By way of Royal Capital Dev. v. Maryland Cas. Co.,
For an insurance contract providing coverage for “direct physical loss of or damage to” a building that allows the insurer the оption of paying either “the cost of repairing the building” or “the loss of value,” if the insurer elects to . . . repair the building, must it also compensate the insured for the diminution in value of the property resulting from stigma due to its having beеn physically damaged?
The facts giving rise to this question are summarized as follows: Royal Capital owns an eight-story commercial building in the Buck-head area оf Atlanta. In 2003, Royal Capital purchased the disputed insurance policy from Maryland Casualty to insure the building. After construction activity on an adjacent property caused physical damage to the building, Royal Caрital submitted a timely claim under the policy to Maryland Casualty, seeking both the costs of repair and the post-repair diminution in value resulting from the damage. Maryland Casualty acknowledged that the damage to the building was a covered cause of loss under the policy and paid $1,132,072.96 to compensate Royal Capital for the estimated costs of repair. However, Maryland Casualty refused to acknowledge any responsibility to compensate Royal Capital for the alleged diminution in value of the property.
Royal Capital filed a one-count complaint in the Superior Court of Fulton County, Georgia and Maryland Casualty removed the case to the United States District Court for the Northern District of Georgia pursuant to 28 USC § 1332. Deferring discovery on the actual extent of the building’s loss of value, the parties filed cross-motions for summary judgment on the narrow issue of whether the insurance contract allowed recovery of diminution of value damages in addition to the costs of repair under Georgia law. The district court granted Maryland Casualty’s motion for summary judgment, holding that Mabry was inapplicable because it dealt exclusively with a consumer automobile policy and thus diminution of value damages were not available under this contract insuring real property.
On appeal, the Eleventh Circuit determined that the sole question presented was whether Royal Capital’s insurance contract with Maryland Casualty required the insurer to pay for the alleged “diminution in value” of the insured building in addition to the costs
1. Royal Capital contends that pursuant to Mabry, the insurance coverage provided under the contract at issue extends to compensation for the building’s diminution in value resulting from stigma due to the building’s past physical damage, еven after all repairs have been made. In Mabry, this Court determined that
value, not condition, is the baseline for the measure of damages in a claim under an automobile insurance policy in which the insurer undertakes to pay for the insured’s lоss from a covered event, and that a limitation of liability provision affording the insurer an option to repair serves only to abate, not eliminate, the insurer’s liability for the difference between pre-loss value and рost-loss value.
These same principles have long been applied under Georgia law in cases involving the proper determination for measuring damages to real property. Empire Mills Co. v. Burrell Engineering & Constr. Co.,
In applying these principles, this Court has recognized that under Georgia law, cost of repair and diminution in value can be alternative, although often interchangeable, measures of damages with respect to real property. Thurmond,
Although unusual, it may sometimes be appropriate, in order to make the injured party whole, to award a combination оf both measures of damages. In such cases, notwithstanding remedial measures undertaken by the injured party, there remains a diminution in value of the property, and an award of only the costs of remedying the defects will not fully cоmpensate the injured party. [Cit.]
Thurmond,
2. Maryland Casualty relies upon the Georgia Court of Appeals decision in City of Atlanta v. Broadnax,
The question this Court addressed in Lusk was whether a diminution in value award based, in part, on the existence of a continuing nuisance for which sufficient damages to abate had already been awarded, would constitute impermissible double damages. In answering this question, we observed that in Georgia, “[a] plaintiff is entitled to only one recovery and satisfaction of damages, because such recovery аnd satisfaction is deemed to make the plaintiff whole.” Lusk,
3. Finally, we find no reason to distinguish Mabry from the instant case based on the alleged sophistication of the parties entering into insurance policiеs covering real property versus those who purchase automobile insurance policies. Although this case involves an insurance contract covering commercial property, a vast number of pоlicies covering real property insure residential property for homeowners — a group far less sophisticated and more closely aligned to the automobile policyholders in Mabry.
4. We adhered in Mabry to the long-standing contract interpretation rule in Georgia that where “[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 tо pay for the loss includes paying for any lost value.”
Question answered.
Notes
While the district court in this case agreed with Maryland Casualty that Mabry was not controlling, noting that it “dealt еxclusively with a consumer automobile policy,” see Royal Capital Dev. v. Maryland Cas. Co., No. 1:10-CV-1275-RLV,
In Lusk, a property owner brought suit against a railroad alleging that his riverside property had eroded as a result of a nuisance maintained by the railroad. The evidence adduced at trial reflected that as a result of the nuisance, 60 percent of one acre of the property had already eroded into the river. The jury award included $5,400 for the diminution in fair market value of the property and $182,755 for the estimated cost to restore the eroded riverbank. Noting that the diminution in value award appeared to directly reflect the usable acreage that was irreparably lost and, further, that the amount awarded as the cost of “restoration” was the exact sum given by the railroad’s expert as the сost of stabilizing the eroded riverbank to prevent further deterioration and did not include any amounts to replace the soil already lost, this Court observed that the particular sums awarded by the jurors in the case indicatеd that they may not have returned impermissible double damages. However, because of the language used in the special verdict form, the Court was unable to conclusively determine whether the “diminution” award was limited to the decrease in value of the land based on the lost acreage, or whether it also included an award for the decrease in the value of the land caused by the destabilized condition of the riverbank - something remedied by the restoration award.