Second Sinkhole Appears. Does Your
Insurance Cover Sinkholes?
3/5/2013
By: Schuyler Velasco
The Christian Science Monitor
It’s been an eventful geological week in Florida. Just days after a massive
sinkhole opened up in Tampa suburb, swallowing an entire home in the process,
another smaller (yet sizable) sinkhole appeared a few miles away, in a
residential neighborhood between two homes in Hillsborough County.
Sinkholes that large, sudden, and disastrous are relatively rare. However,
thousands of smaller ones occur in the eastern United States every year, and
because of its geological makeup, the entire state of Florida is particularly
prone. They can occur gradually or all at once, causing damage as small as a
cracked sidewalk or as large as a swallowed car. The recent spate of newsworthy
sinkholes may have many homeowners wondering: Does my insurance cover that?
In most states, the answer is no. Only in Florida and Tennessee – where
sinkholes are common – are home insurance providers required to offer coverage
for damage related to earth movement. “In California, earthquake coverage is
optional,” says Lynne McChristian, the Florida representative for New York-based
Insurance Information Institute. "The home and your property are covered but not
the land. Insurers in Florida are required to cover land as well.”
RECOMMENDED: Eight steps to getting the right insurance
Florida Statute 627.706 requires insurers to include coverage for “catastrophic
ground cover collapse,” and offer additional separate coverage for other
sinkhole damage. Under Florida law, “catastrophic ground collapse is defined as
'geological activity' that results in all of the following:
1; The abrupt collapse of ground cover
2. A depression in the ground cover that is clearly visible to the naked eye
3. Structural damage to the building including the foundation
4. The insured structure being condemned and ordered to be vacated by the
government agency authorized by law to issue such an order for that structure.
In other words, if a sinkhole swallows your home or part of your home outright,
you should be compensated with a typical home insurance policy. Beyond that,
things get a little tricky. All-encompassing sinkhole coverage was required in
Florida until 2007, but it was dropped in favor of the “ground cover collapse”
language, leaving additional coverage to be offered as a supplement. Then, in
spring 2011, Florida Senate Bill 408, narrowed the definition of damage that
qualified in the face of fraud and rising costs for insurers.
Sinkhole insurance in the Sunshine State has been somewhat of a nightmare for
policyholders and providers alike in recent years. Rates for sinkhole coverage
jumped last year, with state-run Citizen’s Property Insurance hiking rates 50
percent in parts of “sinkhole alley” – pockets of Hernando, Pasco,
Hillsborough, and Pinellas counties, in and around the greater Tampa area,
according to the Consumer Insurance Guide. Private insurers hiked rates up to
200 percent.
Part of the reason: Residential insurance claims for sinkhole damage ballooned.
The Tampa Bay Times reported that sinkhole claims for Citizens nearly tripled
between 2007 and 2011. “We ended up with an enormous explosion in the amount of
sinkhole claims coming forward,” says Robin Westcott, Florida’s Insurance
Consumer Advocate, in a telephone interview with the Monitor. “We were handing
out checks to people with cracks in their driveways and patio for sinkhole
damage and it didn’t mean repairs were required. There was not a clearly defined
threshold for what structural damage was covered.”
The goings on of Florida's porous limestone underground can be difficult to
predict and diagnose."To do a thorough engineering test for sinkhole damage, it
costs at least $10,000," Ms. McChristian says. In many fraud cases, it was more
difficult for and insurer to verify a sinkhole claim than to go ahead and pay
it.
Bill 408 “tightened up the loopholes,” she adds. “Now, if you get paid for
sinkhole damage you have to use the money for repairs.”
But with less serious structural damage largely written out of insurance claims,
Ms. Westcott expects insurance claims to plummet, and she would like to see
those hiked premiums do the same, eventually. “Catastrophic ground cover
collapse” accounts for less than 1 percent of sinkhole claims, which she argues
will lower the cost for insurers substantially in the coming years. “You had a
game changer of a bill in 408 that should reduce your claims substantially. And
even if you could justify a 100 percent increase it would be unfair to people.”
For homeowners worried about their coverage, she recommends assessing the risks
associated with your location and being proactive in going over them with your
insurer. But while recent news has driven some curiosity over sinkhole coverage,
such discussions are a matter of routine for the typical Florida homeowner. From
hurricanes to sinkholes, the state’s capacity for natural disaster is so
wide-ranging that “consumers get completely fatigued trying to figure out what
is and isn’t in their homeowners insurance down here,” she says.
“But frankly, we’re probably a little more aware because of it," she adds. "We
have a lot of specific touch points with our insurance that I doubt people in
other places even think about.”
