As an attorney who practices in the area of insurance coverage, I was recently asked the following question: “How long must a carrier pay ‘Loss of Use’ benefits when its insured has not decided whether to rebuild or relocate his/her primary residence?” The “Additional Living Expense” section of a typical Coverage D-Loss of Use provision states that: “payment will be for the shortest time required to repair or replace the damage, or if you permanently relocate, the shortest time required for your household to settle elsewhere.” Similarly, the Fair Rental Value section generally states that “payment will be for the shortest time required to repair or replace such premises.”
New York’s downstate courts (the First and Second Departments, which cover Richmond to Riverhead and Manhattan to Putnam), have not specifically addressed this issue. However, the Fourth Department (upstate New York) held that an insured was entitled to the costs of towing, storage, insurance and loss of use of a vehicle (even though it was a total loss), but only for those costs incurred from the date of the accident until the expiration of a reasonable time for obtaining a replacement. In assessing what constitutes a “reasonable time”, the Fourth Department stated, the jury should consider market conditions, any delay by the insurer in inspecting and appraising the damaged vehicle, and plaintiff’s resultant financial inability to replace it.
In general, the courts bear the responsibility of determining the rights/obligations of the parties under an insurance contract based upon the specific language of the particular policy. As with any contract, unambiguous provisions of an insurance contract must be given their plain and ordinary meaning; if the language of the insurance contract is ambiguous, the parties may submit extrinsic evidence as an aid in construction, and any ambiguity must be construed against the insurer as drafter of the policy. The plain meaning of the policy’s language may not be disregarded in order to find an ambiguity where none exists. The test for ambiguity is whether the language of the insurance contract is susceptible of two reasonable interpretations: courts may as a matter of interpretation carry out the intention of a contract by transposing, rejecting or supplying words to make the meaning of the contract clearer. In construing the meaning of an agreement, courts must accord words their fair and reasonable meaning rather than their mere literal meaning. The court must determine the intent of the parties from the plain meaning of the language employed, giving terms their plain, ordinary, popular and nontechnical meanings.
The typical policy is silent as to how long the insured is allowed to take to decide his course of action. However, since the policy explicitly states (i.e., its plain meaning is), that payment will be for the “shortest” time and “reasonableness is read into every contract, the good faith argument can easily be made that the insured must indicate his intentions within a “reasonable time” and that the carrier no longer has to pay Loss of Use beyond that time. Barring unusual circumstances, a homeowner should be able to get the requisite estimates, shop alternative sites, etc., and decide whether to relocate or rebuild within approximately three (3) months. After that time, it is quite conceivable that an insurance carrier will cease to pay.
I hope that readers find this analysis useful and will contact me should they have any questions.