Royal Capital contended that its insurance coverage extends to compensation for the diminution in value that resulted from the stigma due to the building's past physical damage, even though all the repairs have been made. The insurer argued that the policy did not include coverage for diminution in value as no insurer or insured had reason to expect such coverage under a standard real property insurance policy. The Georgia Supreme agreed with the insured.

The court noted that it has consistently held that the measure of damages is intended to place an injured party, as nearly as possible, in the same position it would have been in if the injury had never occurred. Moreover, the court said that it has long considered diminution in value to be an element in determining the proper measure of damages to real property. So, based on well-established precedent authorizing full recovery, including in some circumstances both diminution in value and cost of repair, the Georgia Supreme Court answered the certified question to the effect that claims for diminution in value can be covered under a property policy.

Editor's Note: The court ruled that a claim for diminution in value could be covered under a commercial property policy. The key point for the court was to make the insured whole again following a loss, and an award of only the costs of remedying the physical damage would not fully compensate the insured in this instance. Moreover, the court said, what is lost when physical damage occurs is both utility and value, so an insurer's obligation to pay for the loss includes paying for any lost value.

The court did say that coverage for diminution in value depends on the specific language of the policy itself. In this case, the policy did not specifically exclude coverage for a diminution in value claim and since the court was of the opinion that the point of an insurance policy is to make the insured whole again after a loss, the claim for diminution in value was upheld.