Our HO-3 insured purchased endorsement HO 04 95 10 00, “Water Back Up and Sump Overflow.” Recently he suffered a back-up of water into his basement. The direct damage was $8,000. In addition, the insured had to spend one night in a hotel at a cost of $100.

The insurer took the $250 deductible from the $8,000 loss and then paid the endorsement limit of $5,000. However, it is denying the $100 claim for the hotel bill. Their contention is that $5,000 is the maximum payable for all claims due to water back-up.

What's your opinion?

Ohio Subscriber

In this case, the insurer is wrong. They do owe your client for the hotel bill. This loss is no different than if your client had to spend one night in a hotel because of a fire at his home. He has incurred additional living expenses as a result of a covered loss under Section I.

 Coverage D, “Additional Living Expense,” agrees to pay such expenses incurred as a result of a “loss covered under this Section” (Section I of the homeowners policy). When your insured purchased endorsement HO 04 95, it added coverage for water back-up to the section I perils. This endorsement also states that the deductible does not apply to additional living expense. Clearly, then, there is additional living expense coverage, but no deductible applies.

 The $5,000 limit is for direct expense. The $100 ALE is an indirect expense and should be paid.