• Federal court rules Zillow's insurance carrier doesn't have to cover Zillow's legal expenses in a case brought by a real estate photo company.

Looks like Zillow will have to cover its own legal expenses — including an $8.3 million verdict if it sticks — for infringing real estate photography company VHT’s copyrights.

On Thursday, a federal court ruled that Zillow’s insurance carrier — National Union Fire Insurance Company of Pittsburgh, Pa. — did not have to defend or indemnify Zillow in its litigation with VHT because Zillow did not report the underlying claim on time.

National Union filed a lawsuit in September 2016 to avoid paying Zillow’s legal expenses related to the VHT case and Zillow filed a counterclaim. The court ruled in favor of National Union and dismissed Zillow’s counterclaim.

The real estate industry has been following the VHT lawsuit closely, in part because the photos at issue in the case were provided to Zillow by real estate agents, brokers and multiple listing services — possibly under misattributed rights. The case highlights how real estate agents and brokers may want to keep track of what happens to the photos they send to Zillow and other listing sites, and the terms under which they are sent.

In an emailed statement, Zillow Group spokeswoman Amanda Woolley said, “While we disagree with the court’s decision regarding our insurance policy and we intend to appeal that decision, we maintain that the suit VHT brought against Zillow is without merit and will pursue all options to overturn the verdict in that case.”

Scrutiny around property photos

The ruling comes as Zillow is attempting to either vacate the $8.3 million jury verdict in the VHT case or obtain a new trial. Meanwhile, VHT has filed a motion to add a permanent injunction against continued copying of its images by Zillow to the verdict.

VHT did not name any agents, brokers or MLSs as defendants in the case, but purporting to license photos under rights they don’t have could land real estate pros in legal hot water in the future.

Rights to property photos — essential marketing tools for agents wishing to sell homes — have been the target of increased scrutiny in recent years as the photos increasingly appear on multiple websites and their value beyond selling a specific home becomes apparent.

The images at the heart of this dispute were displayed on Zillow Digs, the home improvement section of its popular website.

Too late

VHT’s initial claim against Zillow was made on July 10, 2014, the U.S. District Court in the Western District of Washington in Seattle found, when Zillow received a letter from VHT claiming that Zillow was misusing VHT’s images and demanding that Zillow remove the images from its website.

Zillow did not notify National Union of VHT’s claims until a year later, two days after VHT filed suit against Zillow and more than a year after the end of the 2013-2014 insurance policy period with National Union.

Zillow argued that the demand letter constituted “a separate and distinct claim from the VHT litigation,” but the court disagreed.

“The court finds that the VHT Claim was first made in 2014, when Zillow received the demand letter, and was not timely reported under the terms of the Policy,” said Judge James L. Robart, who also presided over the VHT case, in the ruling.

“Accordingly, the court finds that National Union has no obligation to provide Zillow with coverage for the VHT litigation. Zillow’s arguments to the contrary are unavailing.”

When asked how having to cover its VHT litigation expenses itself would affect the company, Zillow Group did not respond.

This litigation comes after Zillow Group cleared some legal headspace last year in a $130 million settlement with rival Move Inc.. The real estate behemoth posted a $6.8 million profit in the third quarter; it went on to lose $23.5 million in the fourth quarter and a total of $220 million in 2016.

Email Andrea V. Brambila.

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