Technology companies, especially those driven by web-based products or services, rely heavily on the use of trademarks, logos, photographs, and other intellectual property to standout and distinguish themselves from their competitors.
In a perfect world, a company’s web-based operations do not encroach upon the trademarks, copyrights, or other forms of intellectual property created and owned by other entities. In reality, however, any company with a strong and visual presence online runs the risk of being accused of trademark or copyright infringement. With a good broker, a web-based company can anticipate and purchase insurance for their alleged misuse of another’s intellectual property. The question, though, is, once you have bought the insurance, do you understand what types of claims are covered and how it actually works?
Insurance for trademark and copyright infringement claims can be extremely limited in scope. It also may involve strict notice requirements. A recent decision out of Washington (National Union Fire Insurance Company v. Zillow, Inc., 2017 U.S. Dist. LEXIS 57496 (W.D. Wash. April 13, 2017)) illustrates how important it is to understand in advance what is (and is not) covered by your IP insurance and when and how you should trigger the insurance purchased.
As its title suggests, Zillow involved Zillow, Inc., the host of an online marketplace for real estate property listings. Zillow used (or still uses) on its website images of properties created by another company, VHT, Inc., pursuant to a limited license granted by VHT to Zillow. On July 10, 2014, VHT sent Zillow a demand letter accusing Zillow of exceeding the scope of its limited license to use VHT’s images and asking Zillow to remove the offending images from its website and take steps to prevent VHT’s images from being improperly used in the future by Zillow and the users of Zillow’s website (Zillow’s website apparently contained an application by which its users could share VHT’s images for home improvement and design purposes). A year later, when the matter had not yet been resolved, on July 8, 2015, VHT commenced a lawsuit. In its Complaint, VHT alleged that Zillow had engaged in direct and contributory infringement through its improper use of, and failure to prevent others from improperly using, VHT’s images. The Complaint cited VHT’s July 10, 2014 demand letter as proof that “Zillow knew it was improperly using VHT’s images on its website and the Zillow Digs application.”
The issue in Zillow was not whether Zillow had insurance for VHT’s infringement claims. In 2013 and again in 2014, Zillow had purchased from AIG (National Union) two, “claims made”, Specialty Risk Protector insurance policies that were designed to cover claims arising out of Zillow’s online content. The issue was whether Zillow had properly notified AIG of VHT’s claims so as to trigger and preserve the insurance purchased.
The Court held that Zillow did not, leaving Zillow without any coverage under either of the two AIG policies at issue for what turned out to be an $8.2 million jury verdict against it (and in favor of VHT). Zillow first notified AIG of VHT’s claims on July 10, 2015, two days after being served with VHT’s Complaint, but, as of that time, it had yet to notify AIG of VHT’s earlier July 2014 demand letter. AIG received notice of the demand letter after the lawsuit had commenced, on August 14, 2015.
The crux of why Zillow lost the right to its AIG insurance revolves around the fact that the AIG policies at issue were “claims made” (as opposed to occurrence-based) policies. Each policy was in effect for one annual period: July 19, 2013-2014 and then July 19, 2014-2015. Each policy contained very specific instructions as to when, during or after those two policy periods, AIG must be put on notice of an allegation of infringement. In relevant part, each provided that Zillow must notify AIG of a “Claim” (i.e., “a written demand for money, service, non-monetary relief or injunctive relief . . . or . . . a Suit.”) that was “first made . . . during the Policy Period [of the policy in effect at the time such Claim was first made]” “as soon as practicable” but “no later than . . .  days after the end of the Policy Period.”
When this language is applied to the facts of the case, it becomes clear that Zillow first learned of VHT’s claims when it received VHT’s July 10, 2014 demand letter such that it should have notified AIG immediately or at least within 45 days of the expiration of the first AIG policy (July 19, 2013-2014), the policy in effect when Zillow received the letter.
Zillow, however, waited until July 10, 2015, well after the expiration of the first policy and its built-in, additional 45-day notice period. While notice (of the VHT lawsuit) occurred during the second policy period (July 19, 2014-2015), according to the provisions of the policies, this did not save the insurance purchased. The Court found that the allegations and requests for relief contained in VHT’s 2015 Complaint were related to the allegations and requests for relief contained in VHT’s earlier 2014 demand letter. Pursuant to the explicit “claims made” provisions of the policies at issue, this meant that, so long as notice of the 2014 demand letter was timely provided under the first policy, the first policy would cover all subsequent and related events including the 2015 Complaint. The second policy became nonresponsive and unavailable. The kicker was, having failed to timely notice AIG under the first policy, Zillow lost coverage under the first policy as well.
The harshness of how “claims made” insurance works is palpable in the Zillow decision. Given the complexity of how these kinds of policies work, and the significant impact your business may experience if they are not effectively used, management is well advised to consult with an insurance recovery expert at the outset of purchasing its “claims made” insurance to ensure it not only understands what types of claims will be covered but also is prepared to effectively trigger the insurance in the event of a claim or demand.