Filed Under:Agent Broker, Agency Management

Covering additional living expenses: luxury or necessity?

Coverage Q&A

If you the insured is used to getting to work in a golf cart, and that golf cart is destroyed in a home fire, ALE should cover the cost of replacing that golf cart transportation. (Photo: iStock)
If you the insured is used to getting to work in a golf cart, and that golf cart is destroyed in a home fire, ALE should cover the cost of replacing that golf cart transportation. (Photo: iStock)

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Question: This case involved a total loss house fire. A 7,000-square-foot-house burned to the ground.

State Farm is the carrier. The house limit is $1.3 million, and contents limit is $800,000.

The allowable time to rebuild was 2 years. The contents claim took 8 months to settle due to State Farm’s delay on our contents list.  State Farm agreed to demolish the house, and paid accordingly. 

 A new adjuster was put on the case and asked after the house was demolished why the attached porches weren’t saved. This caused a delay in the rebuilding process as they had to have the custom new home builder reply to State Farm's request. They further argued against any code upgrades when the house was going to be newly built. My answer was, once the house was fire damaged, the claim damage was written up tit-for-tat. Since the limits were exhausted on the home claim, an additional 10% was available over and beyond the house limits for code-related items. The adjuster finally agreed. However, several months later, State Farm wanted something from the building commission explaining the upgrade requirement, so this ultimately affected the repair time, and State Farm only wants to pay 17 months of additional living expenses (ALE) versus 24 months of ALE.

State Farm agreed to go to appraisal but will not allow the appraisers and umpire to discuss the code upgrade letter and is calling it a coverage issue.

The insured has provided a list of damages he feels he is owed under additional living expenses since all his limits have been exhausted. These additional items add up to roughly $144,000.

— Indiana Subscriber

Answer: ALE provides coverage for additional living expenses over and above the insured's normal living expenses.

If the insured is paying a mortgage throughout repairs and has to pay for a hotel, that hotel expense is covered under ALE. While ALE is broad coverage, it is only for expenses to maintain the insured's normal standard of living. The insured cannot add loss damage to ALE when his limits have been exhausted; if he was underinsured, he was underinsured. He cannot pad another part of the claim to make up the difference. Payment of ALE is for the shortest time required to repair or replace the damage, or until the insured relocates. This is per the ISO form; the State Farm language may be different.

If State Farm's actions caused the delay, then they should pay the full ALE. If the code upgrade letter is relevant to the delay, which is causing the difference is cost, then it should be allowed.

Related: 25 U.S. cities with the highest risk of home fires

Expenses incurred by family hosts 

 We have a homeowner who wants to stay with her son for a couple of months and then fly down to her daughter's house for a couple of months until her house is fixed from a water loss.

Both children rent their homes. The children each rent a home from a landlord and there is no one else living there. Since having the mom staying with them will increase utilities and create an inconvenience, can the insurance company compensate the children?

Can they still be compensated for rent from the insurance company if they don't own their home and the insured stays there?

— Indiana Subscriber

Answer: Who’s paying the bills?

ALE is for increase in expenses for the insured over and above their normal expenses. If mom’s utilities stop, then there’s no additional living expense involved. If mom is paying her normal utility fee, she’d have to be able to prove she’s paying the kid’s increase in utilities, and they’d have to document what that actual increase in utilities is.

The kids' inconvenience is their problem, not the carrier’s. It’s cheaper to put mom with them instead of a hotel, but being an inconvenience to the kids is not compensable. Either they do it for love or not, but not for insurance company money. ALE is for the insured’s additional expenses, not the kids’ aggravation.

Related: Water, water everywhere: Flood claim questions answered

When fire destroys a home under construction

The insured was in the final stages of completing construction on a new home. The insurer knew it was under construction when issuing the policy. They were less than two weeks away from moving in when the house was completely destroyed by fire. They now must find a temporary house until they rebuild the destroyed home.

At the time of the fire, the house was insured under an HO 00 03 10 00 policy. The insurance company has taken the position that even though the insured purchased ALE coverage, the coverage would not apply to this claim. The basis for refusing to pay ALE is that the policy states, "If a loss covered under Section I makes that part of the residence premises where you reside not fit to live in..."

While acknowledging liability for other coverages, the carrier has taken the position that since the insured had not yet moved in, they did not "reside" at the residence premises and are thus not entitled to any ALE coverage. We disagree. The home was insured and named in the policy as the "residence premises", and the policy defines "residence premises" as "where you reside". The insurance company charged and received a premium for ALE knowing the house was under construction. The insured is seeking reimbursement for ALE expenses during the restoration period commencing from the time the insured would have been in the house had there been no fire. Please give me your opinion.

— Indiana Subscriber

Answer: You say the insureds were less than two weeks away from moving in... Where were they living at the time of the fire?

ALE is broad coverage, but the insured does have to be displaced. Where had they been living while the house was under construction, and could they have continued to stay there? They were not residing at the new house at the time of the loss, and ALE does not cover future situations. We agree with the carrier, there is no ALE available.

Pets can be displaced, too

 When a loss causes a home to be uninhabitable for a period of time, would we owe to board the insured dogs under an H03 policy? Animals are excluded under coverage C, and the ALE says we pay any increases in living expenses you incur so that your household can maintain its normal living standard. It does not appear this would be covered under ALE. If it were covered, it would seem more of a coverage C claim, like when property is stored while repairs are made (animals are property). But again, they are excluded under coverage C.

— Arizona Subscriber

Answer: The animals are not damaged in the loss; therefore they are not a coverage C item. The insured’s standard of living includes living with pets; if you cannot relocate the insured into a location that allows the insured to bring his pets, then you need to board the pets where the insured would board them if he left home. ALE is very broad coverage, and the insured’s standard of living includes many things including food, drinks, pets, access to swimming pools, etc.

Related: Can you obtain additional living expense coverage for family pets?

Up against the clock

We are representing a client that had a total loss fire. Her policy has a 12-month time limit for ALE coverage instead of a dollar limit. She is renting a home through the insurance company’s vendor. The 12-month time limit ran out October 23rd. The insurance company prorated the final ALE payment, leaving a balance owed by the insured for the remaining days in October. The landlord and lease would not allow for prorated rent for the month of October. Our position is that because the lease did not offer an option for prorated rent, and the full month of October was incurred on October 1st, which was still within the 12-month policy time limit, the insurance company owes for the full October rent. What is your position?

— Michigan Subscriber

Answer: Don’t look at it as 12 months. Look at it as 365 days.

The carrier paid for the ALE for the 365 days from the date of loss, which ended on October 23rd. The carrier is correct in prorating the final payment. The insured owes the difference.

If the landlord won’t accept a partial check from the carrier, the carrier can pay the insured. Then the insured can add the remaining 8 days and pay the landlord directly.

Coverage for golf-cart transportation

Under additional living expense, the homeowners policy says: "If a loss covered under this section makes that part of the residence premises where you reside unfit to live in, we cover any reasonable increase in living expense incurred by you so that your household can maintain its normal standard of living."

The insured lives in a small resort town and uses a golf cart as a mode of transportation to get to work. The entire residence burned up as well as the golf cart. We have concluded the golf cart is not covered for physical damage. Under ALE, we are covering the rental of a condo two miles farther away from the insured's work than usual. The question is, is the cost of the rental of a golf cart, even though the original golf cart is not covered property under our policy, an allowable expense under the ALE coverage as well as the increased cost to operate it from the two mile farther distance?

Also, it may not be reasonable to drive a golf cart two miles to work, so if the insureds need to hire a taxi to drive them the four miles back and forth to work, does this cost then become the reasonable increase? Your thoughts on this subject would be appreciated.

— Kentucky Subscriber

Answer: Yes, the cost of a rented golf cart or taxi should be covered. The insured is displaced and as such his mode of transportation must change. It would be the same if the condo was farther away and the insured owned a car. The mileage difference would be covered since ALE is one of the broadest coverages provided in any homeowners form.

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