If you lose your home or business, or if you simply cannot use the premises until the repairs have been made, your property insurance will probably pay a benefit to cover the cost of temporary placement. These "loss of use" benefits usually come in two forms, actual rental value and loss of use. The former generally pays the fair rent based on similar comparisons in your area, while the latter pays only the actual amounts spent to maintain a homeowner's or tenant's standard of living. Loss of use is usually paid subject to time and monetary limits – in other words, the carrier pays on an ongoing basis until it reaches the maximum dollar amount (if any) or the maximum time limit, whichever comes first. [1
Unfortunately, there is no law, unfortunately, that requires the insurance company to make a decision to extend ALE a certain time before the expiration date. Many aggressive or negligent adjusters even wait for the insured to be asked to leave before giving an extension. This is obviously insanely stressful and inappropriate.
We have seen a serious increase in transportation tactics on this front in California. It appears that carriers are doing this in response to California law increasing the mandatory minimum loss of use benefits from 24 to 36 months for losses in declared disasters. In the event of a declared catastrophic loss, such as a large wildfire, carriers must provide loss of use for at least 36 months (unless the dollar limit is reached first). This was an increase from the previous minimum requirement of 24 months, which really did not change the policy as much as most people already give for so long. The legislation made the changes based on experience of large forest fires where demand increases, difficulties in accessing properties and removing debris and lengthy permit processes still left many applicants in the early stages of rebuilding after a loss of forest fires.
To counteract the economic consequences of insurance companies, we have seen them take even more aggressive strategies to limit ALE. Most insurance companies put serious pressure on applicants to prove that they are either actively seeking a contractor or a replacement home in order to continue to qualify for loss of use. While many carriers wait until the second year, some become incredibly aggressive in the first year. And they do not back down in many situations, even after intervention by the insurance department through their complaint process. We understand that the California Department of Insurance pays close attention to how carriers act.
What carriers also hope, we suspect, is that receivables choose not to rebuild but simply to buy elsewhere. Or they assume that more applicants will choose this as it becomes increasingly difficult if not impossible to insure properties in Wildland Urban Interface areas where these major forest fires occur. Not to mention that many people do not want to return to societies that have been largely destroyed, like paradise after the campfire. But these are difficult questions and claimants are usually not ready, emotionally or financially, to decide whether to rebuild or buy elsewhere directly. Even if the insurance companies are right that the insurance policies do not cover the time it takes to make this decision, the decision itself often depends on how easy or difficult it is for one to get through the rebuilding process. Some carriers are sensitive to this and do not bombard the plaintiff with the threat of ending the loss coverage period early if they do not make a decision, while others simply do not seem to care.
All of this leads me to my bill on California (and really, everywhere) – enacts a law that requires carriers to decide to proceed with loss of use well in advance of the current expiration date. Do not let carriers put the pressure of homelessness on claimants. This is one of the most psychologically damaging things that happens to our customers.
As carriers continue to become more aggressive towards loss of use, we will continue to become more aggressive in response. Our company covers the entire state of California, and we have offices in several other states.