Why Georgia, why?: Georgia’s Minority View of Diminution in Value
Michelle A. Sherman, Senior Associate
Mozley, Finlayson & Loggins LLP
Consider a typical scenario in which homeowners have submitted an insurance claim for water damage to their home. It is undisputed that the water damage is covered. The homeowners now claim that the value of their home has decreased as a result of the water damage, even after the water damage has been fully repaired. This is known as “diminution in value” or “diminished value.”
Diminution in value is the economic loss or reduction in market value which results from a loss. A first-party property insurance policy generally provides coverage for “direct physical loss of or damage to property.” When unpacking this phrase, we find the terms “loss” and “damage” often are undefined by the policy. Black’s law dictionary defines “damage” as “[l]oss or injury to a person or property.” “Loss,” as defined by Black’s law dictionary, means “[a]n undesirable outcome of a risk; the disappearance or diminution in value, usu. in an unexpected or relatively unpredictable way.” Insurance companies long have disputed that diminution in value falls within the generally accepted meaning of “loss.” By expanding the concept of “loss” to include diminished value, an insurer is obligated to compensate a policyholder for the market’s perception that the damaged, but adequately repaired, property necessarily has less value than undamaged property. If you are in Georgia, insurers are required to evaluate all first-party claims for the existence of diminution in value and compensate their insureds for that difference in fair market value caused by the loss, unless recovery for diminution in value is excluded. Georgia follows a minority view, while courts in other states in the Southeast have denied coverage for diminution in value damages.
Georgia’s rule that insurers are obligated to consider payment of diminution in value when a policyholder makes a first-party insurance claim developed from a line of precedent that began in the context of automobile insurance coverage. In State Farm Mut. Auto Ins. Co. v. Mabry, the Supreme Court of Georgia recognized diminution in value as a measure of damages in automobile accident cases, and required insurers to develop a method for assessing diminution in value, to collect and maintain information on diminution in value, to evaluate all auto claims for diminution in value, and to pay an insured for a vehicle’s diminished value in addition to the actual cost of the repairs. The Supreme Court of Georgia in Royal Capital v. Maryland Casualty Co., extended the Mabry rule to insurance policies covering real property, holding that diminished value is recoverable under a standard commercial property policy when the repairs do not return the insured’s property to its pre-damage value. The rationale for the Court’s holding in Royal Capital was the principle of making the insured whole, or “plac[ing] an insured party, as nearly as possible, in the same position it would have been if the injury had never occurred.”
This affirmative duty of an insurer to assess diminution in value in each first-party property loss in Georgia recently was acknowledged in Thompson v. State Farm Fire and Cas. Co. The Thompson court held that, absent policy language explicitly excluding coverage for diminution in value, diminution in value is an element of loss which an insurer must assess even when an insured does not specifically make a claim for diminished value. Interestingly, the Thompson court noted that nothing in the decisions of Mabry or Royal Capital prohibit an insurer from providing a definition of “loss” in its policies that excludes coverage for diminution in value. In practical terms, such exclusionary language would effectively alter an insurer’s coverage obligations and arguably alleviate any obligation of an insurer to make an assessment for diminished value as an element of an insured’s covered loss.
As of yet, the aftermath of Thompson remains to be seen, and Mabry and Royal Capital remain the authority, making clear that an insurer possesses a duty to assess and pay diminished value to their insureds in Georgia in the absence of exclusionary language.
If you would like more information on this subject, please contact Ms. Sherman by calling her at 404.256.0700 or by emailing her at email@example.com
 Black’s Law Dictionary (10th ed. 2014).
 Black’s Law Dictionary (10th ed. 2014) (emphasis added).
 See Siegle v. Progressive Consumers Ins. Co., 819 So. 2d 732 (Fla. 2002) (diminution in value not recoverable in auto context); Schulmeyer v. State Farm Fire & Cas. Co., 579 S.E.2d 132 (S.C. 2003) (diminution in value not recoverable in auto context); Pritchett v. State Farm Mut. Auto. Ins. Co., 834 So.2d 785 (Ala. App. 2002) (diminution in value not recoverable in auto context); Black v. State Farm Mut. Auto. Ins. Co., 101 S.W.3d 427 (Tenn. App. 2002) (diminution in value not recoverable in auto context).
 274 Ga. 498 (2001).
 291 Ga. 262 (2012).
 Id. at 264.
 264 F. Supp. 3d 1302, 1316 (M.D. Ga. 2017).