The decision in John Thompson v. State Farm Fire and Casualty Co., No. 5:14-CV-32 (MTT) (M.D. Ga. May 14, 2015) reflects yet another effort by policyholders to benefit from
The decision in John Thompson v. State Farm Fire and Casualty Co., No. 5:14-CV-32 (MTT) (M.D. Ga. May 14, 2015) reflects yet another effort by policyholders to benefit from the Georgia Supreme Court’s 2012 landmark decision in Royal Capital Development v. Maryland Casualty, 728 S.E.2d 232 (Ga. 2012). In Royal, the Georgia Supreme Court held that there is no meaningful difference between diminution in value (“DIV”) coverage for automobiles (as permitted by the Georgia Supreme Court in State Farm v. Mabry, 556 S.E.3d 114 (Ga. 2001)) and DIV coverage for real property. The policyholders in Thompson attempted to extend the analysis from Royalby seeking a declaration that a “State Farm homeowners policy provides coverage for diminished value” and that “State Farm is required under its homeowners policy to assess [ ] diminished value even if an insured does not make a specific request for diminished value.”
A. Factual Background
In Thompson, property owners John and Leigh Ann Thompson filed suit after their home sustained damage because of an event covered by their State Farm policy. When the insureds reported the loss to State Farm, the insurer authorized repairs and paid certain repair costs, but failed to inform the insureds they were entitled to recover for diminution in value to their property. The insured’s Complaint alleges that when the insureds asked State Farm about their right to recover for the lost value of their property, State Farm told them they were not entitled to this compensation under their policy. In their suit against State Farm, the insureds sought to represent all Georgia homeowners who hold a State Farm policy and obtain a declaration that the policies provide DIV coverage.
B. District Court’s Ruling
In evaluating the policy holder’s request, the district court first noted that the policyholders were essentially seeking an opinion regarding State Farm’s obligations in the event the policyholders have a DIV claim in the future. However, the court noted that federal courts “do not sit to decide hypothetical issues or to give advisory opinions about issues as to which there are not adverse parties before us.” Because there was nothing more than a mere possibility that current State Farm policyholders could suffer a claim in the future, the court ruled that they lacked jurisdiction to adjudicate the dispute.
C. Possible Responses to Thompson:
a. Continued Legal Challenges
In Thompson, the policyholders did not seek declaratory relief for policyholders who have already suffered losses. Moreover, the policyholders saved for another day their individual claims arising from the damage that occurred to their home. As such, the court’s decision gives no clarification as how a DIV claim is calculated in the first party property context. While Royal certainly provides that, absent an appropriate exclusion, casualty policies provide DIV coverage, the Royal court did not provide a basis for calculating a DIV claim. Moreover, the ability to obtain a certified appraiser to find DIV following a repair to a structure is not an apparent given, as DIV property appraisers do not exist at this time in Georgia. Accordingly, the means and method by which a DIV claim is calculated remains an unresolved issue in Georgia and will likely be the subject of a future legal challenge.
b. Policy Endorsement
Following the decision in Royal, State Farm began issuing an endorsement, “FE-5621 Diminution in Value Loss Restriction,” in all homeowners policies. In Thompson, State Farm did not argue that the endorsement excluded coverage; rather, State Farm asserted that the endorsement emphasized and reminded policyholders that DIV coverage never existed in State Farm homeowners policies. With regard to this argument, the court noted that State Farm created a controversy where none should exist, given that the Royal court held that casualty policies provide DIV coverage absent an exclusion. As such, the Thompson court suggested that an endorsement that does not purport to exclude DIV coverage, but rather attempts to explain that such coverage never existed, is not a permissible way to limit or otherwise eliminate DIV coverage. Accordingly, any endorsement that limits or excludes DIV coverage should explicitly so state and not attempt to eliminate the possibility that DIV coverage previously existed.