Do I Need Sinkhole Coverage?

There is so much controversy and confusion on this subject that this will be part 1 of a 2 part series. Many of our clients tell us they are not aware of any sinkholes in their area and don’t think the coverage is important. WE think you may be surprised at some of the information we are about to share with you to first: clarify what a sinkhole is and secondly to show how important sinkhole coverage is.

What is a sinkhole? Current Florida law defines it as a landform created by subsidence of soil, sediment or rock as underlying strata are dissolved by groundwater.

The 2007 Legislature created two new definitions for insurance purposes. Catastrophic ground cover collapse is defined as geological activity that results in all of the following:

• The abrupt collapse of the ground cover,
• A depression in the ground visible to the naked eye,
• Structural damage to the building, including the foundation; and
• The insured structure being condemned and order vacant by a governmental agency authorized by law to issue such an order for the structure.

Many of you have heard me describe the above as the hole that eats your house. Many of you have correctly stated that this is a true sinkhole. Think of the massive holes in Plant City in 2010 after all the pumping was done to save the strawberries.

A Sinkhole Loss is defined as structural damage to the building, including the foundation, caused by sinkhole activity. Notice the definition mentions structural damage which is not the same as what I like to call typical Florida settlement cracks or stairstepping in the walls and floors.

Anything that does not meet the 4 criteria of the catastrophic ground cover collapse would then have to be covered on an insurance policy under the optional sinkhole loss coverage or could be rejected completely if it is not structural damage or caused by sinkhole activity.

Here is where the current problem lies: many sinkhole loss claims are being filed that do NOT INVOLVE STRUCTURAL DAMAGE to the building and it costs the insurance company approx. $10,000 just to test for sinkhole loss damage. Under current Florida Law, the insurance company cannot refuse to do the test and oftentimes these tests are being ordered at the behest of public adjusters and trial attorneys who promise the client they don’t owe any money to them unless the insurance company pays a settlement.

A whole new industry has sprung up taking advantage of loopholes in the laws. Billboards encourage people to file sinkhole claims and that it is all covered under their insurance policy. But if most of these claims are bogus or fraudulent, what impact do you think that has on your homeowners rates?

This is why almost all of us have experienced either sharply increasing rates even with no hurricanes in the last 6 years, or being nonrenewed, or having great difficulty getting sinkhole coverage if you look for a new policy.

For more good information explaining the difference between sinkhole loss coverage and catastrophic ground cover collapse and the importance of sinkhole loss coverage click on the following link: Sinkhole vs Catastrophic Ground Cover Collapse

Scott Love
April 16, 2011