What happens when an insurance company wants to limit additional living expense (ALE) benefits to a time before the home is repaired and ready to be occupied? How long do ALE benefits last? What does the “shortest time required to repair or replace the residence premises” mean?
A Washington case answered these questions following a fire loss. 1 The policy provided:
1. Additional Living Expense. We will pay the reasonable increase in living expenses necessary to maintain your normal standard of living. Our liability will not excess the smallest of:
a. payment for the shortest time to either repair or replace the residence premises. This period of time is not limited by the expiration of this policy;
b. payment for the shortest time for your household to settle elsewhere, if you permanently relocate. This period of time is not limited by the expiration of this policy; or
c. the limit of liability for Loss of Use as specified in the policy Declarations.
The policyholder contended the following common scenario where the insurance company is not paying or promising to pay the full amount to rebuild the home:
Plaintiffs contend that MetLife breached the insurance policy’s Loss of Use coverage provisions, which entitle Mr. Taladay to payments for either ‘additional living expenses’ or ‘fair rental value’ for the Taladay residence, at his option, due to the fact that Mr. Taladay was displaced by the July 24, 2013 fire. As plaintiffs have elected to receive fair rental value rather than additional living expenses, plaintiffs are entitled to ‘payment for the shortest time to either repair or replace the residence premises’ under the contract. Plaintiffs argue that it has been impossible to start repairs on the house since the date of the fire for numerous reasons, chief among them the fact that MetLife has not released sufficient funds to complete such repairs, which in turn prevents plaintiffs from being able to hire a general contractor to begin the process. As a result, plaintiffs assert that they are entitled to loss of use payments for the full twenty-five (25) months that have passed since the fire, subject to the Loss of Use policy limit, as this is the ‘shortest time to either repair or replace the residence premises’ under the circumstances.
…
[P]laintiffs ask the Court to reject MetLife’s arguments that ‘shortest time to either repair or replace the residence premises’ should be interpreted to mean ‘theoretical, best-case scenario time.’ Plaintiffs contend that the provision should instead be interpreted to mean ‘the actual shortest time possible in light of the circumstances’…
The insurance company argued the opposite:
MetLife responds that although plaintiffs are entitled to receive fair rental value payments, ‘the coverage specifically provides that the insurance company will only pay for the shortest amount of time needed for the insured to repair, replace the property or relocate. In the over two-years since the loss, plaintiffs have made no effort to repair, replace or relocate.’ MetLife argues that plaintiffs should have begun to repair their house during the twenty-five months since the fire because plaintiffs had access to $51,050.82 which MetLife paid to the mortgage company JP Morgan Chase Bank (‘Chase’) for actual cash value of the home on April 17, 2014. Id. at 5. MetLife further asserts that Tom Gibbons of Tersuli Construction Services inspected plaintiffs’ home and estimated that it would take no more than six months to repair the structure after receipt of a building permit. Because plaintiffs have not provided any evidence to contradict Mr. Gibbons’ six-month estimate, MetLife contends that plaintiffs are only entitled to compensation for the six-month period in which the structure could reasonably have been repaired.
In addition, MetLife contends that it is not obligated to pay fair rental value for the ten month period of time between the fire and the time when MetLife first received notice of the loss, because plaintiffs breached their duty of cooperation under the policy by failing to promptly notify MetLife of the fire. Metlife argues that although plaintiffs promptly notified Chase, and Chase failed to either advise plaintiffs of who insured their home or advise MetLife of the fire, Metlife still bears no fault and ‘as a long-term resident [of the home] Gary Taladay should have known who insured the home.’
The court agreed with the policyholders:
The Court agrees with plaintiffs that there are no genuine issues of material fact in dispute and plaintiffs are entitled to partial summary judgment…..
It is undisputed that MetLife has a duty under the applicable Loss of Use contract provisions to pay Mr. Taladay, as an unnamed insured under the policy, fair rental value ‘for the shortest time to either repair or replace the residence premises.’ Thus, the question is whether the Court should construe the phrase ‘shortest time required to repair or replace the residence premises’ to mean actual construction time if such repairs were to be immediately undertaken, or whether this phrase must be interpreted in relation to the actual circumstances. If the Court were to accept MetLife’s interpretation of the contract provision, plaintiffs would be entitled to fair rental value payments for a six-month period based on the opinion of MetLife’s expert Mr. Gibbons that the house could be repaired within six months after receipt of a building permit.
In Garoutte v. American Family Mutual Insurance Company, 2 the court construed nearly identical language in a homeowner’s insurance contract following an accidental fire. The homeowners argued that American Family breached its undisputed duty to pay additional living expenses under the contract when it ceased making such payments once the Garouttes initiated the lawsuit. The insurance contract provided that American Family would pay such expenses ‘for the shortest time required to repair or replace the damaged property.’ Just as Metlife argues in this case, American Family argued that it was only obligated to pay three months worth of additional living expenses based on the estimate in the appraisal award that the repairs could be completed in three months. Id. In other words, American Family asserted that the ‘shortest time required to repair or replace the damaged property’ means actual construction time.
The court rejected American Family’s argument and granted plaintiffs’ motion for partial summary judgment, noting that ‘even if this was a ‘reasonable’ construction that created an ambiguity in the contract, the Court must interpret insurance contracts in favor of the insured.’ The court then interpreted the time required to repair the damaged property to include the actual circumstances and not simply an estimate of construction time. The court awarded additional living expenses for the time spent to fully assess the damage, the time the parties participated in an appraisal determination, the time between the appraisal award and the plaintiffs receiving full payment of that award, and the time to complete the repairs on the structure.
The Court agrees with plaintiffs that a similar construction of the phrase ‘shortest time to either repair or replace the residence premises’ is appropriate in this case. To interpret the contract to mean ‘actual construction time’ would be at odds with the purpose of the Loss of Use provision, which is intended to compensate plaintiffs for the loss of use of the residence until such time that it is actually repaired or replaced and plaintiffs are able to move back in. As in Garoutte, plaintiffs have been unable to repair their house since the fire. It is also undisputed that plaintiffs cannot afford to repair their house without receiving the funds owed under their insurance contract with MetLife.”
The federal judge criticized the insurer and noted that it was its conduct that caused the delay:
MetLife’s efforts to blame plaintiffs for this delay in making repairs, and deny fair rental value payments on this basis, are unpersuasive. In fact, MetLife’s own conduct to date appears to be a primary cause of plaintiffs’ delay, as MetLife has neither provided nor authorized sufficient funds for plaintiffs to hire a general contractor to begin such repairs. Furthermore, MetLife has still not agreed to pay the full cost of repairs, despite the fact that all the contractors who have evaluated the damage have estimated the actual cost will be at least $122,000.8 As far as the Court is aware, MetLife has still not modified its March 15, 2015 estimate for $74,232.
The case stands for the proposition that an insurer’s adjustment activities can cause delays in rebuilding and increase the time for ALE benefits that are owed.
I would suggest that those interested in the topic also read Adjustment Time and Wrongful Denial Considered in Period of Restoration, and Period of Restoration – Should the time to adjust the claim be considered? Part II.
I want to thank Birmingham attorney Inge Johnstone for alerting me to this important case.
Thought For The Day
“Tolle moras. Semper nocuit differre paratis.” meaning “Make haste, delay is ever fatal to those who are prepared.”
—Lucan
1 Taladay v. Metro. Grp. Prop. & Cas. Ins. Co., No. C14-1290, 2015 WL 6114609, (W.D. Wash. Oct. 16, 2015).
2 Garoutte v. American Family Mut. Ins. Co., Case No. C12-1787, 2013 WL 3819923, *3-4 (W.D. Wash. July 23, 2015).
