One of the issues I’ve been covering on this blog is a series of putative class actions in Georgia arising out of a Georgia Supreme Court decision in 2012, which held that diminution in value of real property is potentially covered under a property insurance policy (see my summary of the Georgia Supreme Court decision if you’d like more background on this). The Georgia Supreme Court essentially extended its prior ruling in an auto insurance case to the property insurance context, although it is somewhat counterintuitive that real property, after it is repaired, would see a reduction in value (as opposed to an increase in value).

Earlier this week, a Georgia federal court granted class certification, in part, in Thompson v. State Farm Fire & Casualty Company, 2016 U.S. Dist. LEXIS 30308 (M.D. Ga. Mar. 9, 2016). The class was defined as homeowners who, within the six-year period prior to the filing of the lawsuit, made claims arising from water damage to their homes. The class was limited to a claim for breach of contract based on State Farm’s failure to make assessments for potential diminished value. Key points from the ruling included:

  • State Farm apparently took the position that it does not assess or pay for diminished value, and its policy never covers diminished value, notwithstanding the Georgia Supreme Court’s decision. The court found that State Farm Mutual Auto. Ins. Co. v. Mabry (the auto insurance case) required these assessments. Insurers that do not dispute that their policies potentially cover diminished value in Georgia, and that make assessments for diminished value where appropriate, are likely to be in a different position.
  • With respect to the claim for failure to assess for diminished value, the court found that common issues predominated because State Farm did not make any such assessments, and because damages potentially could be based on the cost of the assessment. at *32. The court did not explain how, under the policy, the insured could recover the cost of the assessment. That puzzles me. Mabry involved declaratory and injunctive relief.
  • The court denied the motion for certification with respect to the claim for State Farm’s failure to pay for diminished value. Common issues did not predominate on that claim because “State Farm can avoid liability, not just an award of damages, by showing that an individual property did not suffer diminished value,” and the “necessary determination of whether each class member suffered diminished value renders breach anything but a common question.” at *23-24. Because State Farm would be entitled to make this showing for every class member, common issues did not predominate. Id. at *26-27. This is consistent with other insurance class action decisions.

This decision seems likely to heat up the diminution in value class action litigation in Georgia, although insurers that are handling the issue differently will have different arguments to make in defending against class certification. As I noted in my February 2 post, Liberty Mutual recently obtained dismissal of a declaratory judgment claim in one of these cases.