Typically, when I write about first party property damage cases, I write about homeowners making claims against their homeowner’s insurance policies. However, when a new home is under construction a Builders Risk policy may be purchased to cover the property, and a first party property damage claim may be made under that policy.

Mr. Garzone planned to build a home and then sell it. In order to protect his interests during construction, he obtained a Builders Risk fire insurance policy from Georgia Farm Bureau Mutual Insurance Company. The property was destroyed by a fire six months later when the home was three-fourths complete. Mr. Garzone submitted a claim to Georgia Farm and demanded payment in the amount of the $125,000 policy limit. Georgia Farm would only agree to pay $93,179.25, the amount necessary to rebuild the structure. Because there was a dispute between Mr. Garzone and his lender, Georgia Farm filed an interpleader action and paid the $93,179.25 into the Court’s registry. Mr. Garzone filed a counterclaim seeking the full amount of policy limits and alleged bad faith.

The lower court decided that Georgia Farm needed to pay the higher amount and entered judgment in favor of Mr. Garzone, but denied his bad faith claim. Georgia Farm appealed the decision and the appellate ruling is the one I write about today. Georgia Farm Bureau Mutual Insurance Company v. Garzone.1

The Georgia Appellate Court reversed the lower Court’s award of the full policy limits. Based on the applicable Georgia statute, OCGA § 33–32–5(a), the Georgia Appellate Court explained as follows:

OCGA § 33–32–5(a) applies to fire insurance policies which are issued to natural persons and specifically describe a one- or two-family residential building or structure located in Georgia. If after 30 days of the policy’s issuance the structure is destroyed by fire without fraudulent or criminal fault by the insured, the insurer must pay the face amount of the policy regardless of other policy provisions setting forth the amount to be paid. But this statute does not apply if ‘[t]he completed value of [the] building or structure is insured under a builders’ risk policy’.

The Court explained that Mr. Garzone’s policy with Georgia Farm entitled him only to the amount needed to rebuild the structure. Mr. Garzone’s policy reflected, in relevant part, the following:

[T]o the extent of the actual cash value of the property at the time of loss, but not exceeding the amount which it would cost to repair or replace the property with material of like kind and quality….

Additionally, the applicable statute did not override the policy provision regarding amount to be paid because the applicable statute expressly indicates that it does not apply to a builders’ risk policy. Based on this reasoning, the Georgia Appellate Court reversed the $125,000 award requiring Georgia Farm to pay only the $93,179.25 and also upheld the lower court’s denial of Mr. Garzone’s bad faith claim. Please consider that this holding is specific to this Appellate Court in Georgia.

1 Georgia Farm Bureau Mut. Ins. Co. v. Garzone, 240 Ga. App. 304, 523 S.E.2d 386 (1999).