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Georgia – Diminution in Value

Georgia Supreme Court extends diminution in value recovery to commercial property loss claims.  

Royal Capital Development LLC v. Maryland Casualty Co., 2012 Ga. LEXIS 501 (May 29, 2012):  Royal Capital (Royal) is the owner of an eight-story commercial building in the Buckhead area of Atlanta.  Maryland Casualty (MC) provided property insurance for the structure.  In early 2008, Royal began to notice cracks and other physical damage to the structure as a result of construction work taking place on the neighboring property. Royal submitted a claim to MC for the cost of repairs and “post-repair diminution in value” resulting from that damage. MC paid the repair costs but disputed any obligation to pay the diminution in value claim.

Suit was filed and the parties moved for summary judgment on the sole issue of whether the policy required payment of the alleged diminution in value.  The federal district court decided it did not and that State Farm Mut. Auto. Ins. Co. v. Mabry, 274 Ga. 498 (2001) only allowed for recovery of diminution of value in auto accident cases. Royal appealed.  The 11th Circuit saw no clear precedent on the issue and certified the question to the Georgia Supreme Court.

The certified question read:

For an insurance contract providing coverage for ‘direct physical loss of or damage to’ a building that allows the insured the option of paying either ‘the cost of repairing the building’ or ‘the loss of value,’ if the insurer elects to the [sic] repair the building, must it also compensate the insured for the diminution in value of the property resulting from stigma due to its having been physically damaged

The Georgia Supreme Court unanimously said YES. The Court looked to the Mabry decision and said that its holding in that case was not limited to the type of property insured but instead generally spoke to the measure of damages an insurer is obligated to pay. The Court reiterated its statement from Mabry  that “recognition of diminution in value as an element of loss to be recovered on the same basis as other elements of loss merely reflects economic reality.” The Court recognized that under “Georgia law, cost of repair and diminution in value can be alternative, although often interchangeable, measures of damages with respect to real property” and that in some instances, in order to make the injured party whole, an award that includes a combination of both types of damages is appropriate. The Court further explained that it has never ruled that “stigma” damages constituted double recovery.  It concluded by saying “that where an insurance policy, drafted by the insurer, promises to pay for the insured’s loss; what is lost when physical damage occurs is both utility and value; therefore, the insurer’s obligation to pay for the loss includes paying for any lost value.”

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