I.
Introduction
Additional Living Expenses are usually an insureds primary concern following a
property loss and are generally the first dollars paid under the homeowners policy. The
standard Homeowners Insurance Policy provides for Additional Living Expenses (ALE),
under Coverage D Loss of Use.1 Because ALE benefits cover the insureds immediate and
critical needs for food and shelter following a substantial or total loss, the manner in which
the insurer handles the ALE claim sets the stage for resolution of all claims filed in connection
with the loss.2 Prompt and efficient dispatch of an ALE claim benefits both parties
and can be achieved only through the establishment of a good rapport between the insured
and insurer. Communication is vital to establishing this rapport. The insurer should make
certain that the insured fully understands both his benefits and his obligations under the ALE
provision of his policy. By taking time to explain the ALE benefits, the insurer reassures
the insured that it is there in his time of need. By clarifying the insureds responsibilities
under the provision, the insurer deflects potential disputes when it asks the insured to verify
Submitted by the authors on behalf of the FDCC Alternative Dispute Resolution Section.
1 A complete copy of Homeowners 3 ISO 2001 Coverage D Loss of Use Form is attached hereto as
Appendix A.
2 One of the top consumer complaints regarding property insurance companies responses to claims is
for delays and denials of additional living expenses. See, e.g., Kenneth Reich, Insurance Firms Get Good
Grade on Fire Response, L. A. Times, Feb. 13, 2004, at B6.
FDCC Quarterly/Spring 2007
268
Helen Johnson Alford is a partner with the law firm of Alford,
Clausen & McDonald, LLC. She obtained her law degree from
Tulane University in 1982. She is a member of the Alabama
Bar, Mississippi Bar, Tennessee Bar and Texas Bar. She is
Secretary/Treasurer of the Alabama Defense Lawyers Association
and a member of the Mississippi Defense Lawyers
Association, DRI, and Federation of Defense & Corporate
Counsel.
requested ALE benefits. The provision of necessary and appreciated assistance to the insured
minimizes and controls ALE costs because an insured is less likely to inflate the ALE claim,
believing the insurer is sympathetic to his needs and is aware of its responsibilities to him
under the policy. Once the insureds immediate needs are met, both parties can turn their
attention to resolving the remaining claim issues. The establishment of a good relationship
with the insured at the ALE payment stage, facilitates the entire claims adjustment process
and offsets the chance that the insured will become disgruntled with subsequent and, often,
unavoidable delays in the claim process and file an action against the insurer for refusal or
delay of payment.
II.
ALE Coverage Defined
The standard homeowners policy provides coverage for Additional Living Expenses
under Coverage D Loss of Use.3 Standard policy language provides for additional living
expenses or fair rental value if a loss covered by the policy makes the insureds residence
uninhabitable.4 An additional living expense is any necessary increase in living expenses
incurred by the insured so that his household can maintain its normal standard of living.5
Fair Rental Value (FRV) is the fair rental value of that part of the residence in which the
insured resides, less any usual expenses that do not continue while the premises are uninhabitable.
6 If, prior to the loss, the insured rented a portion of the residence to others or had
reserved a portion for rental to others and that portion is rendered untenable by a covered
3 See Appendix A.
4 Id.
5 Id.
6 FRV = (Average short-term rental for similar residence + rental for similar furnishings discontinued
expenses at insured property) x (months required for repair).
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269
7 See Appendix A.
8 See Appendix A. For an example of alteration of terms of contract as a gesture of good faith, see Odom
v. Armed Forces Ins., No. 1:05cv69-LTS-RHW, 2006 U.S. Dist. LEXIS 62498, (S.D. Miss., Aug. 31, 2006)
(Defendant insurance company adopted a corporate policy to reimburse its insureds for ALE incurred as
a result of mandatory evacuation order by civil authority for thirty days rather than its policy provision of
two weeks.). Id.
9 See Thompson v. Shelter Mut. Ins., 875 F.2d 1460, 1462 (10th Cir. 1989) (function of additional living
expenses is to enable the insured to maintain, insofar as possible, the pre-loss standard of living during the
repair and replacement period.)
10 See Appendix A.
Gaby Reeves Pringle is an associate with the law firm of
Alford, Clausen & McDonald, LLC. She received her law
degree from Tulane University in 1999. She is a member of the
Alabama Bar and the Mobile Bar Association. She is President
of the Paul W. Brock Chapter of the Inns of Court, a member
of the Alabama Defense Lawyers Association and DRI.
loss, then Coverage D pays the fair rental value of that portion of the premises. Payment
for ALE or FRV is made for the shortest time required to repair or replace the premises, or,
if the insured chooses to relocate, the shortest time required for the insureds household to
settle elsewhere.7 If a civil authority prohibits the insured from using the insured premises as
a result of direct damage to a neighboring premises by a Peril Insured Against in the policy,
(e.g., a mandatory evacuation due to natural disaster), additional living expenses and fair
rental value benefits are provided for no more than two weeks.8
II.
Determination of ALE Benefits Due the Insured
The purpose of ALE coverage is to protect against additional expenses that the insured
incurs in the course of maintaining his household following a significant or total loss to his
insured residence.9 In order to be reimbursed under the ALE coverage, the insured must
take reasonable steps that will allow him and his family to return to their normal standard
of living.10 Such steps include locating substitute housing that is priced and located so as
FDCC Quarterly/Spring 2007
270
to afford the insureds household to return to its normal routine. The claims professional
should work with the insured to accomplish this. Assisting in this process will reduce the
chance that the insured will secure shelter and amenities, (i.e., additional living expenses),
that unreasonably exceed his normal standard of living. Without assistance, an insured
could incur living expenses that are not covered under his policy, thus increasing the cost
of processing the claim for the insurer and frustrating the insured.
What constitutes a reasonable ALE will be specific to each individual insured and to
determine what qualifies as a reasonable ALE, the insurer must determine the insureds
standard of living prior to the loss. To accomplish the best settlement of the ALE claim for
both parties, the insurer should meet with the insured immediately after a loss that renders
the covered residence untenable to determine the households normal activities and lifestyle
prior to the loss. That will affect the amount of the ALE benefits owed and, therefore, reimbursable,
under the policy. Depending on the circumstances, some normal living expenses
will continue during the ALE benefit payment period, while others will diminish or even
stop. The claims professional should take care to determine if an insured has special needs
requiring consideration when evaluating housing options. Working closely with the insured
to formulate a plan for temporary housing not only assures the claimant that he is getting
his premiums worth, but avoids frustration of the entire claims process by solidifying the
relationship between the parties.
A. The First Meeting
The claims professional should schedule a meeting with the insured as soon as possible
after receiving notice of the loss.11 Prior to meeting with the insured, the claims professional
should complete the following tasks:
1. Verify that the loss is covered by a policy in force on the date of the loss and
that the claimant is an insured under the policy in force;12
2. Verify that the damaged property is the policyholders principal place of residence;
13
11 See Thompson, 875 F. 2d at 1462 (affirming jury award for additional living expenses based on the
insurers course of conduct during claims process) (citing Christian v. Am. Home Assurance Co., 577 P.2d
899, 903 (Okla. 1978) (unwarranted delay precipitates the precise economic hardship the insured sought
to avoid by purchase of the policy).
12 See Highlands Ins. Co. v. Kravecas, 719 So. 2d 320 (Fla. Dist. Ct. App. 1998) (reversing judgment
awarding plaintiff additional living expenses reversed because loss of use coverage in defendant insurers
policy was to make whole a displaced homeowner, and plaintiff purchased covered hurricane damaged
property after the fact).
13 See Wallace v. Auto-Owners Ins. Co., 421 So. 2d 131 (Ala. Civ. App. 1982). Here the undisputed evidence
showed that plaintiff resided in substitute housing for eighteen months and had not started repairs to his
covered property, plaintiff not due additional living expenses as the covered property no longer constituted
his permanent residence.
Additional Living Expense Coverage
271
3. Verify that the damaged property is uninhabitable and determine how long it
will remain uninhabitable as that period may be less than the total repair time;
and,
4. Explore options available for relocation such as a hotel, furnished apartment,
mobile home, rental home, or relatives and be prepared to discuss those options
with the insured.
The initial meeting with the insured will set the tone for resolving the remaining claim
issues. The insurers goals are not only to gain necessary information for ALE benefits, but
to assure the claimant that the insurance company cares about his needs, thereby deflecting
future disputes over ALE and other claims benefits paid under the policy. In order to maintain
control of the interview, the claims professional should schedule the meeting location
away from the distraction of the damaged residence. During the initial meeting, the claims
professional should try to get an initial sense of the insureds expectations, that is, what does
the insured expect the insurance company to do for him? The claims professional can then
confirm which of the insureds expectations are covered under the policy and explain why
others may not be covered. At this point, the claims professional should explain the ALE
claim process to the insured, making certain he understands which expenses will be covered
and the manner in which he is to submit his claim in order to receive reimbursement.14
The claims professional should also discuss the difference between ALE and FRV with the
insured and be prepared to answer questions regarding the coverage available under both
options, including the accounting required to receive probable payment under both options.
Some insureds may prefer FRV because it allows them to stay with relatives or in a second
home that affords greater comfort than temporary accommodations. In addition, there are
usually fewer accounting burdens to the insured with FRV than there are with ALE.15
Obtaining copies of the insureds regular monthly bills from utility companies, banks
or credit card companies will assist the insurer in verifying the insureds description of his
normal standard of living and detecting certain things that might become points of contention
if not addressed at the initial level. For example, there may be items or activities that
are especially important to the insured that are relatively insignificant in the total claims
process and are not common to most insureds. Identification of an insureds individual
expectations and needs at the outset of the claim process may avoid future disputes. An in-
14 For example, most ALE provisions require the insured to submit proof of expenses incurred. See, e.g.,
Boyd v. Hartford Ins. Co., No. X04CV91C103460S, 2005 Conn. Super. LEXIS 254 (Jan. 28, 2005) (requiring
insured to affirmatively demonstrate that she incurred an actual increase in additional living expenses
in order to recover for them under a homeowners policy of insurance).
15 However, an insured is not entitled to recover both ALE and FRV benefits. See Allen v. Safeco Ins. Co.,
782 F. 2d 1517 (11th Cir. 1986) (holding that insured not entitled to ALE where evidence supported FRV
loss).
FDCC Quarterly/Spring 2007
272
sured suffering the loss of his home and personal possessions who perceives that the insurer
has his best interests in mind may be more willing to consider settlement options and less
likely to intentionally inflate his ALE claims. This reduces the cost of claims handling and
makes the entire claims process operate more smoothly.
B. Determining Coverage For ALE
According to standard policy language, an additional living expense is reimbursable if
it is a necessary expense incurred so that the insureds household can maintain its normal
standard of living.16 Most courts have determined the standard additional living expense
provisions to be unambiguous and, therefore, enforceable. 17
As an initial matter, the insured must establish that he actually incurred the expense. The
standard homeowners policy requires that the insured present documentation supporting
additional living expenses incurred in order to receive reimbursement. Courts have found
that requirement to be a reasonable and enforceable provision of a homeowners insurance
contract.18 In Hilley v. Allstate Insurance Co.,19 the insureds failure to provide the insurance
company with receipts proving additional living expenses negated their bad faith claim
against an insurer for failure to pay those additional living expenses. The insureds filed an
action against their insurer for, inter alia, breach of contract and bad faith refusal to pay
16 See Appendix A.
17 See, e.g., Phoenix Assurance Co. of New York v. Singer, 221 F. Supp. 890 (E.D. Mo. 1963), affd,
331 F.2d 10 (8th Cir. 1964); Dodge v. United Services Auto. Assn, 417 A.2d 969 (Me. 1980); Wallace v.
Auto-Owners Ins. Co., 421 So. 2d 131 (Ala. Civ. App. 1982); Carlyon v. Aetna Cas. & Sur. Co., 413 So.
2d 1355 (La. Ct. App. 1982).
18 See United States Fid. & Guar. Co. v. Romay, 744 So. 2d. 467 (Fla. Dist. Ct. App. 1999) (insureds
obligations, including those for proof of additional living expenses, are not unduly burdensome or arbitrary,
but constitute assurance that the insurer will be provided adequate information on which to base its conclusion
regarding payment under the policy and are required of insured as conditions precedent for appraisal
of loss). See also Allen, 782 F.2d at 1519-20 (defendant insurers motion for directed verdict should have
been granted where plaintiffs failed to submit required statement for loss of use and receipts for additional
living expenses incurred), vacated in part on other grounds, 793 F.2d 1195; Jones v. Aetna Cas. & Sur. Co.,
Inc., App. No. 87-280-II, 1988 Tenn. App. LEXIS 198 (Tenn. Ct. App. Mar. 2, 1988) (remanding case and
suggesting remittitur where plaintiff presented no satisfactory evidence of unpaid additional living expenses
and where evidence showed that insurer made other interim payments to plaintiffs); Bourrie v. United States
Fid. & Guar. Ins. Co., 707 P.2d 60, (Ore. Ct. App. 1985) (affirming directed verdict for defendant insurance
company against plaintiff insurer seeking additional living expenses where plaintiff had not complied with
policy provision requiring him to submit receipts for additional living expenses with certain time of loss).
See also Boyd, 2005 Conn. Super. LEXIS 254 at *8 (citing Georgia Farm Bureau Mut. Ins. Co. v. Smith,
346 S.E. 2d 848, 851 (Ga. Ct. App. 1986) (holding that evidence of estimated cost of reimbursement of
additional living expense does not constitute actual proof of loss); Young v. State Farm Fire & Cas. Ins. Co.,
426 So. 2d 636 (La. 1982) (asserting where plaintiff only spent five days each month in covered residence,
he was not due additional living expenses for residing in another owned property following loss).
19 562 So. 2d 184 (Ala. 1990).
Additional Living Expense Coverage
273
additional living expenses.20 Following the complete destruction of their home in a fire, the
plaintiffs resided with a relative for one month, in an apartment for four to five months,
and then purchased a trailer which they parked on the lot where their damaged residence
stood.21 During this period, the insurance agent paid the plaintiffs $570 for additional living
expenses, $1,000 for humanitarian needs, and $1,050 for clean-up and debris removal.22
The plaintiffs subsequently submitted an itemized list of additional living expenses together
with a statement that they had only received $570 from Allstate for their living expenses and
demanded additional reimbursement in the amount of $1,384.50.23 The Alabama Supreme
Court found that the plain language of the policy required the plaintiffs to submit receipts for
their additional living expenses in order to receive reimbursment, but that the only receipts
the plaintiffs provided the insurer were those for the $570, which the insured had previously
reimbursed.24 In addition, the plaintiff testified that the insurer had told him to save all of
his receipts for ALE and submit them for reimbursement.25 The Alabama Supreme Court
affirmed the trial courts summary judgment on the breach of contract claim in favor of
Allstate because the terms of the policy unambiguously required them to provide receipts
as proof of living expenses incurred in order to obtain reimbursement, which the insureds
failed to do.26
Some additional living expenses, by their nature, cannot be proven with documentation
in the form of paper receipts. In Boyd v. Hartford Insurance Co.,27 the plaintiff insureds sued
Hartford, claiming, inter alia, breach of contract of insurance and breach of the obligation
20 In addition to additional living expenses, plaintiffs also sought recovery of additional monies due under
their policy to a contractor that agreed to rebuild their home under theories of breach of contract, outrageous
conduct, bad faith refusal to pay, fraud, violation of public policy and violation of Ala. Code 27-12-25
(1975). Hilley, 562 So. 2d at 186. The court found that the insurer, through its agent, acted in bad faith in
negotiating the provision of rental coverage, but stated that because it had affirmed the summary judgment
with regarding to breach of contract, it must also uphold the summary judgment as to the claim for bad faith
refusal to pay additional living expenses. Id. a 192. The court offered no explanation of this decision.
21 Id.
22 Id.
23 Id.
24 Id.
25 Id.
26 Id. at 191-92. See also Aetna Cas. & Sur. Co. v. Corriveau, No. CV-910702063, 1991 Conn. Super.
LEXIS 2138 (Conn. Super. Ct., Sept. 19, 1991) (confirming arbitrators award denying recovery of additional
living expenses where claimants presented insufficient information to determine amount of award).
See Commonwealth Lloyds Ins. Co. v. Thomas, 678 S.W.2d 278 (Tex. Civ. App. 1984), for an example of
an unreasonable requirement of proof of ALE (rejecting argument that the insureds had to produce proof
of their living expenses prior to the covered loss in addition to proof of living expenses after the loss in
order to recover under ALE provision).
27 No. X04CV91C103460S, 2005 Conn. Super. LEXIS 254 (Conn. Super. Ct., Jan. 28, 2005).
FDCC Quarterly/Spring 2007
274
of good faith and fair dealing in connection with their claims filed for benefits when vandals
destroyed their home under construction. At trial, the jury awarded $23,630 in damages for
additional living expenses under the homeowners insurance policy and $50,000 on the
remaining claim.28 Hartford appealed from the trial courts denial of their motions for new
trial and to set aside the verdict on grounds that the plaintiffs presented no evidence that
could logically and legally support the verdict for the additional living expenses provisions
of the policy.29 The court disagreed, noting that the evidence, in the form of witness testimony,
showed that the plaintiffs, through their insurance agent, had been in constant contact
with the adjuster concerning payment for the cost of maintaining two homes.30 According
to testimony, the plaintiffs were residing in one home, which they originally intended to
sell prior to the vandalism, while the vandalized home was under repair construction.31 The
plaintiffs introduced documentary evidence of the cost of maintaining their existing home,
which was encumbered by three mortgages, and the mortgage cost of the home under construction.
32 The plaintiffs also introduced witness testimony regarding the date on which
they would have been able to relocate to their new home, but for the vandalism, as well as
the testimony of the various contractors working on the new home as to the estimated cost
of reconstruction.33 Based upon that evidence, the court concluded that the jury could have
reasonably concluded the breach of contract for payment of additional living expenses to be
$23,600.34 Because of Hartfords denial of those reasonable living expenses, in the face of
the plaintiffs and their agents representations that the plaintiffs were in dire need of those
funds, the court upheld the jurys $50,000 award for breach of obligation of good faith as
well.35
Once the insured submits proof of an additional living expense, the claims representative
is charged with determining whether it is necessary to maintain the insureds and his
28 Id.
29 Id. Defendant Hartford also claimed that plaintiffs failed to establish injury of rights to receive benefits
due under the contract of insurance and that, in doing so, Hartford acted with ill will, malice, deceit or
dishonesty. Hartford further argued that the action was time-barred by the suit limitation clause in the
contract of insurance or that, in the alternative, the jury should have been allowed to consider Hartfords
special defense, alleging the suit limitation provision. Id.
30 Id.
31 Id.
32 Id.
33 Id.
34 Id.
35 Id. But see Norris v. Nationwide Mut. Fire Ins. Co., 728 S.W.2d 335 (Tenn. Civ. App. 1986) (holding
that advance payments for additional living expenses without enforcement of the documentation requirement
constitutes waiver of the insurers reliance on that provision). See also Baird v. Fidelity-Phenix Fire
Ins. Co., 162 S.W.2d 384, (Tenn. 1942) (estopping insurer from denying coverage where insurer is aware
insureds claim did not meet requirements of policy).
Additional Living Expense Coverage
275
36 Johnny Parker, Replacement Cost Coverage: A Legal Primer, 34 Wake Forest L. Rev. 295, 296 (1999)
(citing Travelers Indem. Co. v. Armstrong, 442 N. E.2d 349 (Ind. 1982)).
37 Id. (citing John Alan Appleman & Jean Appleman, Insurance Law and Practice 3823 (1972)).
38 See Boyd, 2005 Conn. Super. LEXIS 254, at *16 (finding that failure of insurer to provide satisfactory
explanation of denial of additional living expenses contributed to finding of bad faith). See also Bowen
v. Prudential Prop. & Cas. Ins. Co., No. 94CA25, 1995 Ohio App. LEXIS 3947, (Ohio Ct. App. Sept. 7,
1995) (upholding judgment finding insurer not liable for additional living expenses where insurer timely
notified insured of denial of claim and reason for denial); London v. Trinity Cos., 877 P.2d 620 (Okla. Civ.
App. 1994) (concluding that denial of additional living expenses was reasonable and justifiable where
insured failed to document additional living expenses and policy provisions clearly stated the requirement
and insurer verbally explained that requirement in detail to the insured).
39 No. X04CV91C103460S, 2005 Conn. Super. LEXIS 254 (Conn. Super. Ct. Jan. 28, 2005).
40 Id.
41 Id.
42 Consider Fisher v. Certain Interested Underwriters at Lloyds, 930 So. 2d 756 (Fla. Dist. Ct. App. 2006),
in which the reviewing court denied the trial courts judgment finding that plaintiffs claim was not covered,
but affirmed its judgment requiring insured to repay insurer for monies conditionally advanced for ALE
prior to determination of coverage. In doing so, the reviewing court noted that the defendant, by its own
admission, advanced the monies solely to avoid any claim by the plaintiffs for bad faith. Id. (citing Three
Palms Pointe, Inc. v. State Farm Fire & Cas. Co., 250 F. Supp. 2d 1357 (M.D. Fla. 2003), affd, 362 F.3d
1317 (11th Cir. 2004)).
households normal standard of living. The primary objective of property insurance is to
indemnify the insured, that is, to put the insured back in the position he occupied prior to
the loss.36 The claims representative should carefully interview the insured to make certain
that the reimbursement of the claimed additional living expense is not only for something
that was a part of the daily life and operation of his household, but also that the expense is
reasonable. Property insurance is not intended to benefit the insured because of a loss no
matter how substantial,37 but the insurer should make every effort to be reasonable in its
denial of an additional living expense and should explain the reason for denial.38 Because
the adjustment of the ALE claim sets the tone for the remainder of the claim process, the
claims professional should exercise discretion in the comments he makes when assessing
an ALE claim. In Boyd v. Hartford Insurance Co.,39 the plaintiffs presented evidence in the
form of their insurance agents testimony that the adjuster on their claim made statements
to the effect that an insurance company would never pay more than an insured was willing
to accept.40 The court found that these statements, made in the face of evidence that the
plaintiffs were obviously in dire need of funds in the form of additional living expenses,
constituted substantial evidence of Hartfords failure to engage in fair settlement practices.41
While the adjuster cannot be faulted for not wanting to pay the plaintiffs more than they
were due under the policy, a bit of restraint in commentary and an explanation for the denial
of benefits might have diminished the evidence supporting the plaintiffs bad faith claim
regarding the insurers denial of their ALE claim.42
FDCC Quarterly/Spring 2007
276
In Polselli v. Nationwide Mutual Fire Insurance Co.,43 the plaintiff, Regina Polselli, filed
an action for breach of contract and bad faith in response to the insurance companys denial
of her claims for additional living expenses filed following the destruction of her home by
fire. At the time of the loss, Regina and her daughter were the sole occupants of the home
and were forced to vacate the premises permanently.44 When the loss occurred, Regina and
her estranged husband, Rudolph, were involved in an acrimonious divorce proceeding;
Rudolph had already moved to another state.45 He was the only individual named on the
title of ownership to the property and the only named insured on the applicable contract of
property insurance.46 Following the fire, Regina Polselli retained a public adjuster and an
attorney and filed a proof of loss for the building loss, the loss of the contents, and the cost
of additional living expenses.47 Initially, Nationwide refused to deal with anyone other than
Rudolph Polselli and stated it would not recognize any claim filed by Regina Polselli.48
Because she had no funds with which to make other living arrangements, Regina Polselli
was forced to move from place to place, carrying her remaining possessions in a garbage
bag, and depending on the generosity of friends who did not demand advance payment.
Despite repeated requests for money that would allow Regina Polselli to move herself and
her daughter into comparable housing, together with reliable information that Regina Polselli
was without any money to afford housing on her own, Nationwide refused to advance any
money for additional living expenses in spite of its policy of making immediate advances
on claims.49 Regina Polselli filed suit on March 4, 1991 for breach of contract and bad faith.
Following a bench trial, the court concluded that Nationwide acted in bad faith toward Regina
Polselli with regard to her contents claim and ALE claim and awarded $90,000 in punitive
damages.50
43 No. 91-1365, 1995 U.S. Dist. LEXIS 10173, (E.D. Pa. July 20, 1995), cost and fees proceeding at, Polselli
v. Nationwide Mut. Fire Ins. Co., 1995 U.S. Dist. LEXIS 17006, (E. D. Pa., Nov. 14, 1995) (granting
insureds request for attorneys fees associated with litigation of bad faith claim where insurer found to
have acted in bad faith), revd in part and remanded by Polselli v. Nationwide Mut. Fire Ins. Co., 126 F.
3d 524 (3d Cir. Pa. 1997) (reversing judgment to extent it denied recovery of plaintiff insureds attorney
fees for litigation of bad faith claim against insurer and remandiing with instructions for calculating fees,
should trial court award them; affirming award of plaintiffs attorney fees for prosecution of unerlying
claim on policy), on remand at, Polselli v. Nationwide Mut. Fire Ins. Co., 1998 U.S. Dist. LEXIS 19396,
(E.D. Pa. Dec. 11, 1998) (finding trial courts award of attorneys fees to plaintiff for litigation of bad faith
claim proper based on egregious conduct of defendant; awarding attorney fees of $107,130.00 to plaintiff
in addition to $90,000.00 for punitive damages)).
44 Polselli, 1995 U.S. Dist. LEXIS 10173.
45 Id.
46 Id.
47 Id.
48 Id.
49 Id.
50 Id.
Additional Living Expense Coverage
277
The court determined it was undisputed that the insurance policy required Nationwide
to make advance ALE payments to Mrs. Polselli and that its failure to do so was unreasonable
under the circumstances and constituted a breach of its duty of good faith toward her.51
It found that Nationwides refusal to advance ALE payments to Mrs. Polselli before it was
able to establish coverage for the January 1, 1991 fire was justifiable, but that its refusal
to advance Mrs. Polselli any ALE funds for some four months after it made that determination
was unreasonable, especially when Nationwide had been repeatedly informed of
Mrs. Polsellis destitute circumstances.52 The court found those facts constituted clear and
convincing evidence that Nationwide acted in bad faith and failed to give Mrs. Polsellis
interests the same consideration it gave its own.53
An insurers efforts to reasonably and timely settle an ALE claim are effective evidence
to refute a bad faith claim. In Dodge v. United Services Automobile Assn,54 the plaintiff,
Thomas W. Dodge, brought suit on a fire insurance policy against United Services Automobile
Association seeking statutory penalties, attorneys fees, and damages, including
additional living expenses, resulting from the insurers late payment of his claim for fire
loss. After filing his claim, Dodge entered into a settlement agreement with United Services
in which his additional living expenses incurred from the date of the fire through the date
of the settlement were paid, including reimbursement for mortgage interest.55 According to
the evidence presented at trial, the insurer, through its claims professional, timely processed
the claim and made the settlement offer in a timely fashion.56 Subsequent to executing the
settlement agreement, the plaintiff filed his lawsuit, claiming additional living expenses
from the date he executed the settlement agreement through the date the court entered judgment
on his claim. On appeal, the reviewing court upheld denial of the plaintiffs claims
for additional living expenses, finding that the expenses were not necessary, given that the
plaintiff incurred them as a result of his own breach of a reasonably negotiated settlement
agreement, one of the primary purposes of which was to avoid the incurrence of additional
living expenses.57
51 Id.
52 Id.
53 Id.
54 417 A.2d 969, (Me. 1980).
55 Id.
56 Id.
57 Id.
FDCC Quarterly/Spring 2007
278
What qualifies as reimbursable ALE depends upon the circumstances of the claim and
the insureds involved. An additional living expense is reasonable and necessary if it maintains
the insured households normal standard of living prior to a covered loss, even if that
standard of living is high. In Commonwealth Lloyds Insurance Co. v. Thomas,58 the insurer
sought review of a judgment entered upon a jury verdict in favor of the insured homeowners
in an action on a fire insurance policy. Among other things, the insurer argued that there
was no evidence to support the jurys award of $27,000 for additional living expenses.59
The plaintiffs home and all of its contents and furnishings were completely destroyed by
the fire, leaving them with no home and no furniture.60 The insurer attacked each item of
increased living expense offered by plaintiffs, in particular $3000 per month for a twomonth
stay at a hotel and $2,000 per month interest on the mortgage on a home built by the
plaintiffs for resale in which they lived for six months.61 The court acknowledged that the
expenses might seem high to some, but that in this particular case, where it was undisputed
that the plaintiffs standard of living was high before the covered loss, they were necessary
and reasonable.62 Accordingly, the court upheld the jurys award for living expenses.63
II.
Conclusion
There is no guaranteed method for settling a homeowners insurance claim that insulates
the insurer from coverage disputes, but the reported decisions cited in this article indicate that
an effort on the part of the insurer to assist the insureds with their immediate needs following
a property loss can diminish the possibility of such disputes. While reported decisions
involving claims for ALE benefits are currently sparse in comparison to decisions generated
with regard to general bad faith and breach of insurance contract claims, the insurers initial
response to a property loss claim is frequently a factor in actions filed against insurers. A
prompt and sincere response to an insureds critical needs for food and shelter following a
property loss, will establish a good relationship with the insured, which will decrease the
risk of a contentious dispute later in the claims process and which may very well prevent
litigation resulting in a substantial damages award against the insurer.
58 678 S.W.2d 278 (Tex. Ct. App. 1984), judgment against defendants affd., revd and remanded for
recalculation of prejudgment interest award to plaintiffs, 825 S.W.2d 135 (Tex. App. Ct. 1992).
59 678 S.W.2d at 287.
60 Id.
61 Id.
62 Id.
63 Id.
Additional Living Expense Coverage
279
Appendix A
COVERAGE D Loss Of Use
The limit of liability for Coverage D is the total limit for all the coverages that follow.
1. If a loss covered under this Section makes that part of the resident premises
where you reside not fit to live in, we cover, at your choice, either of the following.
However, if the residence premises is not your principal place of
residence, we will not provide the option under paragraph b. below.
a. Additional Living Expense, meaning any necessary increase in living
expenses incurred by your so that your household can maintain its normal
standard of living; or
b. Fair Rental Value, meaning the fair rental value of that part of the residence
premises where you reside less any expenses that do not continue while
the premises is not fit to live in.
Payment under a. or b. will be for the shortest time required to repair or replace
the damage or, if you permanently relocate, the shortest time required for your
household to settle elsewhere.
2. If a loss covered under this Section makes that part of the residence premises
rented to others or held for rental by you not fit to live in, we cover the:
Fair Rental Value, meaning the fair rental value of that part of the residence
premises rented to others or held for rental by you less any expenses that
do not continue while the premises is not fit to live in.
Payment will be for the shortest time required to repair or replace that part of
the premises rented or held for rental.
3. If a civil authority prohibits you from use of the residence premises as a result
of direct damage to neighboring premises by a Peril Insured Against in this
policy, we cover the Additional Living Expense and Fair Rental Value loss as
provided under 1. and 2. above for no more than two weeks.
The periods of time under 1., 2. and 3. above are not limited by expiration of
this policy.
We do not cover loss or expense due to cancellation of a lease or agreement.
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