A Washington federal court has held that an insured’s failure to provide notice of a demand letter to its insurer during the policy period in which the letter was received precludes coverage under a claims-made and reported policy for a related lawsuit filed during a subsequent policy period. National Union Fire Ins. Co. v. Zillow, Inc., 2017 WL 1354147 (W.D. Wash. Apr. 13, 2017).

In 2014, the insured, an online real estate marketer, received a demand letter from a company specializing in property photography, alleging that the insured was misusing the claimant’s images and demanding that the insured remove the images.  Almost a year later, the claimant filed suit against the insured based on substantially similar, albeit expanded, allegations.  The insured provided notice of the lawsuit to its insurer, which agreed to provide a defense.  However, when the insurer received a copy of the demand letter for the first time nearly a month later, it withdrew from the defense on the grounds that coverage was not available under the policy because the relevant claim was first made during the prior policy period when the insured received the demand letter and such claim had not been timely noticed.  The insurer then filed a breach of contract and declaratory judgment action.

In ruling on the insurer’s motion for judgment on the pleadings, the court first held that the demand letter constituted a “written demand for . . . non-monetary relief or injunctive relief” and therefore a Claim under the Policy.  Moreover, the court held that the demand letter and subsequent lawsuit were a single, related Claim first made when the demand letter was received, and therefore coverage was not available because such Claim was not timely noticed.

In so holding, the court rejected several arguments by the insured that the demand letter and the lawsuit were separate claims.  First, the insured contended that, because the Policy defined Claim to mean either a written demand or a suit, the demand letter and lawsuit were, by definition, different claims.  Second, the insured argued that the demand letter and the lawsuit were not “related” because the letter cited slightly different legal authority, did not request damages, and was more narrow in scope than the ultimate lawsuit.  However, the court found the demand letter and the lawsuit sufficiently “related” because they involved the same alleged wrongful acts.

Finally, the court rejected the insured’s argument that the demand letter and the lawsuit were separate claims because the policy did not contain commonly used language that would have defined the demand letter and the lawsuit as the same Claim.  The Policy did provide that “[i]f written notice of a Claim . . . has been given to the Insurer . . . then . . . any subsequent [related] Claim . . . shall be considered made at the time such notice was given.”  The insured argued this provision was conditional and that, because it did not provide notice of the demand letter, the aggregating language did not apply.  However, the court found that such focus on the absence of a “claims integration clause” ignores the claims-made nature of the policy and the insurer’s rights to investigate and settle claims.