Florida
Changes Sinkhole Insurance Laws for 2007
The
Florida
legislature has dramatically changed the insurance laws
regarding sinkhole coverage. Changes to existing law would
not only alter the way sinkholes are dealt with for
insurance purposes, but also, the amount your insurance
company can charge you.
For those living in areas with recently increased
insurance rates, if you choose to continue insuring your
property against sinkhole damage, you'll have to pony up
even more for what is now a new type of additional coverage.
As early as June 1,
2007, insurers can begin issuing policies that all but
eliminate sinkhole coverage, which they cannot do under
existing law. If you believe you have a sinkhole, you should
assert a claim with your insurance company immediately.
After the
destructive 2005 hurricane season, the
Florida
legislature made several significant changes to the statues
that govern property insurance and damage claims.
After that disastrous year, some insurance carriers
opted to pull out of the
Florida
market entirely.
Others were charging exorbitant rates to cover the
most common types of storm and water damage.
A great many Florida homeowners were refused re-coverage
when they attempted to renew as usual, whether they'd been
recently damaged or not.
Homeowners
that paid those higher rates spent less money in other
sectors of the economy.
High insurance prices were also passed on to renters.
High insurance estimates were contributing to a dip
in the real estate market.
The high price of insurance was beginning to
negatively influence the overall economy of the state, and
the effects were most pronounced in areas that required
vibrant economic energy to recover from past damage.
So, the
legislature decided to act.
Since 2005, coverage for sinkhole related damage has
been severely eroded by lawmakers.
On one hand they had to make sure insurance companies
weren't gouging Floridians.
On the other hand, they felt they had to make sure
insurance companies were able to actually make a profit so
they could continue to do business in the state (regardless
of their profits in other states).
A great deal of language was added in 2006 to
existing insurance law changing how insurers can charge for
coverage and what must be covered.
Rules that govern the most basic coverage were
tightened up so fewer such claims can legally be denied.
While some required coverage is expanded, many
existing sub-types are made "optional."
That’s where the sinkholes come in.
In 2005, the state
required insurance companies to include coverage for all
sinkholes that appear on a property and damage buildings,
including but not limited to, foundation damage.
This law covered buildings and not other property
structures such as driveways and landscaping.
Prior law also
provided that in the event of a sinkhole related loss, the
insurance company must send out a qualified engineer or
geologist to verify that whether the damage might be related
to sinkhole activity. Unless the existence of sinkhole
activity can be conclusively excluded, there is insurance
coverage. The insurance company must pay for the cost of
repairs.
Collapses that didn’t result from actual sinkholes didn’t
have to be covered.
The property owner did retain the right to hire an
impartial and qualified third party to perform a second
analysis.
Now, as of 2007, the
law requires only that insurance companies cover what they
are now calling "catastrophic ground cover collapse."
This is not sinkhole coverage -- it is related, but
different from a geologic (and now legal) point of view.
So, if
the ground should open up a chasm in case of geologic
instability and swallow your house whole -- that would be
covered, but not much else.
Even if the ground just subsides suddenly and
significantly due to "geologic forces," it would not be
considered Catastrophic Groundcover Collapse (CGC) unless
your home was condemned as a result.
As is the case with sinkholes, your insurer must
contact a qualified professional and get a report stating
the damage is the result of CGC and not a sinkhole.
However, under the 2007 statute, if a regular ol’ sinkhole
opens up under your foundation, you get nothing, unless you
opt for the now additional sinkhole coverage, which will
undoubtedly add a very expensive increase in your premium.
After the law goes into effect, the state or county
can still condemn your home, but you won't be compensated.
Those who believe they may have a sinkhole related
claim must file before June 1, 2007, for consideration under
the previous law.
The State of Florida vs. Sinkholes
In a
state that has so much to lose to sinkholes,
Florida
lawmakers have spent a great deal of time retooling and
refining the laws that pertain to sinkholes in recent years.
Since the 1990s, the rates of property damage claims
paid for sinkhole damage are higher than before.
Some would claim reclassifying the loss solves the
problem, though no one with sinkhole damage to their
property would agree.
Since the
turn of the 20th century, researchers have
puzzled and kept track of
Florida’s
sinkholes in one way or another.
They have systematically kept track of reported
sinkholes since the 1930s.
However, it was not until 2002, when researchers
noticed a doubling of activity in just three years that the
Florida State Legislature mandated that such records be kept
for the public good.
The data
generated is by no means complete and only covers sinkholes
where they’ve been noticed and reported.
Also, they only include those that fall under the
legal definition of a sinkhole during the year they were
reported. This
means the incidence of sinkhole activity is actually higher
than reported, especially in rural areas.
Since
2002, the rate of increase of sinkhole activity has
skyrocketed along with insurance rates in the counties most
often affected by sinkholes in North Western and West-central
counties.
Whether those increases are due to increases in development
or lawyer activity, it’s not known, though a combination of
the two seems most likely.
Thankfully,
Florida has
had, up until recently, rather liberal laws protecting
consumers --
specifically property owners who are the victims of sinkhole
activity. Before
that time, sinkholes were widely defined to include all
types of sinkhole events, catastrophic or not.
However,
since 2005, the definition of a sinkhole has become more and
more restrictive, and now includes only those collapsing
holes that open up suddenly, so as of June 1, 2007, claims
that involve the more slowly opening up types that typically
occur on very thin soils no longer had to be covered by a
typical property insurance policy.
The
law has been further revised to not include any common type
of sinkhole among those events that must be covered by a
basic policy.
Instead, only catastrophic groundcover collapse that
includes the destruction of a house or dwelling is covered.
This means that according to the previous legal and
generally accepted definition of sinkholes, such damages are
now only covered as part of an extended policy, which will
require an additional and likely much larger premium.
The
insurance company is required to tell you in big, bold
letters that your basic policy no longer covers sinkhole
coverage and offer you additional coverage at an additional
“fair market” price.
There also remain quite a few statues in the law that
allow you to take an unscrupulous insurance company to court
if they have unfairly increased your rates, denied coverage
or refused to pay a legitimate claim.
While it may require the services of an attorney or
claims specialist sinkhole law to make them work for you,
for now, you still have the ability to appeal your unfair
treatment.
You
do, for instance, have the ability to hire a second
qualified opinion if the conclusions of the first expert
your insurance company hires to deliver the official report
and recommendations for repair don’t seem reasonable.
Also,
if the recommendations of the expert report suggest that a
cheap and ineffective procedure such as simply filling the
hole with grout will be sufficient, you have the right to
make sure the insurance company ponies up to cover the cost
of doing the job right.
You may need to jump through several flaming legal
hoops to get a particularly unscrupulous insurance company
to finally give in to your reasonable request, but the legal
mechanism for doing so does exist and there are legal
professionals who can assist you in getting the job done
right.
With
the new changes in the law, if you live in an area with high
levels of sinkhole activity, even if one has never opened up
on your property, you may be in danger of losing your
coverage entirely.
Wise property owners are making it a point to inspect
their property for signs of sinkhole activity, and making
claims before the new changes in the law take effect after
June 1, 2007.
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Sinkhole Statutes
Florida Statute 627.706 Sinkhole insurance.
- Every insurer authorized to transact property insurance in this state shall make available coverage for insurable sinkhole losses on any structure, including contents of personal property contained therein, to the extent provided in the form to which the sinkhole coverage attaches.
- "Loss" means structural damage to the building. Contents coverage shall apply only if there is structural damage to the building.
- "Sinkhole loss" means actual physical damage to the property covered arising out of or caused by sudden settlement or collapse of the earth supporting such property only when such settlement or collapse results from subterranean voids created by the action of water on a limestone or similar rock formation.
- Every insurer authorized to transact property insurance in this state shall make a proper filing with the department for the purpose of extending the appropriate forms of property insurance to include coverage for insurable sinkhole losses.
- This section shall apply to new and renewal policies or contracts delivered or issued for delivery in this state on or after October 1, 1981.
Florida Statutes 627.707 Minimum standards for investigation of sinkhole claims by insurers; non-renewals.
- Upon receipt of a claim for a sinkhole loss, an insurer must meet the following minimum standards in investigating a claim:
(a) Upon receipt of a claim for a sinkhole loss, the insurer must make an inspection of the insured's premises to determine if there has been physical damage to the structure which might be the result of sinkhole activity.
(b) If, upon the investigation pursuant to paragraph (a), the insurer discovers damage to a structure which is consistent with sinkhole activity or if the structure is located in close proximity to a structure in which sinkhole damage has been verified, then prior to denying a claim, the insurer must obtain a written certification from an individual qualified to determine the existence of sinkhole activity, stating that the cause of the claim is not sinkhole activity, and that the analysis conducted was of sufficient scope to eliminate sinkhole activity as the cause of damage within a reasonable professional probability. The written certification must also specify the professional discipline and professional licensure or registration under which the analysis was conducted.
(c) If the insurer obtains, pursuant to paragraph (b), written certification that the cause of the claim was not sinkhole activity, and if the policyholder has submitted the sinkhole claim without good faith grounds for submitting such claim, the policyholder shall reimburse the insurer for 50 percent of the cost of the analysis under paragraph (b); however, a policyholder is not required to reimburse an insurer more than $2,500 with respect to any claim. A policyholder is required to pay reimbursement under this paragraph only if the insurer, prior to ordering the analysis under paragraph (b), informs the policyholder of the policyholder's potential liability for reimbursement and gives the policyholder the opportunity to withdraw the claim.
- No insurer shall non-renew any policy of property insurance on the basis of filing of claims for partial loss caused by sinkhole damage or clay shrinkage as long as the total of such payments does not exceed the current policy limits of coverage for property damage, and provided the insured has repaired the structure in accordance with the engineering recommendations upon which any payment or policy proceeds were based.
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What is a Sinkhole?
