In what may be the first appellate ruling in the United States on the issue, the Georgia Supreme Court has ruled that a commercial policyholder may recover from its property damage insurer loss for “diminution in value” in addition to the costs of repairing a damaged building. Royal Capital Devel. LLC v. Maryland Cas. Co., ___ Ga. ___, Case No. S12Q0209 (May 29, 2012). The court concluded that its 2001 decision in State Farm v. Mabry, which allowed coverage for the cost of repair plus diminution in value under automobile policies, should not be limited to such claims, but also should be applied to claims for damage to real property, including damage to commercial buildings. In submitting this issue to the Georgia Supreme Court as a “certified question” regarding Georgia insurance law, see 659 F.3d 1050 (11th Cir. 2011), the Eleventh Circuit cited a conflict between the trial court’s ruling in Royal Capital denying such coverage and the ruling in a case prosecuted by this firm in which the district court had allowed coverage for “stigma damage,” as well as damage for the cost of repairing mold problems at a Georgia hotel. NUCO Investments, Inc. v. Hartford Fire Ins. Co., 2005 U.S. Dist. LEXIS 33350, 2005 WL 220789 (N.D. Ga. Dec. 5, 2005).
The Georgia Supreme Court ruled that the principles it had relied upon eleven years earlier in Mabry had “long been applied under Georgia law” as a way to “place injured parties, as nearly as possible, in the same position they would have been in if the [property damage] had never occurred.” The Court rejected a 2007 decision of the Georgia Court of Appeals holding in a sewage/storm water overflow case that allowing damages for diminution in value as well as for the costs of repair would be an impermissible “double recovery.” The Royal Capital Court decided that Georgia law does not preclude a “diminution in value award in addition to restoration and repair costs where the repair does not fully restore the property to its pre-damage value.”
Diminution in value coverage will not be allowed in every case. Rather, citing NUCO, the Court noted that the such coverage “depends on the specific language” of the insurance policy, as construed by applying the “general rules of contract construction.” However, the Court expressly rejected the insurer’s arguments that diminution in value damage should never be allowed in real property cases; that such damage should be limited to consumer, automobile cases; and that sophisticated, commercial policyholders such should not be allowed to recover such damage. As a result, companies (and individuals) with commercial or residential property in Georgia should carefully review the scope of coverage available and seek full recovery for all insured loss, including damage for diminution in value resulting from insured property damage.