Royal Capital Dev. LLC v. Maryland Cas. Co., 2012 WL 1909842 (Ga. May 29, 2012).
Under Georgia law, where available under the language of the insurance contract, an insured may seek both costs of repair to a building and any post-repair diminution in the building’s value resulting from the damage.
This case arises out of a coverage dispute between Royal Capital Development and its property insurance carrier Maryland Casualty Company (“MCC”). Royal purchased from MCC an insurance contract insuring a commercial building. After the building was damaged by construction on an adjacent property, Royal made an insurance claim for costs of repair and post-repair diminution in value of the subject property. MCC acknowledged that the damage was covered and paid Royal over $1 million for the costs of repair. However, MCC refused to pay additional money for the diminution in value. Royal brought suit in state court and MCC removed the action to federal court. The parties filed cross-motions for summary judgment on the issue of whether the insurance contract allowed for recovery diminution in value damages in addition to costs of repair. The District Court granted MCC’s Motion. On appeal, the Eleventh Circuit certified a question to the Georgia Supreme Court regarding recovery of diminution in value damages. Critical Issue: The only question before the Georgia Supreme Court was whether its earlier decision in State Farm Mut. Auto Ins. Co. v. Mabry, 556 S.E.2d 114 (Ga. 2001), in which the Court held that a provision in an automobile insurance contract requiring the insurer to pay for loss to the insured’s car required the insurer to also pay for any diminution in value of the repaired vehicle, extended to standard insurance contracts covering damage to buildings.
The Georgia Supreme Court answered the certified question in the affirmative and ruled that the Mabry decision is not limited by the type of property insured but rather relates more generally to the measure of damages an insurer is obligated to pay. The Mabry rule does apply to standard insurance contracts for buildings. The Court further held that whether Royal is entitled to recover for its claimed diminution in value depends on the specific language of the insurance contract. Thus, where the policy provides coverage for “direct physical loss of or damage to” a building and allows the insurer the option of paying either “the cost of repairing the building” or “the loss of value,” if the insurer elects to repair the building, it must also compensate the insured for the diminution in value of the property.
In making its ruling, the Georgia Supreme Court relied on several long-standing guiding principles applicable in the context property coverage disputes under Georgia law: (1) the measure of damages in cases of damage to real property is intended to place the injured party in the same position they would have been if the damage had never occurred; (2) diminution in value is an element in determining the appropriate measure of damages to real property; and (3) as the Georgia Supreme Court stated in Mabry, “[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.” Given these principles, the Court saw no reason to limit the holding in Mabry to contracts for automobile insurance. Thus, an insured may recover diminution in value damages in addition to costs to repair.