Court Opinion

ID: 4508284
Source: CourtListenerOpinion
Date Created: 2020-02-18 21:00:26.526003+00
Date Added: 2024-06-11T08:52:59.763795
License: Public Domain

FILED
                           NOT FOR PUBLICATION
                                                                             FEB 18 2020
                    UNITED STATES COURT OF APPEALS                       MOLLY C. DWYER, CLERK
                                                                          U.S. COURT OF APPEALS

                            FOR THE NINTH CIRCUIT

NATIONAL UNION FIRE INSURANCE                    No.   17-35404
COMPANY OF PITTSBURGH, PA,
                                                 D.C. No. 2:16-cv-01461-JLR
              Plaintiff-Appellee,

 v.                                              MEMORANDUM*

ZILLOW, INC.,

              Defendant-Appellant.

                    Appeal from the United States District Court
                       for the Western District of Washington
                     James L. Robart, District Judge, Presiding

                      Argued and Submitted February 6, 2020
                               Seattle, Washington

Before: M. SMITH and N.R. SMITH, Circuit Judges, and TUNHEIM,** District
Judge.

      Zillow, Inc. appeals the district court’s order entering judgment on the

pleadings in favor of National Union Fire Insurance Company of Pittsburgh, Pa.

      *
             This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
      **
              The Honorable John R. Tunheim, United States Chief District Judge
for the District of Minnesota, sitting by designation.
(“National Union”) and dismissing Zillow’s counterclaims. We have jurisdiction

under 28 U.S.C. § 1291, and we reverse in part, affirm in part, and remand for

further proceedings.

1.     Zillow challenges the district court’s declaration that Zillow’s professional

liability insurance policy (“Policy”)—which provided coverage “solely with

respect to Claims first made against an Insured during the Policy Period . . . and

reported to the Insurer”—did not cover a copyright-infringement lawsuit brought

against Zillow by VHT, Inc. during the Policy Period (“VHT Action”). The district

court determined that, because the VHT Action was “based on the same wrongful

conduct” as that alleged by VHT, Inc. in a demand letter sent to Zillow prior to the

Policy Period (“VHT Demand Letter”), the VHT Demand Letter and the VHT

Action comprised “a single Claim that was first made” prior to the Policy Period,

and thus was not covered by the Policy.

      The district court’s interpretation finds no support in the plain language of

the Policy. Instead, the Policy defines a “Claim” as either “(1) a written demand

for money, services, non-monetary relief or injunctive relief; or (2) a Suit.” A

“Suit” is further defined as “a civil proceeding for monetary, non-monetary or

injunctive relief, which is commenced by service of a complaint or similar

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pleading.” The VHT Action falls squarely within the definition of a “Suit,” and is

therefore a “Claim,” which was made during the Policy Period.

       National Union nevertheless maintains that the Policy’s use of the phrase

“Claims first made” implicitly requires that the VHT Demand Letter and the VHT

Action be treated collectively as a single Claim for purposes of coverage, because

both Claims are based upon the same wrongful conduct. But, unlike a number of

other claims-first-made policies cited by both parties, the Policy does not contain a

provision expressly providing for the integration of factually related Claims. Had

National Union wanted factually similar Claims to be integrated under the Policy’s

coverage provision, it could have easily drafted the Policy to include such a

requirement. See Queen City Farms, Inc. v. Cent. Nat’l Ins. Co. of Omaha, 882

P.2d 703, 713 (Wash. 1994) (“As [the insured] correctly notes, if the insurers

wanted an objective standard to apply, they could easily have drafted language to

that effect.”).

       As Zillow argues, several other provisions in the Policy underscore that

factually related Claims are not necessarily integrated under the coverage

provision. Overton v. Consol. Ins. Co., 38 P.3d 322, 325 (Wash. 2002)

(“Interpretation of insurance policies is a question of law, in which the policy is

construed as a whole and each clause is given force and effect.”). For example, the

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Policy includes an exclusion from coverage for Claims “alleging, arising out of,

based upon or attributable to any Wrongful Acts, or any Related Acts thereto,

alleged or contained in any Claim which has been reported, or in any

circumstances of which notice has been given, under any [prior policy].” If

National Union were correct that factually related Claims were integrated under the

Policy’s “Claims first made” provision, this exclusion would be rendered

meaningless, because any Claim involving the same Wrongful Act as that alleged

in an earlier Claim made under a prior policy would already fall outside of the

Policy’s coverage provision. See Kut Suen Lui v. Essex Ins. Co., 375 P.3d 596, 602

(Wash. 2016) (refusing to interpret an insurance policy in a manner that would

cause language to become superfluous and without meaning).

      However, while the Policy does not expressly require the integration of

factually related Claims, neither does it unambiguously resolve the coverage issue

before us. Zillow maintains that, under the Policy’s disjunctive definition of a

Claim, the VHT Demand Letter (i.e., “a written demand”) and the VHT Action

(i.e., “a Suit”) must be considered “separate and distinct” Claims for coverage

purposes. While we do not agree with the district court’s reasoning that the

Policy’s use of the word “or” in the definition of a “Claim” was merely “required

by basic grammatical considerations,” we do not find the Policy’s coverage

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provision as unambiguous as Zillow contends. In particular, the Policy’s use of the

term “Claims first made” suggests that—under circumstances unclear from the

language of the Policy—a Claim made against Zillow might be the reassertion of a

prior unreported Claim. A contrary conclusion would render superfluous the

Policy’s use of the word “first.” See Kut Suen Lui, 375 P.3d at 602.

      Because the Policy “is fairly susceptible to two different interpretations, both

of which are reasonable,” we find the Policy’s “Claims first made” coverage

provision ambiguous. See Quadrant Corp. v. Am. States Ins. Co., 110 P.3d 733,

737 (Wash. 2005) (quoting Weyerhaeuser Co. v. Commercial Union Ins. Co., 15

P.3d 115, 122 (Wash. 2000)). Under Washington law, “[i]f a clause is ambiguous,

[a court] may rely on extrinsic evidence of the intent of the parties to resolve the

ambiguity. Any ambiguity remaining after examination of the applicable extrinsic

evidence is resolved against the insurer and in favor of the insured.” Id. (citation

omitted). We therefore reverse and remand to the district court for consideration of

any admissible extrinsic evidence of the parties’ intent to resolve the ambiguity in

the coverage provision. After considering the extrinsic evidence, any remaining

ambiguity relating to the coverage issue must be resolved in favor of Zillow.

2.    Zillow also argues that the district court erred in dismissing its breach-of-

contract counterclaim, which alleges that National Union breached its duty to

                                           5
defend under the Policy “by failing to pay or reimburse any of Zillow’s defense

costs.” Zillow maintains that National Union’s duty to defend was triggered by

notice of the VHT Action, and that National Union cannot be relieved of that duty

until it is clear that the VHT Action is not covered by the Policy. See Am. Best

Food, Inc. v. Alea London, Ltd., 229 P.3d 693, 696 (Wash. 2010).

      Even assuming, for the sake of argument, that National Union had a duty to

defend Zillow in the VHT Action, Zillow failed to plausibly allege that National

Union breached its duty by not paying Zillow’s defense costs. See Nw. Indep.

Forest Mfrs. v. Dep’t of Labor and Indus., 899 P.2d 6, 9 (Wash. Ct. App. 1995).

Under the plain language of the Policy, “[f]ees, costs, charges, billings and any

other expense incurred through any law firm” not selected in accordance with the

procedures set forth in Endorsement #5 “shall not be recoverable under this policy

as Defense Costs or otherwise.” Zillow does not allege that its defense counsel in

the VHT Action were selected in accordance with Endorsement #5’s procedures. In

fact, the record reflects the contrary.

      Accordingly, because Zillow does not allege that National Union breached

its duty to defend by failing to pay or reimburse defense costs recoverable under

the Policy, Zillow has failed to state a plausible claim for relief. Therefore, the

district court properly dismissed Zillow’s breach-of-contract counterclaim. See

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Cassirer v. Thyssen-Bornemisza Collection Found., 862 F.3d 951, 974 (9th Cir.

2017) (“[I]f the district court’s order can be sustained on any ground supported by

the record that was before the district court at the time of the ruling, we are obliged

to affirm the district court.” (quoting Jewel Cos., Inc. v. Pay Less Drug Stores Nw.

Inc., 741 F.2d 1555, 1564–65 (9th Cir. 1984))).

3.    Although the district court properly dismissed Zillow’s breach-of-contract

counterclaim, Zillow argues that the district court erred in denying it leave to

amend on grounds of futility. In particular, Zillow maintains on appeal that

“[q]uestions of fact exist as to whether National Union waived any condition or

requirement in the Policy on selection of counsel.” Because we do not find that “it

is clear, upon de novo review, that the [counterclaim] could not be saved by any

amendment,” we reverse and remand to the district court to reconsider whether

amendment is appropriate. See Curry v. Yelp Inc., 875 F.3d 1219, 1228 (9th Cir.

2017) (quoting Zucco Partners, LLC v. Digimarc Corp., 552 F.3d 981, 1007 (9th

Cir. 2009)).

      Each party shall bear its own costs on appeal.

      REVERSED in part, AFFIRMED in part, and REMANDED for further

proceedings.

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