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Thompson v. State Farm Fire and Casualty Co.

United States District Court, M.D. Georgia, Macon Division

August 31, 2017

JOHN THOMPSON and LEIGH ANN THOMPSON, Individually and on Behalf of All Others Similarly Situated, Plaintiffs,
v.
STATE FARM FIRE AND CASUALTY COMPANY, Defendant.

          ORDER

          MARC T. TREADWELL, UNITED STATES DISTRICT COURT.

         This case presents one of the latest efforts of policyholders to reap the benefit of court rulings that casualty insurance policies, absent an appropriate exclusion, cover diminished value. See, e.g., State Farm Mut. Auto. Ins. Co. v. Mabry, 274 Ga. 498, 556 S.E.2d 114 (2001). The Plaintiffs owned a townhouse in Smyrna, Georgia, that was insured by State Farm Fire and Casualty Company under a homeowners policy. Docs. 19-2 at ¶¶ 1-2; 19-4. The Plaintiffs' townhouse suffered water damage on September 20, 2013 when a pipe burst. Docs. 6 at ¶ 13; 24-5 at 58:8-11. Plaintiff John Thompson then called State Farm and asked if State Farm would pay for “diminished value” to the townhouse. Docs. 19-2 at ¶ 8; 24-3 at 90:15-91-24. According to the Plaintiffs, State Farm stated that it did not provide such coverage. Doc. 19-2 at ¶ 9. The next day, the Plaintiffs filed this lawsuit. Doc. 1.

         In an order entered on March 9, 2016 and amended on February 23, 2017, the Court certified a Rule 23(b)(3) class of:

All former or current Georgia homeowners insurance policyholders of State Farm who, within the period beginning six years prior to the commencement of the instant civil action and ending January 24, 2017, presented first-party claims arising from direct physical losses to their properties as a result of water damage to their homes, which are events covered by the policy, wherein diminished value was not paid in connection with said claims.[1]

Docs. 78 at 27; 103 at 3. This class was certified with respect to “[a] breach of contract claim against State Farm based on its failure to assess for diminished value.” Doc. 78 at 27-28. The Court declined to certify a class of plaintiffs who claimed that State Farm had failed to pay diminished value. Id. at 18.

         State Farm sought leave to appeal the Court's class certification under. Doc. 90-3 at 13. The Plaintiffs sought leave to cross-appeal. See Doc. 94-1. On January 24, 2017, the Eleventh Circuit denied State Farm's petition and the Plaintiffs' cross-petition. Id.

         This Order addresses numerous motions for summary judgment filed by the parties.

         The Plaintiffs seek partial summary judgment, asserting that:

(1) “[T]he insurance policies issued to the Class cover diminished value.” Doc. 121 at 1.
(2) “Endorsement FE-5621 is ineffective in excluding coverage for diminished value as to all class members or, alternatively, as to all class members who were issued renewal policies.” Doc. 123 at 1.
(3) “State Farm had a duty to assess the Class's claims for diminished value.” Doc. 121 at 1.
(4) “State Farm breached its duty to assess the Class's claims for diminished value.” Doc. 138 at 1.
(5) “[T]he Class is entitled to recover monetary damages if State Farm breached that duty.” Doc. 121 at 1-2.
(6) “State Farm has waived the contractual limitations provision [of one year to file suit] in the policies with respect to any claims with a date of loss before January 22, 2013.” Doc. 124 at 1.
State Farm responded with cross-motions for summary judgment, asserting that:
(1) All claims with a date of loss before January 22, 2013 are barred by the one-year limitations provision. Doc. 125 at 1-2.
(2) Summary judgment is due against “all class members' claims, on the ground that class members' homeowners policies do not cover, and thus include no obligation to assess for, diminished value.” Doc. 126 at 1.
(3) Summary judgment is due against the Thompsons on their individual claims, because “(i) damage is an essential element of a breach-of-contract claim under Georgia law; (ii) the undisputed facts show that the Plaintiffs have suffered no damage on which to base a breach-of-contract claim; and (iii) as a matter of Georgia law, there can be no claim for a breach of the implied covenant of good faith and fair dealing absent a viable breach-of-contract claim.” Doc. 136 at 1.

         As discussed below, the Plaintiffs' motions seeking partial summary judgment (Docs. 121; 123; 124; 138) are GRANTED IN PART and DENIED IN PART. These motions are GRANTED in part in that (1) policies issued prior to November 1, 2013, being issued without FE-5621, cover diminished value (even if they were renewed with FE-5621 and its accompanying notice), and (2) State Farm breached its duty to assess for diminished value as to those policies. But the Plaintiffs' motions are DENIED in part because, as a matter of law, (1) FE-5621 was effective to eliminate coverage for diminished value as to new policies issued with the endorsement, and (2) the Plaintiffs are not entitled to recover monetary damages.

         State Farm's motions seeking (1) summary judgment because the “class members' homeowners policies do not cover, and thus include no obligation to assess for, diminished value” (Doc. 126); and (2) summary judgment against the Thompsons on the grounds that their property has suffered no diminished value (Doc. 136) are DENIED.

         Finally, because there are genuine disputes of material fact as to whether State Farm waived the policies' one-year contractual limitations period, the parties' cross-motions on that issue (Docs. 124; 125) are both DENIED.

         II. SUMMARY JUDGMENT STANDARD

         A court shall grant summary judgment “if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). “A factual dispute is genuine only if ‘a reasonable jury could return a verdict for the nonmoving party.'” Info. Sys. & Networks Corp. v. City of Atlanta, 281 F.3d 1220, 1224 (11th Cir. 2002) (quoting United States v. Four Parcels of Real Prop., 941 F.2d 1428, 1437 (11th Cir. 1991)). The burden rests with the moving party to prove that no genuine issue of material fact exists. Id. (citation omitted). The party may support its assertion that a fact is undisputed by “citing to particular parts of materials in the record, including depositions, documents, electronically stored information, affidavits or declarations, stipulations (including those made for purposes of the motion only), admissions, interrogatory answers, or other materials.” Fed.R.Civ.P. 56(c)(1)(A).

         “If the moving party bears the burden of proof at trial, the moving party must establish all essential elements of the claim or defense in order to obtain summary judgment.” Anthony v. Anthony, 642 F.Supp.2d 1366, 1371 (S.D. Fla. 2009) (citing Four Parcels of Real Prop., 941 F.2d at 1438). The moving party must carry its burden by presenting “credible evidence” affirmatively showing that, “on all the essential elements of its case on which it bears the burden of proof at trial, no reasonable jury could find for the nonmoving party.” Four Parcels of Real Prop., 941 F.2d at 1438 (citation omitted). In other words, the moving party's evidence must be so credible that, if not controverted at trial, the party would be entitled to a directed verdict. Id. (citation omitted).

         “If the moving party makes such an affirmative showing, it is entitled to summary judgment unless the nonmoving party, in response, ‘come[s] forward with significant, probative evidence demonstrating the existence of a triable issue of fact.'” Id. (quoting Chanel, Inc. v. Italian Activewear of Fla., Inc., 931 F.2d 1472, 1477 (11th Cir. 1991)) (alteration in original). However, “[c]redibility determinations, the weighing of the evidence, and the drawing of legitimate inferences from the facts are jury functions, not those of a judge . . . . The evidence of the non-movant is to be believed, and all justifiable inferences are to be drawn in his favor.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986) (citation omitted). Thus, the Court “‘can only grant summary judgment if everything in the record demonstrates that no genuine issue of material fact exists.'” Strickland v. Norfolk S. Ry. Co., 692 F.3d 1151, 1154 (11th Cir. 2012) (quoting Tippens v. Celotex Corp., 805 F.2d 949, 952 (11th Cir. 1986)).

         In contrast, “[w]hen the nonmoving party has the burden of proof at trial, the moving party is not required to ‘support its motion with affidavits or other similar material negating the opponent's claim.'” Four Parcels of Real Prop., 941 F.2d at 1437 (quoting Celotex Corp. v. Cartrett, 477 U.S. 317, 323 (1986)). The moving party “simply may show . . . that there is an absence of evidence to support the nonmoving party's case.” Id. at 1438 (internal quotation marks and citation omitted). “Assuming the moving party has met its burden, the non-movant must then show a genuine dispute regarding any issue for which it will bear the burden of proof at trial.” Info. Sys. & Networks Corp., 281 F.3d at 1224-25 (citing Celotex Corp., 477 U.S. at 324).

         The standard of review for cross-motions for summary judgment does not differ from the standard applied when only one party files a motion. See Am. Bankers Ins. Grp. v. United States, 408 F.3d 1328, 1331 (11th Cir. 2005). “Cross-motions for summary judgment will not, in themselves, warrant the court in granting summary judgment unless one of the parties is entitled to judgment as a matter of law on facts that are not genuinely disputed.” United States v. Oakley, 744 F.2d 1553, 1555 (11th Cir. 1984) (internal quotation marks and citation omitted). The Court will consider each motion on its own merits, resolving all reasonable inferences against the party whose motion is under consideration. See Am. Bankers Ins. Grp., 408 F.3d at 1331.

         III. DISCUSSION

         A. State Farm's standard form policies cover diminished value.

         State Farm first argues that its standard policy language-“We insure for accidental direct physical loss to the property”-does not cover diminished value because “any diminution in value beyond the cost to repair or replace would be an intangible, economic loss, not ‘accidental direct physical loss' . . . included within the policy's insuring agreement.” Docs. 126 at 2, 7-10; 128-1 ¶ 3. Second, State Farm argues that its loss settlement provision limits its “payment obligation . . . to the cost to repair or replace the damaged property.” Doc. 126 at 11-12. The Court disagrees.

         These arguments are, at best, small variations on the arguments rejected by the Georgia Supreme Court in Mabry, the seminal diminished value case in Georgia. There, the insurer, State Farm Mutual Automobile Insurance Company, contended “that its only obligation under the contract of insurance, when it elects to rely on the limitation of liability provision, is to pay for repairs which return the vehicle to its pre-loss condition.” Mabry, 274 Ga. at 503, 556 S.E.2d at 119. The Georgia Supreme Court rejected that contention, holding:

[T]he 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. That interpretation has stood for 75 years in Georgia and has become, therefore, part of the agreement between the parties when they enter into a contract of insurance which includes the promise to pay for the insured's loss. Thus, our holding in this case that State Farm [Mutual Automobile Insurance Company] is obligated to pay for diminution in value when it occurs is based in reason, precedent, and the intent of the parties. Recognition 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, 556 S.E.2d at 122 (emphases added, citation omitted). In Royal Capital Dev. LLC v. Maryland Cas. Co., the Georgia Supreme Court clarified that Mabry's holding also applies to insurance contracts for real property. See 291 Ga. 262, 267, 728 S.E.2d 234, 238 (2012) (“[W]e 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.”).

         This could not be clearer. If the insured suffers a covered “loss, ” diminished value is an element of that “loss, ” absent a different definition of loss in the policy. State Farm's parsing of the adjectives modifying loss and its attempt to characterize diminished value as purely “intangible, economic damages” are unavailing. See Doc. 126 at 8-10. Again, Mabry is clear: “[W]hat is lost when physical damage occurs is both utility and value;” diminished value is based on this loss of value and specifically refers to any amount by which property's pre-loss value exceeds the property's value post-repair.[2] See Mabry, 274 Ga. at 505, 556 S.E.2d at 120-21 (referring to “diminution in value” as “the difference between pre-loss value and post-loss value . . . modified by . . . repair so that the measure would be the difference between pre-loss value and post-repair value”). Accordingly, under this definition, if an insurer has a duty to pay for repair and restoration, it, to the same degree, has a duty to pay for any diminished value remaining notwithstanding the repairs.

         State Farm's arguments based on “limitation of liability” or “loss settlement” language in its policies are just as clearly foreclosed by Mabry and Royal Capital. State Farm's standard form policies insure against any “accidental direct physical loss to the property described in Coverage A, except as provided in SECTION I - LOSSES NOT INSURED.” Doc. 121-4 at 34 (emphasis added). The loss settlement provisions relied on by State Farm (see Doc. 126 at 11) do not appear in SECTION I - LOSSES NOT INSURED; instead they appear in SECTION I - LOSS SETTLEMENT. Doc. 121-4 at 34-40. Even more to the point, the Georgia Supreme Court rejected this precise argument: “[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 value and post-loss value.” Royal Capital, 291 Ga. at 262, 728 S.E.2d at 235 (quoting Mabry, 274 Ga. at 506, 556 S.E.2d at 121).

         As discussed below, State Farm, after Royal Capital, moved to change by endorsement the definition of loss to exclude diminished value. But absent an effective endorsement redefining loss, the State Farm policies at issue cover diminished value.

         B. Endorsement FE-5621 excludes coverage for diminished value in new policies issued with the endorsement, but not renewed policies.

         After Royal Capital, State Farm began including the following endorsement with all new and renewed homeowners policies in Georgia:

FE-5621 DIMINUTION IN VALUE LOSS RESTRICTION
When used in Section I of this policy, loss does not include diminution in value. This does not preclude payments as described in the Section I loss ...

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