This decision has gained national attention in the ongoing debate over the right of insureds to recover for loss of value to their repaired property. The Court’s ruling could have a potential impact on the scope of recovery available in Georgia for first party property insurance claims resulting from physical damage to property.
The Royal Capital case arose out of a first party insurance claim for damage to The Capital Building, a commercial office building in the Buckhead business district of Atlanta, caused by construction activity on the adjacent Streets of Buckhead project. While the insurer, Maryland Casualty Company, acknowledged that the damage was caused by a covered event under the policy and paid over $1 million as the estimated cost of repair, Maryland Casualty refused to recognize coverage for the diminution in value resulting from the stigma of the building having been damaged.
The principle basis for the decision by the Supreme Court of Georgia was its determination that the court’s prior ruling in State Farm Mut. Auto. Ins. Co. v. Mabry was not limited to automobile insurance but also applies to interpretation of contracts insuring real property. Thus, the court explained that the Mabry case was not limited by the type of property insured, but speaks generally to the measure of damages an insurer is obligated to pay. As the court reasoned, the measure of damage to real property is intended to place the injured party in the same position they would have been if injury had never occurred. The court noted that diminution in value has long been considered to be an element in determining the proper measure of damage to real property. Thus, to allow “full recovery” may include both diminution in value and cost of repair. Insurers and insured had the right to expect such coverage under a “standard real property insurance policy.”And there was no basis to distinguish coverage based on the alleged sophistication of owners of real property versus automobile owners (“a vast number of policies covering real property insure residential property for homeowners- a group far less sophisticated and more closely aligned to the automobile policyholders in Mabry.”) Thus, the Mabry rule applied to the Maryland Casualty insurance contract involved in the case.
In light of the Royal Capital decision, any first party insurance claim for damage to a commercial or residential building should be analyzed for the potential for additional recovery for loss of value to the property.