In Georgia, car insurers are required to repair the damaged car and compensate the owner for the diminished value related to the accident. If your car is involved in an auto accident, no matter how well the repairs are made, the car is often worth less to a potential buyer, because it has been involved in an accident.
The case heard by Georgia’s Supreme Court involved a commercial building that suffered a cracked foundation and structural damage as a result of a construction project on the adjoining property. The court extended the same legal analysis used to compensate automobile owners to property owners. The May ruling is the first time the Georgia Supreme Court applied diminution of value to commercial and residential real estate.
Homeowners and commercial building owners may or may not benefit from the ruling. If your roof was replaced as a result of storm damage, your claim could result in an increased property value and thus receive no additional compensation. Diminished value payments would be beneficial in instances where a home suffers a cracked foundation as a result of storm damage, a mold problem from a burst pipe, or other damage that must be disclosed to potential buyers that might give them reason to reconsider their purchase.
When determining the diminished value of a car, carriers can rely on the Kelley Blue Book value, while car buyers can rely on services such as Carfax to provide a vehicle’s history. With a home or commercial property, determining diminished value will likely be more difficult.
While the possibility of diminished value payments sounds good, insurance carriers still need to determine how such payments will be determined, monitored, and how to underwrite such a policy. Additionally, insurance carriers warn that the ruling will lead to increased rates. It is a possibility that insurance carriers may consider amending policies to specifically exclude diminished value claims or look to the Georgia insurance commissioner for regulatory guidance on applying the diminution value ruling.
Currently, there is not enough information for how the ruling will ultimately affect homeowners. As the situation evolves, I’ll provide guidance on how to protect your property.
William G. Lako Jr., CFP, is an executive in residence at Kennesaw State University’s Coles College of Business and a principal at Henssler Financial. Lako is a certified financial planner.The MDJ will periodically publish columns from KSU business faculty.