Royal Capital Development, LLC v. Maryland Casualty Company

[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
________________________
No. 10-15716
________________________
D. C. Docket No. 1:10-cv-01275-RLV
ROYAL CAPITAL DEVELOPMENT, LLC,
Plaintiff-Appellant,
versus
MARYLAND CASUALTY COMPANY,
Defendant-Appellee.
________________________
Appeal from the United States District Court
for the Northern District of Georgia
________________________
(August 2, 2012)
Before DUBINA, Chief Judge, CARNES, Circuit Judge, and SANDS, District*
Judge.
DUBINA, Chief Judge:
Honorable W. Louis Sands, United States District Judge for the Middle District of*
Georgia, sitting by designation.
Case: 10-15716 Date Filed: 08/02/2012 Page: 1 of 13

-- 1 of 13 --

I.
This case involves a dispute over the proper interpretation under Georgia
law of a real property insurance contract between Plaintiff-Appellant Royal
Capital Development, LLC (“Royal Capital”) and Defendant-Appellee Maryland
Casualty Company. The insurance policy provides coverage for “direct physical
loss of or damage to” a building Royal Capital owns in the Buckhead area of
Atlanta. The contract specifies Maryland Casualty’s obligations under a section
entitled “Loss Payment”: “In the event of loss or damage” to the property,
Maryland Casualty “will either: (a) Pay the value of lost or damaged property; [or]
(b) Pay the cost of repairing or replacing the lost or damaged property . . . .”
[Insurance Policy Coverage Form, R. 1-2 (Exh. 1) at 20.]
Royal Capital contends that the insurance coverage extends to compensation
for the building’s diminution in value resulting from stigma due to the building’s
physical damage, even after all repairs have been made. It cites State Farm Mutual
Automobile Insurance Company v. Mabry, 556 S.E.2d 114, 120-22 (Ga. 2001), as
adhering to the long-established rule for car insurance contracts that the insurer is
obligated to pay for diminution in value and argues that the rationale extends to
insurance contracts for buildings. Although Maryland Casualty acknowledges the
Mabry rule, it contends that it does not apply here because the insurance contract
2
Case: 10-15716 Date Filed: 08/02/2012 Page: 2 of 13

-- 2 of 13 --

covers a building, not an automobile, and the language excludes coverage for
diminution of value damages.
II.
The single question presented in this appeal is whether the Mabry rule
extends to standard insurance contracts for buildings. Because this is an important
unsettled question of state law, and there is no controlling precedent from the
Georgia state courts, we certified the question to the Supreme Court of Georgia.
Royal Capital Dev., LLC v. Maryland Cas. Co., 659 F.3d 1050 (11th Cir. 2011).
The specific question we certified is as follows:
For an insurance contract providing coverage for “direct physical
loss of or damage to” a building that allows the insurer the option
of paying either “the cost of repairing the building” or “the loss of
value,” if the insurer elects to repair the building, must it also
compensate the insured for the diminution in value of the
property resulting from stigma due to its having been physically
damaged?
Id. at 1055.
Recently, the Supreme Court of Georgia, in a unanimous opinion, answered
our question in the affirmative. Specifically, the Supreme Court of Georgia
declined to limit its holding in Mabry to automobile insurance policies and
specifically held that the Mabry rule applies to the insurance contract at issue in
this case. Accordingly, based on the Georgia Supreme Court’s answer to our
3
Case: 10-15716 Date Filed: 08/02/2012 Page: 3 of 13

-- 3 of 13 --

certified question in its opinion, attached hereto as an appendix, we reverse the
district court’s grant of summary judgment in favor of Maryland Casualty and
remand this case for further proceedings in accordance with the opinion of the
Supreme Court of Georgia filed with the clerk of this Court on May 29, 2012.
REVERSED and REMANDED.
4
Case: 10-15716 Date Filed: 08/02/2012 Page: 4 of 13

-- 4 of 13 --

APPENDIX
In the Supreme Court of Georgia
Decided: May 29, 2012
S12Q0209. ROYAL CAPITAL DEVELOPMENT LLC V MARYLAND
CASUALTY COMPANY
THOMPSON, Justice
By way of Royal Capital Dev. v. Maryland Cas. Co., 659 F3d 1050 (11th
Cir. 2011), the United States Court of Appeals asked this Court to decide the
following question of law:
For an insurance contract providing coverage for “direct
physical loss of or damage to” a building that allows the
insurer the option of paying either “the cost or repairing the
building” or the “loss of value,” if the insurer elects to [ ]
repair the building, must it also compensate the insured for
the diminution in value of the property resulting from
stigma due to its having been physically damaged?
This question stems from a dispute over the proper interpretation under Georgia law
of a contract insuring real property. The primary issue presented to this Court is
whether our ruling in State Farm Mut. Auto. Ins. Co. v. Mabry, 274 Ga. 498 (556
SE2d 114) (2001), a case involving an automobile insurance policy wherein we held
that a provision requiring the insurer to pay for loss to the insured’s car required the
insurer to also pay for any diminution in value of the repaired vehicle, is applicable.
5
Case: 10-15716 Date Filed: 08/02/2012 Page: 5 of 13

-- 5 of 13 --

As the Eleventh Circuit observed, “the single question presented in this appeal is
whether the Georgia courts would hold that the Mabry rule extends to standard
insurance contracts for buildings.” Royal Capital Development, 659 F3d at 1051.
For the reasons which follow, we hold that our ruling in Mabry is not limited by the
type of property insured, but rather speaks generally to the measure of damages an
insurer is obligated to pay.
The facts giving rise to this question are summarized as follows: Royal Capital
owns an eight-story commercial building in the Buckhead area of Atlanta. In 2003,
Royal Capital purchased the disputed insurance policy from Maryland Casualty to
insure the building. After construction activity on an adjacent property caused
physical damage to the building, Royal Capital submitted a timely claim under the
policy to Maryland Casualty, seeking both the costs of repair and the post-repair
diminution in value resulting from the damage. Maryland Casualty acknowledged that
the damage to the building was a covered cause of loss under the policy and paid
$1,132,072.96 to compensate Royal Capital for the estimated costs of repair.
However, Maryland Casualty refused to acknowledge any responsibility to
compensate Royal Capital for the alleged diminution in value of the property.
Royal Capital filed a one-count complaint in the Superior Court of Fulton
County, Georgia and Maryland Casualty removed the case to the United States
6
Case: 10-15716 Date Filed: 08/02/2012 Page: 6 of 13

-- 6 of 13 --

District Court for the Northern District of Georgia pursuant to 28 USC § 1332.
Deferring discovery on the actual extent of the building's loss of value, the parties
filed cross-motions for summary judgment on the narrow issue of whether the
insurance contract allowed recovery of diminution of value damages in addition to
the costs of repair under Georgia law. The district court granted Maryland Casualty's
motion for summary judgment, holding that Mabry was inapplicable because it dealt
exclusively with a consumer automobile policy and thus diminution of value damages
were not available under this contract insuring real property.
On appeal, the Eleventh Circuit determined that the sole question
presented was whether Royal Capital's insurance contract with Maryland
Casualty required the insurer to pay for the alleged "diminution in value" of the
insured building in addition to the costs of repair. Royal Capital, supra, 659 F3d at
1052. In light of the conflicting federal decisions and finding no controlling**
precedent from Georgia state courts, the Eleventh Circuit determined that this case
raised an important unsettled question of state law. Accordingly, it certified to
While the district court in this case agreed with Maryland Casualty that Mabry was not**
controlling, noting that it dealt “exclusively with a consumer automobile policy,” see Royal
Capital Dev. v. Maryland Cas. Co., No. 1:10-CV-1275-RLV, 2010 WL 5105157 (N.D. Ga., Dec.
2, 2010), in NUCO Invs. v. Hartford Fire Ins. Co., No. 1:02-CV-1622-CAP, 2005 WL 3307089
(N.D. Ga. Dec. 5, 2005) (unpublished), a different federal judge in an earlier case found that the
rationale behind the Mabry rule did not justify a distinction for real estate.
7
Case: 10-15716 Date Filed: 08/02/2012 Page: 7 of 13

-- 7 of 13 --

this Court the question of the proper interpretation of the parties’ insurance contract
in light of Mabry. Id. at 1054.
1. Royal Capital contends that pursuant to Mabry, the insurance coverage
provided under the contract at issue extends to compensation for the building’s
diminution in value resulting from the stigma due to the building’s past physical
damage, even after all repairs have been made. In Mabry, this Court determined that
value, not condition, is the baseline for the measure of damages in a
claim under an automobile insurance policy in which the insurer
undertakes to pay for the insured’s loss from a covered event, and that
a limitation of liability provision affording the insurer an option to repair
serves only to abate, not eliminate, the insurer’s liability for the
difference between pre-loss and post-loss value.
274 Ga. at 506. As we noted in our decision, “[r]ecognition of diminution in value
as an element of loss to be recovered on the same basis as other elements of loss
merely reflects economic reality.” Id. at 508.
These same principles have long been applied under Georgia law in cases
involving the proper determination for measuring damages to real property. Empire
Mills Co. v. Burrell Engineering & Constr. Co., 18 Ga. App. 253 (89 SE 530) (1916)
(as a general rule the measure of damages in actions for real property is the difference
in value before and after the injury to the premises). This Court has consistently held
that the measure of damages in such cases is intended to place an injured party, as
8
Case: 10-15716 Date Filed: 08/02/2012 Page: 8 of 13

-- 8 of 13 --

nearly as possible, in the same position they would have been if the injury had never
occurred. John Thurmond & Assoc.v. Kennedy, 284 Ga. 469 (668 SE2d 666) (2008).
See BDO Seidman v. Mindis Acquisition Corp. 276 Ga. 311 (1) (578 SE2d 400)
(2003); Redman Dev. Corp. v. Piedmont Heating &c, 128 Ga. App. 447 (197 SE2d
167) (1973). Moreover, this Court has long considered diminution in value to be an
element in determining the proper measure of damages to real property. See
Thurmond, 284 Ga. at 470; see Harrison v. Kiser, 79 Ga. 588 (1887); Mercer v. J &
M Transp. Co., 103 Ga. App. 141 (118 SE2d 716) (1961) (measuring damages by
diminution in value where restoration would require construction of entirely new
home).
In applying these principles, this Court has recognized that under Georgia law,
cost of repair and diminution in value can be alternative, although often
interchangeable, measures of damages with respect to real property. Thurmond, 284
Ga. at 471; Ray v. Strawsma, 183 Ga. App. 622, 623 (359 SE2d 376) (1987). More
the point in this case, in Thurmond we observed:
Although unusual, it may sometimes be appropriate, in order to make the
injured party whole, to award a combination of both measures of
damages. In such cases, notwithstanding remedial measures undertaken
by the injured party, there remains a diminution in value of the property,
and an award of only costs of remedying the defects will not fully
compensate the injured party. [Cit.]
9
Case: 10-15716 Date Filed: 08/02/2012 Page: 9 of 13

-- 9 of 13 --

Thurmond, 284 Ga. at 471, fn. 2. Based on well-established precedent authorizing
full recovery, including in some circumstances both diminution in value and cost of
repair, we thus reject Maryland Casualty’s contention that the contract at issue did not
include coverage for post-repair diminution in value as no insurer or insured had
reason to expect such coverage under a standard real property insurance policy.
2. Maryland Casualty relies upon the Georgia Court of Appeals decision in City
of Atlanta v. Broadnax 285 Ga. App. 430 (646 SE2d 279) (2007) as support for its
argument that this Court intended to limit Mabry to automobile insurance contract
cases. Broadnax involved a nuisance action brought against the City of Atlanta
regarding flooding allegedly due to overflow from the city’s combined system for
drainage of sewer and storm water. Id. The Court of Appeals refused to allow the
plaintiffs/homeowners to recover damages for both the diminution in value of their
property due to the stigma of living in a flood prone area, as well as the costs of
repair, holding that an award of both would constitute an impermissible double
recovery of damages. Id. at 438-39. The Court of Appeals reached this decision after
erroneously concluding that it was constrained from extending Mabry’s rationale
10
Case: 10-15716 Date Filed: 08/02/2012 Page: 10 of 13

-- 10 of 13 --

based on this Court’s decision in Georgia Northeastern R. v. Lusk, 277 Ga. 245 (587
SE2d 643) (2003).***
The question this Court addressed in Lusk was whether a diminution in value
award based, in part, on the existence of a continuing nuisance for which sufficient
damages to abate had already been awarded, would constitute impermissible double
damages. In answering this question, we observed that in Georgia, “[a] plaintiff is
entitled to only one recovery and satisfaction of damages, because such recovery and
satisfaction is deemed to make the plaintiff whole.” Lusk, 277 Ga. at 246. We
reiterated that “different means of measuring damages are not to be so applied as to
give double damages for the same thing.” Id. We did not rule that Georgia law
precludes a diminution in value award in addition to restoration and repair costs
where the repair does not fully restore the property to its pre-damage value. Nor did
In Lusk, a property owner brought suit against a railroad alleging that his riverside***
property had eroded as a result of a nuisance maintained by the railroad. The evidence adduced
at trial reflected that as a result of the nuisance, 60 percent of one acre of the property had already
eroded into the river. The jury award included $5,400 for the diminution in fair market value of
the property and $182,755 for the estimated cost to restore the eroded riverbank. Noting that the
diminution in value award appeared to directly reflect the usable acreage that was irreparably lost
and, further, that the amount awarded as the cost of “restoration” was the exact sum given by the
railroad’s expert as the cost of stabilizing the eroded riverbank to prevent further deterioration
and did not include any amounts to replace the soil already lost, this Court observed that the
particular sums awarded by the jurors in the case indicated that they may not have returned
impermissible double damages. However, because of the language used in the special verdict
form, the Court was unable to conclusively determine whether the “diminution” award was
limited to the decrease in value of the land based on the lost acreage, or whether it also included
an award for the decrease in the value of the land caused by the destabilized condition of the
riverbank - something remedied by the restoration award.
11
Case: 10-15716 Date Filed: 08/02/2012 Page: 11 of 13

-- 11 of 13 --

we rule that “stigma” damages to property would constitute an impermissible double
recovery, as “stigma” damages were not at issue in the Lusk case. Lusk, therefore,
does not conflict with, nor limit Mabry. To the extent the Court of Appeals opinion
in Broadnax holds otherwise, it is hereby disapproved. City of Atlanta v. Broadnax,
supra, 285 Ga. App. 430.
3. Finally, we find no reason to distinguish Mabry from the instant case based
on the alleged sophistication of the parties entering into insurance policies covering
real property versus those who purchase automobile insurance policies. Although
this case involves an insurance contract covering commercial property, a vast number
of policies covering real property insure residential property for homeowners – a
group far less sophisticated and more closely aligned to the automobile policyholders
in Mabry.
4. We adhered in Mabry to the long-standing contract interpretation rule in
Georgia that where “[an] insurance policy, drafted by the insurer, promises to pay for
the insured’s loss; what is lost when physical damage occurs is both utility and value;
therefore, the insurer’s obligation to pay for the loss includes paying for any lost
value.” 274 Ga. at 508. We see no reason to limit our holding in Mabry to
automobile insurance policies and we thus answer the primary question posed by the
Eleventh Circuit Court of Appeals in the affirmative: The Mabry rule applies to the
12
Case: 10-15716 Date Filed: 08/02/2012 Page: 12 of 13

-- 12 of 13 --

insurance contract at issue in this case. Accordingly, whether damages for diminution
in value are recoverable under Royal Capital’s contract depends on the specific
language of the contract itself and can be resolved through application of the general
rules of contract construction. See, e.g., NUCO Invs. v. Hartford Fire Ins. Co., supra.
Question answered. All the Justices concur.
13
Case: 10-15716 Date Filed: 08/02/2012 Page: 13 of 13

-- 13 of 13 --