The term sinkhole conjures up images of the Earth
opening up and swallowing an entire house. As impressive
and downright scary as this is, such events are rare and
might not even be actual sinkholes, for the term has
different meanings for geologists, insurance law and the
general public.
Sewer line and water main breaks have been known to
carry away the soil below a street and cause a sudden
collapse of a roadway or a building’s foundation.
Although the media and the general public will call it a
“sinkhole,” for geologists it’s an erosion event,
according to Bricky Way, senior professional geologist
at Geohazards, Inc., a geotechnical consulting firm
specializing in sinkhole investigations.
For geologists a sinkhole forms when rain and
groundwater erode limestone and similar rocks below
ground, creating caves.
When the ceiling of a cave weakens to the point where it
can no longer support the earth above it, the structure
collapses and a depression forms on the surface, either
slowly over time or sometimes all at once.
“You may have a house that’s affected by a subsidence
sort of sinkhole event that will just slowly crack as it
slowly settles and that’s fairly common, that doesn’t
make the news as much,” Way says. “It’s very rare that
something is going to happen that’s going to cause your
house to fall into the ground, it’s more likely just
going to be a bunch of annoying little cracks and a
bunch of settling.”
These processes happen slowly below ground, but on the
surface they can seem to appear out of nowhere as a
depression forms in the yard or a home shows signs of
stress.
Changes in the water table can often cause more
sinkholes to suddenly appear.
During a drought, a lack of rain and increased pumping
from underground aquifers means the water table falls,
thereby reducing support for subterranean structures.
When heavy rains fall it causes more erosion below
ground while adding weight to the saturated soil above.
Way says homeowners in sinkhole-prone areas should be on
the alert for any changes in the structure of their
house or yard. Although a major collapse typically comes
without warning, there are signs that could indicate the
existence of a slower-forming subsidence sinkhole—such
as a depression forming on the surface.
“In low areas in your yard if you see an area that
you’re pretty sure was not lower before and suddenly you
notice maybe it’s subsided a few inches that’s
definitely something to watch out for,” Way says.
Of course, cracks and depressions can happen anywhere as
a result of normal settling that has nothing to do with
a sinkhole, such as a house with insufficient support or
a poorly-built foundation. Clay soil that shrinks and
swells with changes in the weather can also be a problem
in Florida, as it can damage a foundation.
Way says ground penetrating radar, electrical
resistivity and drilling can be used to see what’s below
the surface and whether a sinkhole is at fault.
When a sinkhole is detected, concrete grout is often
pumped below the surface to fill the void. Pinning can
also be used, whereby large pins are driven underneath a
home to secure it to the limestone below ground.
Sinkhole alley
The cost of sinkhole remediation is where sinkhole
insurance comes into play, although changes made to
Florida’s insurance laws in 2011 are casting doubt on
that. The laws designating what’s covered by sinkhole
insurance have become much tighter than before.
Florida is the sinkhole capital of the U.S.,
particularly what’s known as “sinkhole alley” in the
west central portion of the state, in the counties
surrounding Tampa and St. Petersburg. The state is
underlain by shallow limestone below ground, with warmer
weather and plenty of rain above to dissolve it.
In the early 2000s, Florida saw an increase in lawsuits
over sinkhole claims that threatened the viability of
its state-run underwriter, according to Perry Ian Cone,
a lawyer with Gray Robinson, P.A., former inside general
counsel at Florida’s Citizens Property Insurance Corp.
and former general counsel at Travelers of Florida.
Cone says property owners and their lawyers would claim
that things like cracking sidewalks were evidence of a
sinkhole and file a claim.
Insurance companies often just paid on these claims to
avoid litigation costs. He says part of the problem was
the law put the burden of proof on the insurance company
to prove the issue wasn’t caused by a sinkhole.
“If you have a sinkhole you’re going to get inches,
maybe feet of movement in your house, but if you just
have normal everyday shifting of the ground, which
happens, you get little sidewalk cracks that are due to
any number of factors,” Cone says. “That’s just not what
the policy covered but what was happening is that claims
were being filed on just cracks.”
Cone says state-run Citizens collected $207 million in
sinkhole premiums from 2007 to 2011 but paid $1.173
billion in claims—an unsustainable path. As a result,
the state tightened its laws on sinkhole coverage and
Citizens has become the only insurer available in active
sinkhole areas.
“The intent of it is to make it frankly more difficult
to prove a sinkhole claim because it was too easy
beforehand. If you’re a sinkhole claimant, it’s not
friendly,” Cone says. “People talk about things being
pro-consumer and anti-consumer but remember there’s two
sides of being an insurance consumer—the premium and the
claim. The claim side was very friendly beforehand but
the premium side has been unfriendly.”
Sinkhole vs. catastrophic coverage
The changes affect sinkhole policies renewed or sold
after July, 2012. The biggest change is separating
coverage into two types of policies: catastrophic ground
collapse and basic sinkhole coverage.
Every Florida homeowner who insures their property
automatically receives catastrophic coverage, which
basically applies to a home that’s been destroyed by a
sinkhole.
Four criteria must be met for home to qualify for a
catastrophic claim: the abrupt collapse of the ground
cover; a depression in the ground clearly visible to the
naked eye; structural damage to the building and its
foundation; and the building must be condemned and
ordered vacated by a government agency.
Non-catastrophic sinkhole insurance applies to homes
that are damaged by a sinkhole but still repairable.
These policies are optional, but could be required by a
mortgage lender. They also cover only the main
dwelling itself—not decks, garages or the like.
To qualify for such a claim damage to the home must meet
a series of criteria that involves the floor, support
structures and exterior walls being at risk of failure,
as defined by state building codes, with the
determination made by an engineer. The damage must have
been caused by a sinkhole and confirmed by a geologist.
K.C. Williams III, a managing partner at Williams Law
Association, says the Florida legislature went too far
in changing the law. He notes that catastrophic coverage
only applies to homes that are condemned whereas regular
sinkhole insurance won’t actually cover a claim without
specific damages to the home.
“If you don’t have structural damage as defined in this
law you have no claim, even if there’s a sinkhole
there,” Williams says. “You can still buy (sinkhole
coverage) for thousands and thousands of dollars but it
may not be getting you any coverage. You may be buying
air.”
Robin Wescott, Florida’s insurance consumer advocate,
says contractors, adjusters and lawyers became highly
aggressive in pursuing sinkhole claims in the past,
which brought this response from the insurance industry.
“The worst part of this is that there were consumers in
this that are the ones that were caught in the middle,”
Westcott says. “They have a valid claim but because the
companies had reacted in a certain way to limit their
exposure by making verification of the claim more
difficult, you had people who once you make a system
complicated or a recovery complicated then they have to
jump through those hoops.”
Another significant change is those who are paid on a
non-catastrophic sinkhole claim must have their home
repaired and the insurance company pays the contractor
directly.
In the past many homeowners would simply use the money
to pay off the mortgage and not have the work done.
Jumping through hoops
Although it’s expected these changes will make it harder
for homeowners to get paid on a sinkhole claim, it will
take time for attorneys and others to sort out what
exactly the law means and how it will be interpreted in
the courts, according to Andy Altieri, a public adjuster
and director of claims at Altieri Transco American
Claims.
“Structural damage is if the roof is separating from the
cement block wall, okay that’s a structural issue, as an
example. If you’ve got a crack on the side of your
house, some opinions are hey we can just fill that crack
in and repaint the whole side and that’s not a
structural issue,” Altieri says. “They have to see
structural damage before they decide to take a look
underneath and see if there’s a sinkhole or talk about
remediation.”
Raymond Altieri Jr., company president and CEO, says
he’s seen insurance companies reject claims even when a
sinkhole existed on a property, prompting the homeowner
to seek their own experts. His company prepares building
damage estimates and provides them to the insurance
company’s adjuster to try and work out an agreement.
Under state law, if a claim is rejected without the
insurer testing for a sinkhole, a homeowner has 60 days
to request such a test. The homeowner would have to pay
either half the cost of testing or $2,500 flat,
whichever is less. If a sinkhole is found and the claim
is paid as a result, the homeowner’s cost of testing is
refunded.
Another option is to use the state’s neutral evaluation
program, whereby a professional engineer or geologist
acts as a third party to determine whether a sinkhole
exists and if so to make a nonbonding recommendation on
repair and remediation.
Requests for a neutral evaluator can be made by the
homeowner or the insurance company by contacting the
state’s Department of Financial Services, which provides
a list of certified evaluators. The homeowner and
insurance company have 14 business days to make a
selection, otherwise the department chooses one on its
own.
“For a typical homeowner claim if it’s a flood in your
kitchen or whatever, those things are pretty easy to
establish but a sinkhole is tough, so there’s a lot of
hoops to jump through,” Cone says. “If you’ve got a
claim you’re going to have to invest some time.”
A homeowner could accept the neutral evaluator’s
decision or try their luck in court, but Cone says they
would not have their attorney’s fees granted to them if
a jury awarded them less money than what the neutral
evaluator recommended.
A proactive approach
For homeowners who think they have a sinkhole problem,
Raymond Altieri Jr. suggests taking a proactive approach
by lining up experts at the outset who can help in
filing a claim and to check their backgrounds by
contacting state regulators, references and the Better
Business Bureau.
“Certainly there is something to be said for having
somebody that’s working in your best interest and would
be more capable of advancing your position then say a
conflicted person like an insurance company adjuster or
a contractor that constantly works for an insurance
company,” Altieri says.
Prospective homebuyers also need to do a bit of
research. Way suggests checking with a local building
department to see if permits have been issued for
sinkhole remediation in a neighborhood, to get a general
idea of what’s happening in the area.
If a property has been remediated for sinkholes, Way
says it’s something to be aware of but is not
necessarily a red flag that should scare someone away.
Remediation could have been done as a precaution. It
could also be enough to keep the home intact.
“Not all sinkhole houses are created equal. There are
some places that have confirmed conditions for sinkhole
activity that certain owners would be perfectly fine
living in,” Way says. “They may see a few cracks here
and there. Maybe it would be something that you could
just cover up with spackle, but it’s impossible to
predict which houses are relatively stable and which
ones will have real problems one day.”
In deciding whether to opt for sinkhole coverage,
another thing to keep in mind is it’s expected that
premiums will continue to rise for the foreseeable
future.
Westcott says the suggested rate increase for sinkhole
insurance is more than 200 percent in some areas,
although Citizens is capped at a rate hike of 50 percent
on its sinkhole coverage and recently approved such a
hike for sinkhole alley in 2013.
This will increase sinkhole insurance premiums by an
average of $750 in Pasco County, $690 in Hernando County
and $130 in Hillsborough County, according to the
Tampa Bay Times.
Westcott says homeowners have a difficult choice to make
in whether to opt for sinkhole insurance because for
many it could be reaching a point where it’s too
expensive.
She says homeowners, and especially home buyers, should
talk to their neighbors and an insurance agent to make
sure their home is insurable. They should also research
the cost for all insurance coverages and the potential
for rate increases, along with the odds of a sinkhole
developing on their property.
“I think it’s on the homeowners to be very proactive in
knowing what’s going on in their neighborhoods to
establish if there was a sinkhole activity in my
neighborhood, how significant was it?” Westcott says.
“It’s almost like everyone’s got to become a little bit
of an expert on risk management, what exposure am I
facing and whether it’s cost-effective for me to
purchase that endorsement for my policy.”
She notes that premiums for wind coverage are also
expected to rise. Westcott estimates that current
premiums for home insurance are about six times what
they were before hurricane Andrew hit the state in 1992.
“I really believe for many people it’s becoming an
unaffordable option to even have in the first place but
if you’re buying a new home that’s a question you should
ask that underwriter, you should establish that right
away,” Westcott says. “What’s my cost for insurance, and
not just for sinkhole but for all coverages, so that you
know upfront that you can afford this home.”
She says anyone dealing with a potential sinkhole should
maintain a claims journal with dated pictures of the
damage and repairs as they’re made.
Westcott also advises homeowners to verify a
contractor’s license with the Department of Business and
Professional Regulation, obtain a copy of their
Certificate of Insurance and check with the Better
Business Bureau before signing a contract.
Homeowners should not accept any type of promotional
gifts or offers to reduce the cost of repairs, as it
might be considered a rebate that could void their
insurance coverage.
A homeowner must also file a copy of any sinkhole report
with the county clerk of court as a precondition to
accepting a sinkhole loss payment.
The Florida Department of Financial Services also offers
the following suggestions.
For those buying a home:
•
Be sure the house is insurable.
•
Make sure sinkhole coverage is included in the insurance
coverage and go over the details with the insurance
agent.
•
Hire a home inspector who can look for signs of
potential sinkhole activity.
•
Consider sinkhole testing. An insurance company may
require this before granting coverage.
•
A mortgage lender will require a home inspection. Be
sure to ask if the inspection will address potential
sinkhole activity, such as cracks in the foundation or
walls.
For those with a sinkhole claim:
•
Evacuate if necessary. Secure or remove valuables if it
can be done safely.
•
Notify the insurance company or agent.
•
Notify the city or county building inspection
department.
•
Mark the sinkhole or property with fencing, rope or tape
to warn others of the danger—a homeowner could be held
liable if someone is injured in the sinkhole.