Insured losses like fire, frozen water pipes, lightning strikes and other perils can put property owners out of their home. Without a place to live they incur costs for hotel or extended stay residences. Two common questions that arise are: 1) are these expenses covered by insurance, and 2) if so, how much must the insurer pay?
As to the first question, the vast majority of property insurance policies include coverage for what was referred to as Additional Living Expenses, or ALE. This is the coverage found within the policy that pays for a needed hotel, motel etc. However, it is important to understand the concept behind Additional Living Expenses to understand if the insurer will pay and how much.
The idea behind this coverage can be found in its name: Additional Living Expenses. That means what it says: living expenses that are new or in addition to longstanding living expenses. If an insured property owner spent $750 per month at the grocery store before a fire (I use fire for this example. You can insert any loss here), after a fire the insurance company does not pay $750. If an insured property owner starts paying $1,000 for groceries after the fire, insurance covers the $250 gap.
Let’s apply that principle to being in an extended stay residence with a kitchen. Before the fire an insured property owner was not paying for an extended stay residence. I would expect ALE to cover this cost. If the grocery bill is now $1,000, I would expect the insurance policy to cover the cost of the residence and $250. What is less certain is restaurant costs. If before the fire the insured had a habit of eating dinner at a restaurant five times a month, and after the property owner eats out seven times a month, is the gap covered? That’s debatable. The insured property owner needs a good reason for two additional times, like the kitchen is not a full-service kitchen, or some items needed to make dinner were lost in the fire.
Now let’s change the facts a bit. Let’s say a fire occurred at a primary residence, and the owner stayed with a friend or relative ten miles away. The property owner did not incur a cost by staying with the friend or relative. Is there ALE coverage? The insurer will likely argue there was no additional living expenses thus ALE coverage is not triggered. It is not an irrational argument.
Of course, the friend or relative is incurring additional costs through increased use of water, electricity, etc. I think it is entirely appropriate for the friend or relative to bill the insured property owner, and that bill be turned into insurance. Yet, at the end of the day, if there really is no charge for this generosity, many insurance companies will not cover the cost, and support for that refusal is grounded in the terms of Alternative Living Expense coverage.
Alternative living expenses usually result in the insurer covering the cost of a hotel or extended stay residence, yet it is important for property owners to understand the concept behind the coverage. It is not hotel coverage. It is not grocery bill coverage. It is coverage for new or additional expenses incurred due to the insured loss. Remember that concept as you move forward in adjusting a claim with your insurer.
As always, if you need any help, feel free to email me at ed@beckmannlawfirm.com.