Ninth Circuit Holds Demand Letter and Suit Alleging Same Wrongful Acts Are Not Necessarily a Single Claim Where Policy Lacks Related Claims Provision

The United States Court of Appeals for the Ninth Circuit, applying Washington law, has held that a district court erred in concluding that a demand letter and suit alleging the same wrongful act constituted a “single claim” where the applicable professional liability policy lacked a related claims provision.  Nat’l Union Fire Ins. Co. v. Zillow, Inc., 2020 WL 774366 (9th Cir. Feb. 18, 2020).  The court of appeals declined, however, to find that the absence of a related claims provision resolved the coverage issue and remanded for consideration of extrinsic evidence to determine the parties’ intent.

The insured received a demand letter prior to the policy period alleging the same wrongful conduct as alleged in a copyright infringement lawsuit made and reported during the policy period.  The district court concluded that, because the suit was based on the same wrongful acts as alleged in the demand letter before the policy period, the letter and suit constituted a “single claim” first made prior to the policy period.

The Ninth Circuit disagreed, finding the policy to be ambiguous.  The court of appeals noted that the policy defined a “claim” to include either a written demand or a suit.  Further, the court considered that the policy did not contain “a provision expressly providing for the integration of factually related Claims” and also had an exclusion barring coverage for claims based on previously reported wrongful acts.  According to the court, these provisions – or lack thereof – suggested that the policy did not necessarily “integrat[e]” factually related claims.

However, the court declined to find that the lack of a related claims provision resolved the coverage issue.  The policy’s use of the phrase “Claims first made” suggested to the court that “under circumstances unclear from the language of the [p]olicy—a Claim made against [the insured] might be the reassertion of a prior unreported Claim.  A contrary conclusion would render superfluous the [p]olicy’s use of the word ‘first.’”  As a result, the court found the “Claims first made” provision to be ambiguous and remanded the case to the district court for consideration of admissible extrinsic evidence of the parties’ intent.