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How much is really covered

Analysis brought to you by the experts at FC&S Online, the recognized authority on insurance coverage interpretation and analysis for the P&C industry. To find out more — or to have YOUR coverage question answered — visit the National Underwriter website, or contact the editors via Twitter: @FCSbulletins.

Question: My clients incurred a fire at their home, which was under contract for sale.  The date of closing was scheduled for March 22, 2018, and the fire occurred on March, 17, 2018.  As a result of the loss, they incurred extensive fire and water damage throughout the majority of the building. The building will not be able to be put up for resale or be occupied for at least 8 months. The insured has already purchased another home in Florida, moved and has an additional mortgage and normal living costs on the home in Florida.  With the home sale now cancelled, the insured is forced to incur additional expenses that will be above their normal standard of living having to pay for the cost of two homes for the next 8 months, or until the home is repaired and sold again.

A claim is being filed for the additional expenses of mortgage, tax, insurance, and utility costs that the insured will now be forced to incur to repair the property as a result of this fire.  The insurance company is covering the repairs to the building but has been hesitant on their interpretation of the policy coverage for loss of use claim.

The following is the language in the policy (form HO-3 06/91) regarding Coverage D — Loss of Use:

“1. Additional Living Expense. If a loss covered under this Section makes the residence premises uninhabitable, we cover any necessary increase in your living expenses incurred by you so that your household can maintain its normal standard of living. Payment shall be for the shortest…”

Are we correct in interpreting that the increase in living expenses being incurred by this insured i.e. the additional mortgage, taxes, insurance, utility costs on the home damaged by the fire should be covered within this policy?

— Kentucky Subscriber

Answer: You need to look at the rest of the language for ALE: Payment is for the shortest time required to repair or replace the damage, or if you permanently relocate, the shortest time for your household to settle elsewhere.

The insured has resettled. While it is unfortunate that the insured cannot now sell the house that had a fire, and has significant additional expenses, the insured has settled into a new home and that is the end of ALE payments.

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

Residence under construction destroyed by fire

Question: The insureds was in the final stages of completing construction on a new home, and 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 homeowners’ 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.

Calculating prorated ALE payments

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 Oct. 23. 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 Oct. 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.

Relocation terminates Additional Living Expenses coverage

Question: A homeowner had a major fire in his million-dollar-plus home in New Hampshire. He lived for eight months in a local rental.

He then accepted a job offer in California, and has been living in rental homes there. He is trying to sell his New Hampshire home, and wants to buy a home in California.

The policy says that ALE stops when he permanently relocates:

“Additional Living Expense. We will pay the reasonable increase in living expenses necessary to maintain your normal standard of living. Our liability will not exceed the smallest of:

  1. Payment for the shortest time to either repair or replace the residence premises. This period of time is not limited by the expiration of this policy;
  2. Payment for the shortest time for your household to settle elsewhere, if you permanently relocate. This period of time is not limited by the expiration of this policy; or
  3. The limit of liability for Loss of Use as specified in the policy Declarations.”

The insurance company states that his move to California constitutes a permanent relocation. I say, since he has been living in rental homes, this is no different than if he moved to another rental home locally. A permanent relocation would be when he moves to a new home that he purchased.  Assume for this case that the ALE period could extend to a portion of his California rental period. We are only claiming six months in California, not the year plus he has been renting.

— Massachusetts Subscriber

Answer: Accepting a job in a different state constitutes a permanent relocation. One doesn’t have to own a home in order to have a permanent residence; many people live in apartments or rented property for years. The insured relocated when he moved to California. There is no ALE for rentals after the move.

Are moving expenses covered?

Question: Our HO-3 insureds suffered a total fire loss. The policy limits for the dwelling and personal property were exhausted.

Since the fire, the insureds have been living in a rented apartment while their home is being rebuilt. During this time, they have been replacing items that were destroyed in the fire. They are now requesting payment for the expense of moving those items out of the apartment back into the rebuilt home.

We would consider this payment to be part of coverage C, but as we said that limit is exhausted. The insureds have hired a public adjuster, who is seeking payment under coverage D, additional living expense.

Are these moving expenses covered as contents or additional living expense?

— New York Subscriber

Answer: The expense for your insureds to move out of their rented apartment back to their home is payable under coverage D, additional living expense. The policy promises to pay any increase in the insureds’ expenses so that they can, “maintain [their] normal standard of living.” This is a very broad promise.

Had it not been for the fire, they would not have been forced to move. Their normal standard of living includes living in (and, in this case, returning to) their home.

Article brought to you by Property&Casualty 360

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Capital Insurance Agency of Raleigh, LLC
4104 Atlantic Avenue, Suite # 142
Raleigh, NC  27604-1803
(O) 984-239-5522 - (F) 919-882-9802
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