A while back, I wrote about a Georgia Supreme Court decision, Royal Capital Development LLC v. Maryland Casualty Co., that held that diminution in value of real property is potentially covered under a property insurance policy, in addition to the costs of repairs (see my June 6, 2012 blog post). This was an extension of a decision by the Georgia Supreme Court in the auto insurance context, which had held that diminution in value of a vehicle, after completing repairs, was covered under an auto policy. Vehicles are different than autos though. Unlike some used vehicles, real properties often gain in value when old materials are replaced with new. Nevertheless, as I predicted, the Royal Capital decision has resulted in some class action filings against homeowners’ and commercial property insurers, although not a large number of cases. As far as I know, the issue has not yet spread beyond Georgia.
In Brewton v. Liberty Mutual Holding Company, Inc., 2016 WL 224124 (M.D. Ga. Jan. 19, 2016), a putative class action involving this issue, a Georgia federal district court recently granted the insurer’s motion to dismiss a declaratory judgment claim. The plaintiff sought a declaratory judgment that the insurer “is obligated under the homeowners insurance policies to assess insured properties for and pay diminished value when policyholders present first-party physical damage claims arising from direct physical losses to their insured properties, which are covered events.” Id. at *1. The court dismissed this claim because it was based on the possibility of a hypothetical or contingent future injury. The court reasoned that “[a]lthough it is possible that [plaintiff] may experience damage to her home and thus a dispute with First Liberty over diminished value in the future, her allegations are insufficient to establish a reasonable expectation that her alleged injury will be repeated. ‘[A] plaintiff seeking declaratory . . . relief must allege . . . a real and immediate – as opposed to a merely hypothetical or conjectural – threat of future injury.’” Id. at *3. “The mere possibility that [plaintiff’s] home may suffer damage in the future is ‘simply too remote to satisfy the case-or-controversy requirement and permit adjudication by a federal court.’” Id. (quoting O’Shea v. Littleton, 414 U.S. 488, 498 (1974)).
The argument made here is one that insurers and other defendants can often make in defending against declaratory judgment claims in putative class actions. With this type of claim dismissed, class certification will depend entirely on a breach of contract claim, on which class certification is governed by the more stringent Rule 23(b)(3) standard, which requires that common issues of law or fact predominate. With respect to diminution in value, for example, the defendant, in opposing class certification or moving to strike the class allegations, has a strong argument that the specific factual circumstances of each individual claim will predominate in determining whether there was any uncompensated diminution in value that falls within the scope of coverage as construed by the Georgia Supreme Court’s decision.