Filed Under:Agent Broker, Agency Management

The trouble with estimating additional living expenses (ALE)

Coverage Q&A

While ALE is broad coverage, it is only for expenses to maintain the insured's normal standard of living. (Photo: iStock)
While ALE is broad coverage, it is only for expenses to maintain the insured's normal standard of living. (Photo: iStock)

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Question: This was 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 the contents limit $800,000.

The time to rebuild deadline allowable 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 why would there be any code upgrades when the house was going to be newly built. My answer was because the house that was fire damaged was written tit-for-tat as per the damage. 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) vs. 24 months.

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 of his limits have been exhausted. These additional items add up to more than $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.

When displaced pets have expenses, too

Question: 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: The 5 rules for keeping pets safe in a natural disaster

ALE claim and damaged property

We have denied coverage for an ongoing litigation claim. Loss facts: Our insured was general contractor and the house being built was new construction and near completion. Subcontractors were also working on the project (and in our opinion, they are the negligent party). A water loss ensued. There was no damage to personal property of the home buyer and the only damage was to our insured's work, that is, the entire house.

Related: Two times that flood damage was not covered

We have CG 22 94, exclusion — damage to work performed by subcontractors on your behalf, endorsed onto the CGL form.

Our coverage question being presented is: Does an ALE claim generate coverage so as to allow us to continue to pay for the defense of the claim? We would still exclude any settlement/award with regards to the repairs to the home, but since the claimant was to move into the home and could not due to a delay with new repairs, an ALE claim was generated and paid for by his first party coverage homeowner carrier.

What is your opinion?

— Minnesota Subscriber

Answer: An ALE claim is basically a claim for loss of use of tangible property in this instance. The definition of property damage in the CGL form includes loss of use. So, if the actual physical damage is not covered due to an applicable exclusion, then any resulting loss of use is also not covered.

Is time considered 'an expense'?

Insured spent time going through the personal property returned by the contents restoration company and found items that were not restored.

Insured is requesting payment for the time spent to separate, sort, and re-stage the personal property. Is this covered? 

— Georgia Subscriber

Answer: There is no coverage for reviewing property that has been repaired. Insurance covers damage to property, and additional living expenses if one is displaced, but there is no coverage for sorting.

How to consider rental expenses

Question: 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 10/23; 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 and the insured can add the remaining 8 days and pay the landlord directly.

Additional coverage insights from the FC&S Editors:

Commercial parking lots and valet: Who pays for auto damage?

Interpreting Functional Replacement Cost (FRC) insurance

Here's why fighting crime causes uninsured property damage

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