Royal Capital Development LLC v. Maryland Cas. Co. Holds Diminution in Value Recoverable Under First-Party Property Policies in Georgia

     On May 29, 2012, the Georgia Supreme Court issued its decision in Royal Capital Development LLC v. Maryland Cas. Co., Case No. S12Q0209 (Ga. 2012), and, in what may be a first of its kind decision, found that diminution in value or “stigma” damages may be recoverable under a property policy.  The decision was predicated on a line of Georgia cases largely addressing similar issues under automobile policies.

     Since 1926, it has been the rule in Georgia that, under an insurance policy, “the measure of the liability would be the difference between the value of the property immediately before the injury and its value immediately afterwards."  U.S. Fidelity & Guaranty Co. v. Corbett, 134 S.E. 336 (Ga.App. 1926).  How that applied to modern insurance policy wording, however, was unclear.  

     In 2001, affirming a class action against insurers, the Georgia Supreme Court held that insurers were required to inform insureds of their right to recover diminution in value under first-party automobile policies, permitting class actions to proceed.  In State Farm Mut. Auto. Ins. Co. v. Mabry, 556 S.E. 2d 114 (Ga. 2001), the Georgia Supreme Court held that an automobile insurer’s obligation to pay for loss includes paying for diminution in value and that an insurer is required to consider diminution in value even if the insured does not make a claim for that element of loss. Id. at 122.  In Mabry, the Court also upheld an injunction requiring State Farm to evaluate and pay all first-party physical damage claims for the existence of diminution in value, to develop an appropriate methodology for making such evaluations, and to collect, catalog, and maintain any information necessary to determine the amount of any diminution in value.  Id. at 123-24.  

     In the wake of Mabry, insurers paid hundreds of millions of dollars in settlements and incurred sanctions totaling tens of millions of dollars for failing to comply with injunctions.

     On May 29, 2012, the Georgia Supreme Court extended the logic of Mabry to a first-party commercial property loss.  Royal Capital claimed diminution in value from the stigma of having suffered a loss caused by construction on an adjacent property.  Royal Capital’s insurer, Maryland Casualty, paid over $1 million in actual losses but refused to pay diminution in value.  The Eleventh Circuit Court of Appeals certified the potential application of Mabry to the property insurance field to the Georgia Supreme Court, which held that stigma damages may be recovered, subject to the wording of the particular insurance policy.    

  

     This appears to be a first of its kind ruling and the reach of the decision remains unknown.  Currently, there is a split of authority among U.S. states regarding whether diminution in value is recoverable for automobile claims, and it remains unknown whether some of those states will follow Royal Capital.  If you have any questions or would like to discuss these issues further, please do not hesitate to contact Paul L. Fields, Jr. (404-214-1252; pfields@fieldshowell.com) or Gregory L. Mast (404-214-1262; gmast@fieldshowell.com).