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Additional Living Expense: Be Careful the Advice You Take

Author: Chris Boggs

Another service that attempts to answer coverage questions, similar to the VU's Ask An Expert service, recently addressed a question regarding additional living expenses in an HO – 6 (Unit Owners Broad Form).

Without going into all the details regarding the delays and issues with the claim, here is the crux of the question: Additional living expenses (ALE) have been exhausted and the insured feels since no agreement has been reached, ALE payment should continue until there is an agreement from the carriers (the unit owner's and the association's). To date, more than $30,000 in ALE has been incurred. Should the ALE payments continue?

Here is the response from the service, “The ISO HO 06 05 11 clearly states that ALE is paid for the shortest time to repair or replace the damage, or until the insured permanently relocates, whichever is shorter. Since the property is uninhabitable, the insured should continue to receive ALE."

Yes, the policy does clearly state that; but it also clearly lists a specific Coverage D limit on the policy's declarations page. That limit is not a suggestion. Further, Insurance Services Office's (ISO's) Homeowners Policy Program Manual Rule 101 Limits of Liability and Coverage Relationships states that the Coverage D – Loss of Use limit is 50 percent of Coverage C in the HO-6 (in some states, the limit drops to 40 percent of Coverage C). Additionally, the policy specifically references a coverage limit:

C. Coverage D – Loss Of Use

The limit of liability for Coverage D is the total limit for the coverages….

It's abundantly clear, regardless from which angle the coverage is viewed, that Coverage D is subject to a coverage limit. And remember, Coverage D is comprised of three different types of expenses, each of which can drain the available limit:

  1. Additional Living Expense (ALE);
  2. Fair Rental Value (FRV); and
  3. Civil Authority Prohibits Use (CA).

The provision quoted by the other “expert" service is found solely in the Additional Living Expense provision and relates to the shortest period the insured is paid subject to the exhaustion of the stated coverage limit. Once the available Loss of Use limit is spent, no more is paid; whether the limit is spent to cover the ALE, FRV and/or CA expense. It is truly a mystery where the idea that ALE is on-going as long as the insured is out of the house.

We highlight this incorrect information for two reasons:

  1. To show that even so-called experts can sometimes be wrong; and
  2. Professional agents should read and understand the policy for themselves and not depend on the opinions of others.

Never put your errors and omissions (E&O) exposure in another party's hands; read and understand the policy for yourself. Lastly, don't settle for one opinion if you still don't understand the form.

Last Updated: March 16, 2018

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