In Royal Capital Development v. Maryland Casualty Company,1 the Georgia Supreme Court recently answered the 11th Circuit Court of Appeals’ question whether a policyholder with a commercial insurance policy can have a claim for the diminution in value caused by the resulting stigma incorporated with a damaged building.
Georgia courts have previously considered diminution in value claims with respect to auto policies. In State Farm Mututual Automobile Insurance Company v. Mabry,2 the Georgia Supreme Court held that a provision 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. But the holding had not been extended to property loss damages until now.
In Royal Capital, an eight-story commercial building in Atlanta that was damaged by construction to the adjacent property. Prior to the loss, Royal Capital had purchased a commercial property insurance policy from Maryland Casualty. When Royal Capital submitted a claim to the carrier, it paid the physical damage claim but refused to acknowledge any responsibility to compensate the insured for the claim of diminution in value.
After Royal Capital filed suit against Maryland Casualty, both parties filed cross motions for summary judgment and the trial court ruled in favor of Maryland Casualty. Royal Capital appealed and found itself making case law with the Georgia Supreme Court.
The Court ruled that a claim for diminution in value could be covered under a commercial property policy. The "[i]nsured was not precluded from seeking from real property insurer both costs of repair to building damaged during construction activity on adjacent property and any post-repair diminution in building’s value resulting from the damage."
The Court relied on the well settled principle "that the measure of damages in such cases is intended to place an injured party, as nearly as possible, in the same position they would have been if the injury had never occurred." The economic loss caused by the stigma of the damaged building is "an economic reality" and should be considered for coverage. The Court did caution policyholders that the provisions of the policy can make an impact on the rights of the parties for claims of this nature.
This well reasoned case benefits policyholders in Georgia, but I don’t think this will be the end of the diminution of value discussion. In fact, it may be only be the beginning.