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National Union Fire Insurance Co. v. Zillow, Inc.

United States District Court, W.D. Washington, Seattle

April 13, 2017

ZILLOW, INC., Defendant.


          JAMES L. ROBART, United States District Judge


         Before the court is Plaintiff National Union Fire Insurance Company of Pittsburgh, P.A.'s (“National Union”) motion (1) for judgment on the pleadings as to its affirmative defenses and (2) to dismiss Defendant Zillow, Inc.'s (“Zillow”) Counterclaims (Mot. (Dkt. # 18). Zillow opposes the motion. (See Resp. (Dkt.# 21).) National Union filed a reply memorandum (Reply (Dkt. # 22)), and Zillow filed a surreply asking the court to strike material contained in National Union's reply (Surreply (Dkt. # 24)). The court has considered these submissions, the relevant portions of the record, and the applicable law. Considering itself fully advised, [1] the court GRANTS National Union's motion (1) for judgment on the pleadings as to its affirmative defenses and (2) to dismiss Zillow's counterclaims for the reasons described herein.


         Zillow is a company headquartered in Washington State that hosts an online marketplace for real estate property listings. (Compl. ¶ 2.) National Union is an insurance company, registered in Pennsylvania, with its principal place of business in New York. (Id. ¶ 1.) Zillow is insured by National Union under a Specialty Risk Protector Policy (“the Policy”), which is meant to cover claims against Zillow that relate to Zillow's online media content. (Baker Decl. (Dkt. # 19), Ex. 1 at 2.) The Policy provides coverage for claims-made against Zillow during the Policy period of July 19, 2014, through July 19, 2015. (Id. at 5.) The Policy is a renewal of Zillow's previous National Union policy, which provided coverage from July 19, 2013, through July 19, 2014. (See Counterclaim ¶ 6.)

         On July 10, 2014, VHT, Inc. (“VHT”), a company specializing in property photography sent Zillow a demand letter, [2] claiming that Zillow was misusing VHT's images and demanding that Zillow remove the images from its website. (Baker Decl., Ex. 3 at 2.) Specifically, VHT explained that Zillow was permitted to use VHT images only in furtherance of sales or marketing. (Id.) VHT claimed that Zillow violated its limited license by (1) allowing VHT's images to remain on Zillow's website after the photographed property was sold, and (2) allowing people to use and share VHT's images for home improvement and design purposes through Zillow Digs, one of Zillow's applications. (Id.) VHT provided Zillow with a spreadsheet of offending images and asked that Zillow remove those images and take steps to prevent VHT's images from being improperly used on Zillow's website in the future. (Id. at 2-3.)

         On July 21, 2014, Zillow responded to VHT, requesting additional information about the images VHT identified. (Counterclaim ¶ 5.) VHT did not reply (id.) and, according to National Union, Zillow did not take down the images (Compl. ¶ 7).

         On July 8, 2015-nearly a year after sending the demand letter-VHT filed suit against Zillow. See VHT, Inc. v. Zillow, No. C15-1096JLR (W.D. Wash. Feb. 22, 2017), Compl., Dkt. # 1. 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. Id. 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. Id. Compl. ¶¶ 52-53, 70. The VHT lawsuit resulted in a jury verdict against Zillow in the amount of $8, 272, 328.92. Id. Judgment, Dkt. #296.

         On July 10, 2015, Zillow notified National Union that VHT had filed a complaint. (Compl. ¶ 8; Answer ¶ 8.) National Union responded on July 20, 2015, and agreed to provide Zillow a defense in the VHT action pursuant to a reservation of rights. (Compl. ¶ 9; Answer ¶ 9.) Specifically, National Union requested that Zillow contact National Union to discuss Zillow's selection of defense counsel from National Union's list of pre-approved panel law firms. (Compl. ¶ 9; Answer ¶ 10.) Zillow did not “reach out” to National Union regarding Zillow's selection of defense counsel. (Answer ¶ 10; see Compl. ¶ 10.)

         Zillow initially hired the law firm DLA Piper, which, according to National Union, is not on its list of preapproved panel firms.[3] (Comp. ¶10.) Zillow then substituted Susman Godfrey for DLA Piper, which National Union claims is also not on its list of pre-approved firms. (Compl. ¶ 14); see also VHT, No. C15-1096JLR, Dkt. # 67 (March 1, 2016, order permitting withdrawal of DLA Piper and noting that Zillow was represented by successor counsel Susman Godfrey).

         On June 17, 2016, National Union sent Zillow another letter that “reiterated [National Union]'s commitment to providing Zillow with a defense to the VHT action” and requested that Zillow provide National Union with defense cost invoices, budgets, liability and damages analyses and status reports prepared by defense counsel. (Compl. ¶ 16; Answer ¶ 16.) Zillow sent National Union copies of its defense cost invoices, but Zillow would not send National Union a budget or any analysis of the VHT action unless National Union signed a confidentiality agreement. (Compl. ¶ 16.)

         On August 14, 2015, Zillow provided National Union with a copy of VHT's demand letter for the first time. (Compl. ¶ 6; Answer ¶ 6.) In response, National Union wrote to Zillow on September 15, 2015, explaining that National Union “firmly believes that the VHT action is outside the scope of coverage provided by the Policy.” (Compl. ¶¶ 12, 23; Counterclaim ¶ 23.) Specifically, National Union contends that VHT's claims against Zillow were first made during the previous policy period when VHT sent Zillow the 2014 demand letter. (See Compl. ¶ 12.)

         Under the terms of the Policy, National Union was required to pay certain losses[4]related to Zillow's media content:

[S]olely with respect to [(1) a written demand for money, service, non-monetary relief or injunctive relief; or (2) a Suit, ][5] first made against an Insured during the Policy Period or Discovery Period (if applicable) and reported to the Insurer pursuant to the terms of this policy . . . .

(Baker Decl., Ex. 1 at 52 (emphasis removed).) Further, as a condition precedent to coverage under the Policy, Zillow was required to give National Union notice of any claim made against Zillow “as soon as practicable” (id. at 12), but “no later than either: (1) forty-five (45) days after the end of the Policy Period; or (2) the end of any applicable Discovery Period” (id. at 13 (emphasis removed).) The Policy provides:

If written notice of a Claim . . . has been given to the Insurer . . . then . . . any subsequent Claim made against an Insured . . . arising out of, based upon or attributable to the facts giving rise to such Claim . . . for which such notice has been given, or alleging any Related Act thereto, shall be considered made at the time such notice was given.

(Id. at 13 (emphasis removed).)

         On September 15, 2016, National Union filed a complaint for breach of contract based on Zillow's (1) failure to timely notify National Union of VHT's claim and demand letter as soon as practicable, (2) failure to ensure that Zillow's defense counsel followed National Union's litigation guidelines, and (3) failure to coordinate or otherwise cooperate with National Union regarding the defense of the VHT action. (See Compl. ¶ 37.) National Union also seeks declaratory judgment that, under the terms of the Policy and under Washington law, it has no duty to defend or indemnify Zillow because VHT's claims first arose in the previous policy period. (Id. ¶ 33.)

         In response, Zillow asserts eight affirmative defenses. (Answer at 6.) Zillow also counterclaims for (1) a declaratory judgment that National Union has a duty to defend Zillow in connection with the VHT Action, (2) breach of contract for National Union's failure to pay for Zillow's defense of the VHT Action, and (3) the attorneys' fees and costs Zillow has incurred in this action. (Counterclaims I-III.) Zillow argues the VHT action is covered under the Policy because Zillow timely notified National Union of lawsuit, which Zillow contends is independent of VHT's demand letter. (Resp. 2-17.) National Union brings the instant motion, seeking declaratory judgment on the pleadings that there is no coverage for the VHT litigation. (Mot. at 7.) National Union also seeks dismissal of Zillow's counterclaims. (Mot. at 15.)

         III. ANALYSIS

         A. ...

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