The California Department of Insurance has recently (Oct. 18, 2019) announced that many insurers have agreed to extend the time limits for 2017 wildfire survivors to receive additional living expense (ALE) benefits under their homeowners policies. Section 2 (2051.5) has been passed by the state legislature so that the mandatory 24 month period may be extended to up to 36 months, provided that an insured, if acting in good faith and with reasonable due diligence is met with a delay or delays in the construction process due to circumstances beyond the insured’s control. Such circumstances could include, for example, lumber being in short supply, a backlog in the county building permit department, or a shortage of qualified contractors.
The amendment goes on to say that, “for good cause,” an additional six months may be provided.
This does not mean that any and all policyholders will be given this amount of time. Rather, the loss triggering the ALE benefits must be relating to a state of emergency; hence, the losses in this case are those pertaining to the 2017 wildfires. It is to be expected that the 2018 wildfire emergencies will receive similar consideration.
Now, not all insurers have agreed to extend the benefits. If you are unsure, be sure to contact your insurer.
In the meantime (and for future reference), here are some ALE do’s and don’ts.
Additional living expense (ALE) is also referred to as “loss of use” in many homeowners coverage forms. This benefit is intended to assist the insured in maintaining his or her normal standard of living while the insured residence is being rebuilt or replaced. The coverage is designed to cover an increase in expense, and not to reimburse ordinary pre-loss expenses. Nor is it intended to be a “slush fund” to finance a lifestyle which an insured would like to have. (Some claims adjusters have stories about insureds who suddenly develop champagne appetites on their normal beer budgets. Those stories, though, are rare. Most insureds are honest.)
Having gotten that “don’t commit fraud” warning out of the way, let’s continue. Standard homeowners forms normally provide 30% of the coverage A (dwelling) amount, although this might vary depending upon the coverage form and the dwelling. For example, one coverage form provides only 20% if the form is used to insured a three- or four-family dwelling. So, for example, if you have a $600,000 single-family home, coverage D would be $180,000. You will want to check your policy. If you are in doubt, contact your insurance professional.
If you are insured on a California Fair Plan policy, the coverage is limited to 10% of the coverage A (dwelling) amount; however, a payment under this coverage reduces the coverage A limit by the amount paid for the same loss.
In most homeowners forms, additional amounts of coverage may be purchased; contact your agent.
As we noted above, this coverage is also called “loss of use.” “Loss of use” is a broader term, and in standard homeowners forms it includes both additional living expense and fair rental value. In standard homeowners forms fair rental value is available if the part of the residence premises that is either rented or held for rental is not fit to live in. The fair rental value is covered less any expenses that do not continue while the premises is not fit to be lived in (such as a utility bill).
In the California Fair Plan policy, Coverage D is entitled “Fair Rental Value” and the coverage agreement states that “”If a loss covered under this policy makes that part of the Described Location rented to others, held for rental, or occupied by you unfit for its normal use, we cover its ‘Fair Rental Value’, meaning the fair rental value of that part of the Described Location rented to others, held for rental or occupied by you less any expenses that do not continue while that part of the Described Location… is not fit to live in.” So, under this form, the insured can collect only that amount that the dwelling could be rented for under normal circumstances. This means, for example, that if a home or the same type and in the same area as the insured’s normally rents for $1500/month, the insured cannot claim a fair rental value for his or her welling of $2600/month.
Now, as to the types of items covered under additional living expense. Remember, we stated that the coverage is designed to cover an increase in expenses. Say you have a monthly mortgage of $2200, and your household’s (you, your spouse, and two rambunctious boys) monthly food bill is $1800 for a total of $4000. A covered fire damages your home such that you will be unable to reside there for several months until repairs are made. You and your family must reside in a motel (cost for two rooms, even deeply discounted, is $2700 per month. Meals must be eaten out; the cost varies, but even relying on fast food still results in a monthly food bill of $3200. So in this case, the increased costs are: motel, $2700, and food, $3200-$1800 (the amount normally spent) or $1400, for a total of $4100.
Can any other expenses be claimed? Yes, of course. Remember, this coverage is designed to enable the insured to maintain his or her normal standard of living. Our family above has two dogs and a cat. The motel will not permit animals. Therefore, the cost of boarding the pets is included as an additional living expense. Extra dry cleaning or laundry expenses? Yes, normally the family would handle such items in their home, but the home no longer exists. Therefore, to maintain a normal standard of clean clothes, the expense can be justified.
One last reminder: If you have any questions, contact your insurance professional.