Insured Entitled to Additional Living Expense (ALE) Through Appraisal and Construction

In Garoutte v American Family Mut Ins Co.,  U.S. Dist. Court, W.D. Wash., Case No. C12-1787 BHS, 2013 WL 3819923 (July 23, 2013), Judge Benjamin H. Settle of the U.S. District Court for the Western District of Washington, at Tacoma, addressed issues relating the appraisal and additional living expense (ALE) provisions in an insurance contract.  The case concerned a homeowners insurance claim following an accidental fire that occurred on January 22, 2012.  The insurance company acknowledged coverage for the loss and in March 2012 paid the insureds $38,285.70 for the full value of the damage.  The insureds disagreed with the insurance company’s valuation of the damage and elected to exercise their right to apprasial under the insurance policy.  On July 6, 2012, the three-person appraisal panel unanimously determined that the actual cash value of the damage caused by the fire to the insured structure was $127,689.04.  On Sept. 22, 2012, the insureds recevied the additional $88,403.34 awarded by the appraisal panel.  Pursuant to the additional living expense (ALE) provision of the insurance policy, the insurance company paid the insureds qualifying expenses through August 2012.

In September 2012, the insureds filed a lawsuit against the insurance company alleging causes of action for breach of contract, bad faith, and violations of the Consumer Protection Act (CPA), RCW 19.86, and Insurance Fair Conduct Act (IFCA), RCW 48.30.015.  The insureds claims were based on their contention that the insurance company failed to honor the appraisal award and improperly ceased payment of additional living expenses (ALE).  The parties filed competing motions for summary judgment on the appraisal and additional living expense issues, along with the insureds’ extra-contractual claims.

The insureds first argued that the insurance company breached the appraisal provision because it failed to “promptly” pay the appraisal award as required under the insurance policy.  Judge Settle denied the insureds’ motion on the bases that (1) the record did not establish the time period that would be prompt, and (2) there were unresolved factual issues regarding whether the insured acted “promptly.”  Although the parties did not dispute that it took the insurance company 57 days to pay the award, the Court determined the evidence was not sufficient to find as a matter of law that the payment was not prompt.

With respect to additional living expenses, the insureds argued that the insurance company prematurely ceased payments.  The insurance policy required the insurance company to pay additional living expenses “for the shortest time required to repair or replace the damaged property.”  The insurance company argued that its payments through August 2012 were in compliance with the appraisal panel’s finding that the reasonable period to repair the damaged structure was three months.  According to the Court, the insurance company’s argument equated the “shortest time” with the actual construction period.  The Court rejected this argument citing its obligation to construe ambiguities in an insurance contract in favor of the insureds.  Judge Settle found that, under the circumstances of this case, the time required to repair the damaged property includes “(1) the time to fully assess the damage; (2) the time the parties participated in the appraisal determination, especially because the [insureds] ultimately prevailed; (3) the time between when the appraisal award issued and the [insured] actually received full payment of the award; and (4) the time to complete the repairs on the structure.”

Finally, the Court granted the insureds’ motion for summary judgment on their claims for bad faith and violation of the Insurance Fair Conduct Act.  The Court determined that the insurance company did not have a reasonable basis for terminating additional living expeneses and compelled the insureds to initiate litigation to recover those benefits in violation of WAC 284-30-330(7).  Judge Settle cited “the violation of the WAC combined with the failure to pay additional living expenses” as the basis for his finding that the insurance company violated the IFCA.

The Court subsequently denied the insurance company’s motion for reconsideration of the issue.

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