillow knew it was improperly using VHT's images on its website and the Zillow Digs application.

The VHT lawsuit resulted in a jury verdict against Zillow in the amount of $8,272,328.92. 

The insurance coverage battle

On July 10, 2015, Zillow notified its insurance carrier, National Union Fire Insurance Company of Pittsburgh, P.A., that VHT had filed a complaint. National Union responded on July 20, 2015, and agreed to provide Zillow a defense in the VHT action but with a reservation of rights.

On Aug. 14, 2015, Zillow provided National Union with a copy of VHT's demand letter for the first time. In response, National Union wrote to Zillow on Sept. 15, 2015, explaining that National Union "firmly believes that the VHT action is outside the scope of coverage provided by the [p]olicy." Specifically, National Union contended that VHT's claims against Zillow were first made during the previous policy period when VHT sent Zillow the 2014 demand letter.

Thereafter, National Union filed a complaint for breach of contract against Zillow. Among other things, it asserted that Zillow had failed to timely notify National Union of VHT's claim and demand letter as soon as practicable. National Union also sought a declaratory judgment that, under the terms of the policy and under Washington law, it had no duty to defend or indemnify Zillow because VHT's claims first arose in the previous policy period. 

National Union moved for judgment on the pleadings, arguing that VHT's claim against Zillow was not covered by the policy because it began before the policy period and was not reported within 45 days. Specifically, National Union contended that under the policy's "claims first-made" provision, VHT's claim against Zillow began with the July 10, 2014, demand letter, which was prior to the policy period.

Zillow countered that the July 10, 2014, demand letter constituted a separate and distinct claim from the VHT lawsuit.

Demand letter was claim

The district court granted National Union's motion.

In its decision, the district court ruled that the 2014 VHT demand letter was a "claim" that Zillow had not timely reported as required by the terms of the policy.

The district court reasoned that VHT's July 10, 2014, letter to Zillow requesting that all infringing images be removed from Zillow's website was "a written demand for … non-monetary relief or injunctive relief."

In addition to finding that the 2014 demand letter was a claim under the policy, the district court also found that Zillow had not reported the 2014 letter to National Union within 45 days of the end of the 2013–2014 policy period — or for more than a year afterward — and, therefore, that coverage for the demand letter had not been triggered under the terms of the policy.

Consequently, the district court ruled, National Union was not required to provide coverage for any losses Zillow had incurred as a result of the 2014 demand letter. 

Finally, the district court concluded that the demand letter was sufficiently related to the VHT litigation — in fact, it found "no meaningful difference between the demand letter and the VHT litigation for purposes of coverage" under the policy — so that National Union also had no duty to provide coverage for the lawsuit. The court concluded:

[T]he VHT Claim was first made in 2014, when Zillow received the demand letter, and was not timely reported under the terms of the [p]olicy. Accordingly, … National Union has no obligation to provide Zillow with coverage for the VHT litigation. Zillow's arguments to the contrary are unavailing.

The case is National Union Fire Ins. Co. v. Zillow, Inc. 

Steven A. Meyerowitz, Esq., is the director of FC&S Legal, the editor-in-chief of the Insurance Coverage Law Report, and the founder and president of Meyerowitz Communications Inc. Email him at smeyerowitz@meyerowitzcommunications.com.