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By: Seth Kirby
For the last decade, Georgia auto insurers have been required to compensate accident victims for the inherent loss in value that a car suffers when it has been in an accident. This loss is known as diminution in value. Essentially, it is a recognition that a car that has been in an accident, even if it has been expertly repaired, suffers from a stigma that will affect its value on resale. Georgia courts determined that the law requires an accident victim to be made whole, so it was not sufficient to simply pay for the repairs necessitated by an accident.
In the context of an automobile, the logic of this rule is easy to understand. If presented with two used cars that were identical in features, mileage and overall condition, but one had previously been in an accident while the other had not, any rational consumer would purchase the pristine car. The only way to overcome this damage stigma, would be a reduction in price for the repaired vehicle.
In Royal Capital Development LLC, v. Maryland Casualty Company, The Georgia Supreme Court recently announced that diminution in value must be considered in the adjustment of all property damage claims. As a result, insurers must now conduct an analysis to determine whether any type of property damage results in a stigma to the property which would require compensation in addition to repair costs to make the property owner whole.
Unlike automobiles, it does not appear that every property damage claim will result in additional compensation for diminution in value. For instance, hail damage that results in the total replacement of a 20-year-old roof should be viewed as a benefit to the insured as the roof was nearing the end of its normal life. In contrast, however, water or fire damage repairs could conceivably create a stigma that negatively impacts the value of the property. In any event, Royal Capital presents a significant new requirement in the adjustment of property claims.