Post-Repair Diminution in Value Claims: 'Stigma Damages' in Future Cases

The scope of an owner’s claims for damages in construction defect litigation against the general contractor and its subcontractors is often thought of as the costs of repair, plus any consequential damages such as lost profits or rents if not waived in the contract. But what about the ability of an owner to seek recovery for diminution in value to the building or improvement over and above the costs of repair—so called “stigma damages”? Owners’ counsel will sometimes contend that even after extensive repairs to correct construction defects have been completed to bring the condition of the building as was warranted under the contract, the owner is still entitled to damages for alleged diminution in value of the building. Such “post-repair diminution in value” claims often are asserted in relation to claims involving residential, especially condominium, projects, where state law disclosures by sellers (indeed even secondary sellers) of residential units are mandated. Owners’ counsel may contend, for example, that a residential condominium building’s repair history should be a relevant consideration when determining damages, as a result of a stigma associated with buildings where the property’s reputation has been allegedly damaged, often where there have been water infiltration or mold issues. See, for example, Orkin Exterminating v. DelGuidice, 790 So.2d 1158, 1159 (D.Ct.App.Fl. 2001) (the court references diminution in value damages as “stigma damages”).

Little case law specifically allows for an award of damages for both the cost of repairs and diminution in value damages in the construction defect context. Some jurisdictions, in the context of damage to automobiles, have allowed the recovery of post-repair diminution in value damages, but those damages are limited by the extent to which the sum of the diminution in value plus the repair costs is less than the difference between the property’s pre-accident value and its post-accident salvage value. In other words, the outside limit of what one is entitled to recover in a property damage case is always the value of the property pre-accident vs. post accident salvage value. See American Service Center Associates v. Helton, 867 A.2d 235, 243 (D.C.Ct.App. 2005); Rakich v. Anthem Blue Cross & Blue Shield, 172 Ohio App.3d 523, 532 (Ohio 2007); Ellis v. King, 184 W.Va 227, 231 (W.Va. 1990); and Fred Frederick Motors v. Krause, 12 Md.App. 62, 66–67 (Md. 1971). But again, the right to recover “stigma damages” over and above the costs of repairs at all, as in the automobile damage cases, is at best an untested proposition for construction defect cases.