In 2011, we alerted you to an attempt by the plaintiff’s bar to expand automobile damage diminished value class actions to real property claims. It began when in 2010 when then Commissioner Oxendine issued Georgia Insurance Commissioner’s Directive 10-EX-1 during his race for governor. He directed the insurance industry as follows:
[B]arring specific policy language to the contrary, a liable party must restore a [real] property owner to the same position as the property owner was in prior to a loss. In some cases, even with repair of the property, it is possible that the property may be worth less after the loss than it was prior to the loss.
In 2012, we alerted you to plaintiffs’ attorneys who were exploring class action claims similar to those we defended in the automobile diminished value cases. That time has come.
On March 9, 2016, the U.S. District Court for the Middle District of Georgia certified a class of homeowners, allowing them to pursue a class action against their insurer, State Farm Fire & Casualty Company, for State Farm’s alleged failure to assess diminished value on townhomes that suffered water damage. Thompson v. State Farm Fire & Casualty Company, 2016 U.S.Dist. LEXIS 30308 (M.D. Ga. March 9, 2016.) This class action is one of a series of attempted class actions that arose post Royal Capital Development LLC v. Maryland Casualty Company, the 2012 Georgia Supreme Court case which held that diminished value could be recovered under property policies as it had been in Georgia under auto policies since State Farm Mutual Auto Insurance Company v. Mabry, 474 Ga. 498, was decided in 2001.
The homeowners in Thompson sought to certify two subclasses based on the date when the first party’s claims for property damage were submitted, those from January 22, 2013 to the present (within the one year contractual limitations period found in the State Farm policies) and those with claims submitted from January 22, 2008 and January 21, 2013 (outside of the one year contractual limitations period). The Court refused to subdivide the class but certified the undivided class as to its claims related to State Farm’s failure to assess diminished value for damage to real property. The class was not certified to address whether or not diminished value was recoverable or due under the policies. An insurer that assesses diminished value but, for example, determines diminished value is not due or recoverable under a policy would be in a different position than State Farm in this case.
Judge Marc T. Treadwell initially denied certification of a class in 2015 because of pleading deficiencies. The plaintiffs’ attorneys were later able to craft the current class action complaint by limiting the class to homeowners who had made water damage claims. This success will embolden both these lawyers and others to pursue claims. With water damage representing approximately 25% of property claims, the exposure can be substantial.
It will be interesting to see in the coming months how the Court addresses the seemingly limited damages for failure to assess diminished value in water damage cases. Please contact us if you would like assistance in addressing these diminished value claims or in altering policy language to exclude such potential claims.
