We've all heard the saying that "Timing is everything," and it's critical to the success of an insurance claim — as Zillow, Inc., the well-known online marketplace for real estate property listings, learned recently.

On July 10, 2014, VHT, Inc., a company specializing in property photography, sent a demand letter claiming that Zillow was misusing VHT's images and demanding that Zillow remove them from its website. Specifically, VHT explained that Zillow was permitted to use the images only in sales or marketing. VHT claimed that Zillow had violated its limited license by allowing VHT's images to remain on the website after the photographed property was sold, and for people to use and share VHT's images through Zillow Digs, a Zillow application.

On July 21, 2014, Zillow responded to VHT, requesting additional information about the images VHT had identified. VHT did not reply, and Zillow apparently did not take down the images.

On July 8, 2015, nearly a year later, VHT sued Zillow in a federal district court in Washington.

VHT's complaint requested relief for:

        • Direct infringement based on the alleged display and distribution of the photographs by Zillow;

        • Contributory infringement based on the alleged facilitation of users posting the photographs; and

        • Vicarious liability for failing to prevent users from posting the alleged copyrighted works on the Digs site.

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 $8,272,328.92 jury verdict against Zillow.

Insurance coverage battle

On July 10, 2015, Zillow notified its insurance carrier, National Union Fire Insurance Company of Pittsburgh, Pa., 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 gave National Union a copy of VHT's demand letter for the first time. National Union wrote to Zillow on Sept. 15, 2015, explaining that the insurer "firmly believes that the VHT action is outside the scope of coverage provided by the [p]olicy." National Union contended that VHT's claims were first made during the previous policy period when VHT sent Zillow the 2014 demand letter.

National Union then filed a complaint for breach of contract against Zillow, claiming 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 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 argued 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. Under the policy's "claims first-made" provision, National Union said, VHT's claim began with the July 10, 2014, demand letter, which was before the policy period. Zillow countered that the July 10, 2014, demand letter constituted a separate and distinct claim from the VHT lawsuit.

District court's 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 requesting that all infringing images be removed 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 letter to National Union within 45 days of the end of the 2013–2014 policy period — or for more than a year afterward; therefore, that coverage for the demand letter had not been triggered under 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.

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