Everything in its right place: relocation of insureds and ALE.
Additional Living Expense (ALE) coverage is one of those broad coverages that can bedevil adjusters, agents, and insureds alike. Even so, it is one of my favorite topics.
So just what exactly makes a residence "unfit to live in"? Must the entire house or merely part of the dwelling be uninhabitable? A recent question concerns a family with a covered water loss. Although the house is intact, the health department has deemed the water supply no longer safe because of the water leak. The insurance carrier did not want to pay to relocate the family because the house was intact. This is an incorrect interpretation, however, as a habitable dwelling comprises more than just a solid structure. If the insureds cannot use the water or other utilities because of a covered loss, then the carrier must pay to relocate the family. In this situation, the family must be relocated to a place with potable water.
Another situation that often arises is when the contents are damaged but the dwelling is intact. The policy in question is an HO 04 tenant's policy. Without contents, a person will not be able to maintain a normal standard of living. Without a bed, sleeping is certainly uncomfortable, and without tables, chairs, and other furniture, daily living is practically impossible. Therefore, when the contents are destroyed the insured is entitled to additional living expenses and relocation until the contents can be replaced.
As you can see, the entire structure does not need to be destroyed in order for ALE coverage to be invoked. What is important, however, is that the dwelling is not fit to live in; as in, the insured cannot maintain his or her normal standard of living. There is no definition in the policy of "fit to live in," so we defer to the dictionary. Merriam Webster Online defines fit as "acceptable from a particular point of view, or put into a suitable state." The dwelling must be suitable from the insured's perspective.
Food is another issue that comes up with additional living expenses. I have fielded questions from claims adjusters asking whether they should pay for the insured's preference for chips, cookies, beer, and other less than totally nutritious food. The answer is "yes"' The purpose of ALE is to maintain the insured at his or her normal standard of living. If that includes a bottle of wine a day, then that is covered. It is not up to the insurance company to cure an insured's drinking problem or put him on a nutritious diet, and ensure that he eats all of his vegetables. Likewise, if an insured has dietary restrictions, then those restrictions must be met; if an insured normally eats kosher or is gluten intolerant, then those foods become a necessary part of additional expenses. In such situations, it may make more sense to relocate the family into an efficiency apartment or to rent a house versus a hotel, where the insured must eat out. With some diets, it is difficult to find restaurant food that fits the particular need.
Another problem is medical conditions. Some insureds may have allergies, asthma, or other conditions that require air conditioning when the outside air is perfectly comfortable to a normal person. In this situation, a dwelling with non-functioning air conditioning may be inhabitable for an ill insured. Some medications require refrigeration. If the house is not damaged severely enough for the insureds to be relocated but the kitchen and refrigerator are involved in the loss, then it may be necessary to provide a cooler with a constant supply of ice or to rent or purchase a mini refrigerator so the medications can be kept at the proper temperature.
If substitute refrigeration is not immediately available, then the insureds may have to be relocated, even though much of the house is habitable and the insureds are capable of dining out. An insured in a dwelling that is universally accessible needs to be relocated to a temporary residence similarly equipped--with bars in the showers, wider doors, and other modifications critical to those with certain disabilities.
Swimming in Supplements
At times, supplemental items such as a swimming pool may enter the picture. One recent question concerned an insured who owned a swimming pool and entertained weekly, while the family used the pool daily. The carrier wanted to relocate the insured to a residence without a pool. That is not maintaining the insured at his normal standard of living. An insured who uses the pool frequently needs to be relocated to a place with a pool in order to maintain his normal standard of living. What the insured considers normal is the basis for the standard of living. For instance, Donald Trump maintains a much different standard of living than I do.
Our Furry Friends
What about pets? In general, what makes a home habitable for the insureds makes the home habitable for the pets.
While in some circumstances the pets may be able to stay at home while the insureds are relocated, pets need to be taken care of and often must be relocated as well.
Many hotels will not allow animals on the premises. If the insureds were to board their pets, then where would they normally board them? There are quite posh doggie and kitty hotels, and, if the insured has used such facilities in the past, then, again, that is the normal standard of living for the pets. If the insureds normally arrange for pets to stay with relatives or at the Discount Doggie Lodge when they go out of town, then that is where Bowzer goes. However, ALE does not apply to pets when the insured has not been displaced.
Another question concerned an insured with a loss that involved his fish tank. The insured had many exotic fish that had to be relocated until the tank was repaired, and, as the fish were rare, they had to be transferred to a shop familiar with their specific care. Of course, this was rather expensive. The insured wanted to claim ALE for the fish. Unfortunately, the insured was not displaced. There is no coverage for the boarding of the exotic fish. In order for the pets to receive ALE, the insured must be displaced as well.
Neither insureds nor pets get to upgrade their standards of living. However, as with its owners, pets with medical conditions may warrant special treatment. It may be necessary to board the animal where either the insured has access to treat the pet, or at a kennel with staff able to dispense medications to the animal.
It is important to remember when dealing with ALE that what is covered are additional costs that the insured incurs. If the insured normally spends $400 per month on food and, when relocated, spends $600 a month on food, then what additional living expense covers is the difference of $200, not the entire $600.
A balance between extenuating circumstances and common sense is the best way to approach determining just what makes a house fit to live in. The policy provides very broad coverage for the insured.
When determining coverage, the following should be taken into account:
* Are there special medical conditions that require a certain environment or special equipment?
* Can most activities of daily living be accomplished at the residence?
* Is the insured simply inconvenienced,
or would staying in the house present hazards to which the insured would not normally be exposed?
These and similar elements are what should be considered when determining when insureds should or should not be relocated.
BY CHRISTINE G. BARLOW, CPCU
Christine G. Barlow, CPCU, is an assistant editor with FC&S Online. She has an extensive background in insurance underwriting. She may be reached at email@example.com.
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|Title Annotation:||Claim Queue|
|Author:||Barlow, Christine G.|
|Date:||Dec 1, 2011|
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