Client Alerts
December 08, 2012

Insurance recovery for construction damage

Stites & Harbison, PLLC, Client Alert, December 8, 2012

When a property owner makes an insurance claim for damage to its building from a neighboring construction project, typically the amount recoverable is based on either the cost of repair or the diminished value of the building. But is it ever possible for the owner to recover both? Surprisingly, the Georgia Supreme Court says "yes." Royal Capital Development, LLC v. Maryland Casualty Co., 291 Ga. 262, 728 S.E.2d 234 (2012).

The case involved an eight-story commercial building in Atlanta damaged by construction activity on adjacent property. The owner submitted a claim on its property insurance policy, seeking both the cost of repair and the post-repair diminished value from the stigma of being a damaged building. The insurer paid over $1 million for estimated cost of repairs, but denied responsibility for the alleged diminished value of the property.

The insurance policy promised to pay for the insured’s loss, but also allowed the insurer the option to pay either the cost of repairing the building or the loss of value. The question was whether the owner could recover both the cost of repair and the post-repair diminished value. The owner’s lawsuit proceeded to the U.S. Court of Appeals, which certified the question to the Georgia Supreme Court.

The Supreme Court recognized that cost of repair and diminution in value can be alternative measures of damage with respect to real property, and are often interchangeable since the diminished value may be measured by the cost of repair. However, the court went further and recognized: “Although unusual, it may sometimes be appropriate, in order to make the injured party whole, to award a combination of both measures of damages.” The court explained that the measure of damages is intended to place an injured party, as nearly as possible, in the same position they would have been if the injury had never occurred.

Thus, the Georgia Supreme Court has recognized that under some circumstances, a property owner may recover both the cost of repair and the post-repair diminished value. However, the court stopped short of endorsing that result under the insurance policy in question, leaving that issue for the trial court to decide.

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