Coverage C - Additional Living Expenses

Event Details

DESCRIPTION

An informative and interactive session lead by Founders Devin McRae and Peter Scott. Topics will include:

• What is“Additional Living Expenses” coverage?

• Analysis of standard “Additional Living Expenses” policy language

  • Do the expenses need to be “actually incurred”?

• What is necessary to “maintain your standard of living”?

• What types of expenses are covered under “Additional Living Expenses” coverage?

• Fair rental value

• Documenting your Additional Living Expenses claim

Key Points

• The discussed focused on Additional Living Expenses (ALE) coverage, specifically in the context of homeowners dealing with uninhabitable homes due to fire or other insured losses.

• It was highlighted that the insured is typically responsible for finding temporary living arrangements, though insurance companies may offer assistance through third-party vendors.

• The discussion emphasized the importance of the insured assessing their own standard of living and finding suitable temporary accommodations to present to the carrier, rather than relying solely on the carrier's offerings.

• It was advised that homeowners should conduct their own due diligence to determine the fair rental value of their primary dwelling and communicate this to the insurer as soon as possible.

• The need for pre-approval from the insurance company for temporary living arrangements was stressed to avoid potential out-of-pocket expenses if the carrier disputes the claim.

• Homeowners were cautioned against submitting phony leases or documentation to the insurance company, emphasizing the importance of bona fide documentation.

• The concept of a "cash-out" option for ALE benefits was discussed, noting that while policy language typically requires expenses to be "actually incurred," some carriers may negotiate this with the insured.

• The discussion concluded with an emphasis on the importance of doing research, documenting one's position, making reasonable demands to the insurance company, and seeking additional support if needed.

Summary

Introduction and Background

• Vince introduces ClaimCraft office hours focused on Additional Living Expenses (ALE) coverage in insurance claims.

• Vince shares a personal experience with a house fire in 2020, which led to a three-year battle with an insurance company.

• Co-founders Devon McCrae and Peter Scott are introduced as attorneys who assisted during Vince's claim process.

• Challenges with ALE coverage include difficulties with accommodation arrangements and the need to make long-term housing plans.

Overview of Additional Living Expenses (ALE) Coverage

• ALE coverage, also known as Coverage C, indemnifies the insured for reasonable amounts spent above normal expenditures to maintain their standard of living when their residence is uninhabitable due to a covered loss.

• The coverage aims to provide a temporary residence that is roughly equivalent to the primary dwelling during the period when the home is uninhabitable.

• ALE coverage typically has a time limit or the period it takes to repair the home to a habitable state, whichever is shorter.

• In cases of emergencies such as major wildfires, regulatory bodies may extend the time limit from 24 to 36 months.

• Some policies have a dollar limit cap on the aggregate amount that can be spent on additional living expenses during the restoration period.

• ALE coverage includes not only rental costs but also other increased expenses such as additional food costs if the temporary residence lacks adequate cooking facilities.

• Recommendation for homeowner to list amenities and functions provided by their primary residence and identify additional cost of substitutes due to Loss of Use (e.g. a new gym membership when used to work out at home).

Key Components of ALE Claims

• Uninhabitability is the threshold question for ALE coverage, which can be due to various factors such as total loss, major water damage, or contamination from smoke or toxic materials.

• Increased cost of living is covered by the policy, which is meant to address the increased costs incurred while living away from the primary residence.

• The temporary accommodations should maintain the insured's standard of living as closely as possible to their pre-loss situation.

• Policies typically have both time limits (usually 12 to 24 months) and dollar amount limits on ALE coverage.

Determining Uninhabitability

• Uninhabitability goes beyond mere accessibility of the home; a home may be accessible but still uninhabitable due to safety hazards or contamination.

• The California Department of Insurance issued a bulletin emphasizing that accessibility does not equate to habitability.

• Uninhabitability can be influenced by individual health concerns, making some individuals more sensitive to certain conditions.

• Factors affecting habitability can include the season, climate, and the specific needs of the people involved.

• Construction activities can sometimes render a home uninhabitable due to the intrusive nature of the work.

Responsibility for Finding Temporary Housing

• The insured is typically responsible for finding temporary housing, although insurance companies may offer assistance through third-party vendors.

• It is often better for the insured to take charge of finding suitable accommodations due to their knowledge of their unique circumstances and needs.

• Relying on the insurance company or their vendors to arrange housing can lead to issues such as miscommunication about lease terms or inadequate accommodations.

• The insured should find suitable temporary living arrangements, get approval from the carrier, and manage the lease and communication with the landlord while receiving payment from the insurance company.

Calculating Fair Rental Value and Standard of Living

• Insurance companies often use the fair market rental value of the insured home to compare with temporary residences.

• Insureds are advised to do their own research on comparable properties, considering factors like square footage, amenities, and location.

• Online real estate valuation websites like Zillow can be useful starting points for this research.

• The standard of living calculation should consider factors such as the number of people in the household, daily routines and activities, normal household expenditures, and specific living expenses that increase due to displacement.

• Recommend that homeowner document fair market value to rent their home based on comparable properties and submit it in writing

Additional Considerations for ALE Claims

• Pets are considered household members, and expenses related to their care (e.g., boarding costs) can be covered under ALE if the temporary housing doesn't allow pets.

• School and daycare expenses resulting from the loss of local facilities are typically not covered under ALE unless directly related to the uninhabitability of the insured's home.

• Insureds should document and communicate their assessment of fair market value to the insurance company as early as possible.

• Getting pre-approval for expenses is always recommended to avoid potential disputes later.

• Third-party companies can provide fair rental value calculations for a fee, which can be useful in negotiations with insurance carriers.

Challenges and Strategies in ALE Claims

• Insureds may face difficulties if they incur expenses without pre-approval, as policies typically require expenses to be 'actually incurred' before reimbursement.

• If staying with family or friends, insureds should try to get pre-approval from the carrier for compensation to the host.

• Some insureds may choose to secure housing based on their understanding of the policy benefits, even without pre-approval, but this approach carries financial risk.

• The best strategy is to do thorough due diligence, assemble strong evidence to support their position, and communicate clearly with the insurer as early as possible.

• In cases where the carrier is uncooperative despite presented evidence, seeking legal assistance may be necessary.

Cash-Out Options for ALE Benefits

• Some insureds may request a cash-out for ALE benefits in advance of incurring expenses.

• While policy language typically does not permit this, some carriers may negotiate such arrangements on a case-by-case basis.

• Cash-out options for the entire claim may be available but often involve the insured accepting a discount off the policy limits.

• The appropriateness of a cash-out option depends on various factors, including the degree of loss, amount of damages, and the insured's plans for rebuilding or relocating.