In my post last week, Navigating Payment Due to Policyholders for Additional Living Expenses, I discussed how difficult it can be for policyholders to receive funds from their insurance carriers for the costs associated with securing a temporary residence or other extra living expenses resulting from a covered loss. Public adjusters are often tasked with assisting on claims where the insureds have been displaced from their homes and seek payment for additional expenses on their behalf. After posting Navigating Payment, the response from public adjusters and other readers has prompted a continued discussion on this crucial area of coverage.
One of the issues a public adjuster can face is an insurer’s resistance to pay the proper about of additional living expenses because it contends the insureds should have completed repairs more rapidly.
Many homeowner policies restrict Additional Living Expense (ALE) coverage in one of two ways:
Payment may be for the shortest time required to repair or replace the damage, or if you permanently relocate the shortest time required for your household to settle elsewhere.
a) We will pay the reasonable increase in living expenses necessary to maintain your normal standard of living when a loss we cover makes your residence premises uninhabitable.
“Payment shall not exceed (insert number of months, usually 9, 12, 24) consecutive months from the time of loss, or the least time to either:
1) repair or replace the property we cover, using due diligence and dispatch or [emphasis supplied];
2) if you permanently relocate, the shortest time for your household to settle elsewhere.
But what happens when it takes an insurance company months to deterrmine coverage and this increases aninsured’s time out of the home?
In catastrophic losses, especially fire cases, the logistics of an investigation take time and this, in turn, impacts a coverage decision. But if a carrier is slow in affording coverage, should the policyholder be subjected to the limiting language for Additional Living Expense coverage?
Consider the Texas case of State Farm Lloyds v. Fitzgerald.1 While this is not a published opinion, it is a very interesting case. The insureds’ home was very badly damaged by a pipe break. State Farm sent an initial adjuster who was not sure if the property damage was covered. State Farm then spent four months attempting to determine coverage. Ultimately, State Farm determined the damage was covered, and the home’s foundation should be leveled, plumbing systems re-routed, and several other repairs made. But State Farm still didn’t want to foot the bill, rejecting even the lowest estimates for repair. The lowest bidding contractor attempted to meet and discuss his estimate with State Farm, and revised (decreased) the estimate twice. State Farm refused both bids. The insureds moved out of their home, anticipating that they would get the property fixed in the shortest amount of time.
State Farm agreed to pay for the rent, moving expenses, and a portion of their utility costs under the ALE coverage. But it took a year after loss and nearly seven months after State Farm agreed there was coverage on the loss for State Farm to issue a building damage check.
Obviously, because of this delay, the repairs were delayed causing the insureds to be out of their home for several additional months.
To add insult to injury, State Farm informed the insureds that unless construction began immediately, the ALE coverage would be terminated and they would have to move back into the home, regardless of whether any repairs had been made. In the words of the insureds, they felt “tremendous pressure” to find a contractor, any contractor who could do the job. After searching and searching, only one insured company said it could start work for the low value State Farm had allocated. However, the contractor was incompetent for the type of job. The contractor did not follow the plans of the engineer, caused further damage to the property including the hardwood floors, poured ten foot deep piers when the plans specified sixteen. The contractor was fired, and the insureds had to move back into the house to save money so they could hire the original lowest-bid contractor to do the work the right way. The insureds lived in the home for four years in terrible conditions: limited running water, and unusable bathrooms at times.
The good news is the insureds prevailed in their suit against State Farm. A jury awarded damages for various coverages under the policy, including $22,500 for additional living expenses and moving expenses. Still refusing to pay what it owed, State Farm appealed the decision.
The appellate court agreed that the jury’s decision on ALE was proper.
We find more than adequate evidence to support the amount of damages awarded. As we have already concluded, appellees’ hiring of an incompetent contractor was a foreseeable result of State Farm’s breach. For many of the same reasons, it was also foreseeable that State Farm’s underpayment and its repeated delays in settling the claim, coupled with its termination of appellees’ ALE coverage could cause appellees to incur additional living and moving expenses, as well as the cost of making repairs necessary to make the house habitable. These consequential damages were foreseeable results of State Farm’s breach, and we conclude that the evidence is legally and factually sufficient to support the amount awarded by the jury. We overrule State Farm’s fourth point of error.
The moral of the story: Additional living expense claims often require diligence and persistence by the policyholder. If you know an insured dealing with a similar situation, make sure they protect their rights under the policy and do not delay in finding legal representation.