On Thursday, March 26, 2015, The First Party Claim’s Conference West was held in Marina del Rey, California. At the conference, I was delighted to speak and present two topics for CE credits. My presentations were titled, “Additional Living Expenses – Getting ALE Covered – Does It Really Need To Be Incurred?” and “Documenting a File, Tips for Communicating with the Insurance Company.” Since the conference, I’ve heard from many conference attendees who requested copies of my presentation and were interested in learning more on the topics.
Over the next few weeks, I’ll be dissecting and providing more explanation on Additional Living Expenses. During my presentation, I reminded everyone that homeowner’s often don’t know what they are entitled to or how ALE really works. Providing the insured a road map regarding ALE and what is entitled under the ALE provisions of a homeowner’s insurance policy is the key to problem prevention when it comes to the dire need of alternative housing after a loss. There are many myths and misconceptions out there that prevent homeowner’s from properly obtaining adequate housing to maintain their “normal’ standard of living as allowed under the policy.
It should never be forgotten that an insurer’s duties to pay ALE are circumstantial. The basics of ALE is to look and ascertain what about your loss gives rise to an ALE payment? Three factors must occur for the ALE portion of a policy to be accessed. There must be:
- Covered Loss
- Uninhabitable condition
- Incurred expenses
This week, we look specifically at factor one, the covered loss aspect of ALE. Recovery of ALE generally requires an insurable interest in the insured property.1 Without a direct interest in the property that suffered the loss, there is no access to a “replacement” or ALE expense. After all, if you don’t own or have an interest in the property, or at a minimum reside on the property that suffered the direct loss, then how can you ask for its replacement?
In most policies, the insured can only access ALE if the loss is deemed “covered”. For example, if the policy excludes ground water or flood coverage and a homeowner finds her home overrun by ground water causing extensive damage to her home, then ALE cannot be obtained.
In addition, even when there what should be a “covered loss” such as a burst water pipe on a regular HO3 policy causing damage, to recover ALE, the insured, must comply with conditions precedent under the policy. Where the insured refuses to submit to an examination under oath, then ALE may not be recovered.2
The homeowner has obligations to the insurer that during the time of reasonable investigation by the insurer, the homeowner must comply. If the insurer refuses to comply with a requested proof of loss, or submission to an examination under oath as allowed by the policy, then the homeowner’s breach of the insurance policy can take ALE out as an obligation by the insurer.
In California, an alarming trend of SIU investigations by various insurance carriers is becoming pervasive where the insurer’s SIU team even follows insureds after a loss to see if they are complying with ALE assertions. Clients discover that they are being followed to their rental homes and being staked out by SIU to make sure they are staying at their temporary rentals versus living rent free at a friend’s or family’s home. If SIU feels they are catching the insured in a falsehood of representation under the policy as to where they are staying, they are denying not just the ALE claim, but the whole claim under grounds of fraud.
Next week we’ll move onto habitability issues in ALE and when insureds are entitled to move out of their homes due to the state of habitability after a loss.
1 De Witt v. American Family Mut. Ins. Co., 667 S.W.2d 700 (Mo. 1984).
2 Nationwide Ins. Co. v. Nilsen, 745 So. 2d 264 (Ala. 1998).