Does ALE Coverage Include Cost to Evacuate?

Since the first forecasts showed Hurricane Harvey approaching Texas to the impact of Hurricane Irma in the Florida Keys, millions of people were ordered, recommended and asked to evacuate their homes. That gave rise to one question over and over. Is there coverage to evacuate in advance of a hurricane? Some well-meaning people have recommended that a homeowner’s policy should cover that expense. That should remind us that as insurance professionals, we have the responsibility to educate, inform, and advise the public about what their policies cover and what they don’t.

The question still remains. Are costs to evacuate covered on a homeowners’ policy? I wonder if anyone remembers my favorite insurance word. Maybe it is. Maybe it isn’t. So many carriers have variants of the ISO HO-3 that we can’t speak definitively on what’s covered company to company. What we can do is point out some language that’s in the ISO HO-3 and see what it tells us.

Before we dive too deeply into this, I hope you remember the Academy’s conversation last week with David Thompson and Dan Britto. We talked about how to avoid and E&O trap following a natural disaster (hurricane) and one of the major points they made was not to offer coverage advise after the loss. Let the claims people do their jobs.

If you missed it, you can still sign up to hear everything here.

Remember that our questions is whether there is coverage for expenses related to mandatory evacuations ordered by local, county, or state government. Under Coverage D – Loss of Use, paragraph 1 covers Additional Living Expense. Let’s look at a few key word and phrases in that paragraph.

“If a loss covered under Section I makes that part of the “residence premises” where you reside not fit to live in…”

The paragraph starts right off with a conditional statement. That if makes this clause a condition that must be met prior to the next clause taking effect. It’s like when you told your kids that you would go get pizza if they all cleaned their rooms. Do you see all of the items that must happen to trigger this coverage? There must be:

A loss
Covered under Section I
To the part of the “residence premises” that you live in
That makes it unfit to live in.

Without all four pieces, we have an issue. So let’s go back to our original question. Is there coverage for the expenses related to evacuating on the order of civil authorities? So far, I’d have to say no, there isn’t coverage. However, let’s change our scenario for a moment and assume that those conditions are met. What happened? The house was actually damaged by a hurricane. Let’s keep going to see what we have coverage for.

“…we cover any necessary increase in living expenses incurred by you so that your household can maintain its normal standard of living.”

Let’s take this section apart and see what we have.

Necessary increase in living expenses: this tells us that your normal household expenses are not covered. What’s that mean? It means just what it looks like. If you have to stay in a hotel, that’s an increased living expense. If you have to keep paying the mortgage, there’s no coverage for that. If you are staying farther away from work, that additional cost is covered. If you have to eat out more because you don’t have a kitchen to cook in the additional cost is covered. You get the point. Here’s something to consider. What is an increased cost? Does that mean just the cost above what you would normally have? Does that mean that the loss could be adjusted to reduce the claim payment by expenses that would have been there anyway? Just thinking out loud for you.
Incurred by you: this tells us that money has to come out of the customer’s pocket before this coverage kicks in. It’s money that comes back only after it goes out. There are carriers that will advance payment on this, but don’t necessarily count on it. Good risk management would suggest that a customer should have emergency funds available for just such an occasion.
So that your household can maintain its normal standard of living: I have told underwriters in the past that this is there so that those of us on fast food budgets don’t think it’s time to sit down at the black-tie restaurant uptown. We’re trying to create as close to a normal environment as possible while the customer is recovering from a difficult situation (a hurricane took their roof off, or a fire gutted their home).

The next paragraph limits coverage to the shortest time required to repair or replace the damage or to relocate somewhere else. We don’t need to dive deeply into that. I think the point is made. Our original question was about expenses to evacuate. It doesn’t look like there’s coverage here. Yet, you know this policy well enough to wonder if there isn’t one more place to look. You’re right. We have to consider paragraph 3. Civil Authority Prohibits Use. Let’s look there to see if there’s coverage.

“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, we cover the loss as provided in (1 & 2) for no more than two weeks.”

Let’s take this apart, too.

If civil authority prohibits you from use of the residence premises
As a result of direct damage to neighboring premises
By a Peril Insured Against
No more than two weeks

We begin to get a little hope when we see that civil authority prohibits use of the house, but then we’re limited again by the next part. Another home has to be damaged by a Peril Insured Against. This is a very limited coverage for when your neighbor’s house is damaged and it is considered unsafe for you to occupy your home. You might remember a few years ago a home in Seffner, FL that had a sinkhole open up inside the home. By that night, the city had determined that the houses on either side were unsafe. For those homeowners, there is some coverage for their additional expenses because they couldn’t go home.

Remember that this whole conversation centers on the coverage provided on the unendorsed ISO HO-3. Different carriers use different forms so you can’t just take this information is applicable in all situations. It’s just a place to start. Before you go, I’d like to send you a question that I got last week. Feel free to discuss.

Can a homeowner that lives in Puerto Rico and has damage to their home claim plane tickets and shipping costs to move and ship their remaining personal property to the continental US under ALE?

Does ALE Coverage Include Cost to Evacuate?

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