After a major property loss occurs, insureds are concerned about whether their additional living expenses (ALE) are covered. When you are unable to live in your home but still pay a mortgage, the additional costs of a hotel or apartment can be overwhelming.

The purpose of ALE is to provide policyholders with a means to maintain their normal standard of living. ALE can be dramatically different if you are living in a one bedroom condominium by yourself or in a three bedroom home with three children.

Ideally, ALE is supposed to be the first payment an insurance company provides to the insured as a benefit of their policy. An insured has a right to find a comparable residence. Insurance carriers have allowed insureds to find a suitable temporary replacement residence and would cover this cost before an insured pays out of pocket.

In recent years, insurance carriers are writing provisions into their policies that require proof of out of pocket expenses and receipts for ALE before benefits are provided. Carriers are increasingly reluctant to provide policyholders with ALE advances, and this gives rise to financial hardship for insureds. Delay and denial of ALE is on the rise.

In California, there are growing concerns that insurers are acting in bad faith when forcing an insured to suffer financial hardship before paying out ALE and more cases are being litigated. Courts have turned to policy interpretation and indicated that when examining these claims, a court should put itself in the insured’s position and understand how he or she might reasonably interpret the language.1 In State of California v. Allstate Insurance Company, the court ruled that ambiguous provisions are to be interpreted to protect the “objectively reasonable expectation of the insured.”2

Overall, ALE payouts before a financial burden buries an insured is the point of the coverage. After a loss, finances are already strained and being in a position where one must pay an amount equaling two mortgages thwarts the purpose of ALE.

1 MacKinnon v. Truck Ins. Exchange (2003) 31 Cal 4th 635, 649.
2 State of California v. Allstate Ins. Co. (2009) 45 Cal. 4th 1008, 1018.