In Royal Capital Development LLC v. Maryland Cas. Co., ___ S.E.2d ___, 2012 WL 1909842 (Ga. May 29, 2012), the Supreme Court of Georgia, on a certified question for the U.S. Court of Appeals for the Eleventh Circuit, held that a real property insurer can be liable for both the costs to repair a building and for the post-repair diminution of the building’s value resulting from damage. In Royal Capital, Maryland Casualty Company had issued a policy providing coverage for “direct physical loss or damage to” a building, and allowed Maryland Casualty the option of paying either “the cost of repairing the building” or “the loss of value” of the building. The insured’s building suffered physical damage caused by construction activity on an adjacent property. The insured submitted a claim to the insurer seeking both the cost of repair of the building and post-repair diminution in value resulting from the damage. Maryland Casualty acknowledged that the damage to the building was a covered loss under the policy and paid approximately $1.1 million to compensate the insured for the estimated costs of repair, but declined to compensate the insured for the alleged diminution in value. The insured thereafter sued Maryland Casualty in Georgia state court, and Maryland Casualty removed the case to the federal district court. The parties then filed cross-motions for summary judgment on the narrow issue of whether the insurance policy, under Georgia law, allowed recovery of diminution of value damages in addition to the cost of repair. The trial court granted the insurer’s motion for summary judgment, and the insured appealed.
The U.S. Court of Appeals for the Eleventh Circuit certified the question to the Georgia Supreme Court, asking whether the rationale of State Farm Mut. Auto. Ins. Co. v. Mabry, 274 Ga. 498 (2001) – a case holding that automobile insurers are required to pay for diminution in value of the repaired vehicle – also applied in the context of first-party property policies. The Supreme Court of Georgia held that it did. In extending the Mabry rule to property policies, the court stated that the Mabry rule “is not limited by type of property insured, but rather speaks generally to the measure of damages an insurer is obligated to pay.” The court recognized the longstanding principles under Georgia law that diminution in value is an element in determining the proper measure of damages to real property. Additionally, the court 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.” Having found that the Mabry rule applied, the court held that whether damages for diminution of value are recoverable under the insurance policy depends on the “specific language of the contract itself and can be resolved through application of the general rules of contract construction.”