A reader asked whether New Jersey permits diminution in value claims for real property. The question was prompted by a recent Georgia Supreme Court opinion1 recognizing such claims. Essentially, diminution in value claims allow property owners to recover benefits exceeding the actual costs of repair if a property’s value is diminished by the stigma of loss even after repair. Imagine a house sustained significant fire damage that cost $100,000 to repair. Prior to the fire, the house was worth $400,000. After the fire, which the owner must disclose to potential buyers, the home is only worth $325,000. The question becomes how do New Jersey Courts treat the $75,000 loss in value?
As always, the first matter of business is to look to the insurance policy. If the policy has clear language indicating that diminution in value will not be paid, then chances are benefits will cover the cost of repairs only. If the policy is silent, look to the law of your state. While New Jersey has permitted diminution in value claims in third party liability cases, there is not an abundance of case law dealing with similar first party claims against a real property insurer. However, New Jersey’s Appellate Division recently held first party diminution in value claims are not permitted for damage to automobiles.2 In all likelihood, New Jersey’s courts would apply the same logic to first party property claims, making success on such claims unlikely.
While I do not believe diminution in value claims will be successful in first party property insurance claims, it is important to note that if one does decide to bring such a claim, an expert will likely be needed to determine the values of the property before and after the damage.3
1 Royal Capital Dev. v. Maryland Cas. Co., 728 S.E. 2d 234 (Ga. 2012).
2 Kieffer v. High Point Ins. Co., 422 N.J.Super. 38 (App.Div.2011).
3 See Ocean Club Condominium Ass’n v. D’Amato, Not Reported in A. 2d, 2006 WL 2335073 (N.J. Super. A.D. August 14, 2006).