08/10/2012
Expanded Scope Of Liability For Property Insurers In Georgia
Property Insurers need to be aware of a recent decision of the Supreme Court Of Georgia regarding the scope of exposure for damage to real property. The United States Court Of Appeals for the Eleventh Circuit certified a question of law to the Supreme Court Of Georgia in the matter of Royal Capital Development LLC v. Maryland Casualty Company 659 F.3d 1050 (11th Cir. 2011). Essentially the Supreme Court was called upon to decide whether an Insurer was responsible not only for the cost of repair but whether it was further required to compensate the property owner for any diminution in value associated with stigma attached to the property due to it having been damaged? The Supreme Court Of Georgia answered in the affirmative thus potentially expanding significantly the extent of the risks insured against under a contract insuring either residential or commercial property.
Although the measure of damages with regard to injury to real property has long been either the loss in value to the property or alternatively the cost of repair, the Supreme Court reiterated that repair serves "only to abate, not eliminate, the insurer's liability for the difference between pre-loss value and post-loss value." The application of this principle to damage to real property represents a significant expansion of an insurer's potential liability for this kind of injury. By way of example, in the Royal Capital case, Maryland Casualty paid approximately 1.1 million dollars for the costs of repair to Royal Capital's building. The property Owner then filed a lawsuit seeking damages for the diminution in value aspect of its claimed damages in the amount of 5.6 million dollars!
Royal Capital owned an 8 story commercial building in Atlanta which suffered structural damage due to severe vibration caused by construction work on an adjacent site.
The last sentence of the Supreme Court Of Georgia's opinion in this case should be considered carefully by the insurance industry. "Accordingly, whether damages for diminution of value are recoverable under Royal Capital's contract depends on the specific language of the contract itself and can be resolved through the application of the general rules of contract construction".
Whether pursuing or defending a claim property owners and their insurers are well advised to retain counsel familiar with the intricacies of both how to trigger coverage in the first instance and how to limit exposure in the latter. The attorneys at Sweetnam & Schwartz LLC have extensive experience in both arenas.