The decision in Royal Capital Development v. Maryland Casualty, 728 S.E. 2d 234 (Ga. 2012) is landmark.
The decision in Royal Capital Development v. Maryland Casualty, 728 S.E. 2d 234 (Ga. 2012) is landmark.
A. Factual background:
The facts we know are very limited. A commercial property in the Atlanta area was allegedly damaged due to construction work on an adjacent property. The only damages detailed in any of the opinions describe cracks observed in floor tiles.
The insured submitted a claim for approximately 3.8 million dollars in total damages, 2.7 of which was for diminution in value (DIV). Maryland Casualty (Maryland) denied the claim for DIV and paid the rest of the claim. A suit was filed in State Court and then removed to Federal Court on the sole issue of coverage for DIV.
B. Rulings of the Courts:
i. The Northern District of Georgia (Federal):
Motions for Summary Judgment were file in Federal Court on the issue of coverage for DIV. The insured relied primarily on the case of State Farm v. Mabry, 556 S.E.3d 114 (Ga. 2001). In Mabry, the Georgia Supreme Court held that DIV losses were recoverable in Georgia for vehicle claims. The insured argued that, therefore, DIV claims should be recoverable for first party property claims as well.
The District Court disagreed. The Court found that the coverage language in the Maryland policy was clear and that Maryland had exercised its option to pay for the repair or replacement of the damaged property. Having selected this option under the policy, DIV was not recoverable under the unambiguous language of the policy.
As explained by the Court, the Maryland policy granted coverage for “direct physical loss or damage to the Covered Property.” The Court further found that the policy provided four methods for evaluating the loss, all at the option of the insurer. Specifically, the Court turned to the “Loss Payment” clause, which provided:
C. Loss Payment
1. IN THE EVENT OF LOSS OR DAMAGE COVERED BY THIS COVERAGE PART, AT OUR OPTION WE WILL EITHER:
a. Pay the value of the lost or damaged property;
b. Pay the cost of repairing or replacing the lost or damaged
property;
c. Take all or any part of the property at an agreed or
appraised value; or
d. Repair, rebuild or replace the property with other
property of comparable kind and quality.
The District Court found that Maryland had elected the second option of repairing or replacing. As such, there was no basis under the policy for the insured to claim DIV.
ii. The 11th Circuit Court of Appeals (Federal):
The insured appealed the case to the Federal 11th Circuit Court of Appeals. The 11th Circuit saw this as a novel question of Georgia law and certified the question of whether DIV was recoverable for property losses to the Georgia Supreme Court.
iii. The Georgia Supreme Court
The Georgia Supreme Court held that there was no meaningful difference between DIV coverage for automobiles (as allowed in Mabry) and DIV for the property in question in Royal Capital. Cryptically, the Georgia Supreme Court asserted that whether an insurance policy covered DIV “depends on the specific language of the contract itself.” A Motion for Reconsideration was filed by Maryland asserting that while the Georgia Supreme Court answered the question of whether DIV could be allowed for property damage, it left open the question of whether the Maryland policy actually covered DIV. The Georgia Supreme Court denied the Motion for Reconsideration without opinion.
iv. Return to the 11th Circuit:
Having received at least a partial answer to its certified question, the 11th Circuit chose to interpret the Georgia Supreme Court as having held that the policy at issue allowed for the recovery of DIV for Royal Capital. As noted above, the Georgia Supreme Court actually only ruled that DIV recovery was not limited to autos. It never actually ruled that the Maryland policy covered DIV. Nonetheless, that was what the 11th Circuit held.
2. POSSIBLE RESPONSES TO ROYAL CAPITAL
A. Continued legal challenges:
The actual ruling by the Georgia Supreme Court seems to invite a policy based response to recovery of DIV claims. The Georgia Supreme Court specifically held that the recovery of DIV would be determined by analyzing the policy to determine the existence of coverage. In Royal Capital, the policy language relied upon by the insurer was apparently deemed insufficient when it was returned to the 11th Circuit (again, this is not at all clear). As such the Loss Payment options relied upon by Maryland arguably will not suffice in Georgia to disallow DIV coverage. If an insurer’s policy has additional or variant language that may serve to deny DIV coverage, there is no bar to relying upon that language to challenge the existence of DIV coverage in that policy.
B. Policy Endorsement:
Even if a policy does not respond in a satisfactory way to a claim of DIV coverage, it should be possible to create a Georgia specific endorsement to clarify the lack of coverage. Due to the strange political story behind DIV in Georgia, there is reason to hope that the current Insurance Commissioner may look favorably on such an endorsement.
The political back story is as follows.
The Royal Capital claim for DIV came to light in the former insurance commissioner’s (John Oxendine) run for governor. A reporter uncovered the fact that the owner of Royal Capital made significant donations to Oxendine’s campaign around the time of its claim to Maryland for DIV. (It was also noted that Royal Capital’s public adjuster was also a contributor to Oxendine’s campaign.) About that same time, Oxendine issued a directive warning insurers to consider DIV in property claims or face possible disciplinary action. As noted by the reporter, this appeared to be a classic instance of quid pro quo.
Oxendine’s campaign for governor failed and a new Insurance Commissioner was elected. On taking office, the new Insurance Commissioner immediately withdrew Oxendine’s directive on DIV. At a minimum, this indicates a possible hostility to the concept of allowing DIV in first party property claims.
C. Claim Adjustment:
The claim for DIV still has to be proven. In Royal Capital, the insured was able to get a certified appraiser to establish DIV. In turn, Maryland obtained an appraiser finding no DIV. The final outcome of the Royal Capital DIV claim is not known.
The ability to obtain a certified appraiser to find DIV following a repair to a structure is not at all a given at this time. While there is concern that a “cottage industry” of DIV property appraisers may come to exist in Georgia, they do not exist at this time. Since Royal Capital, our firm has seen one claim for DIV in a property loss. Thus far, the insured in that case has not provided an appraisal or any other proof in support of its DIV claim.
Similarly, in discussions with local “pro-insured” counsel, they have not had success in finding appraisal support for DIV. Rather, in several instances, the repairs were seen to enhance the value of the property.