The Tampa Tribune
By Louis J. Carron
September 19, 2011
As an insurance professional I feel as though every consumer who has a property insured in Florida should be properly educated as to exactly what defines a sinkhole and what is covered or not covered by a sinkhole coverage endorsement.
Insurance companies are required by law to provide coverage for “Catastrophic Ground Cover Collapse” and include this in the base policy.
Florida law affirms that catastrophic ground cover collapse does not occur until all of the following four conditions are met:
* There is an abrupt collapse of the ground cover.
* There is a depression in the ground cover clearly visible to the naked eye.
* There is structural damage to the building, including the foundation.
* The structure is condemned and ordered to be vacant by the local government agency responsible for issuing condemnation orders.
The official definition of sinkhole, sinkhole loss and the damage covered is determined by statute, and very complex.
The type of damage a sinkhole does to a home is the same as the type of damage caused by lack of maintenance, settlement and improper building construction — such as exterior cracks, interior doors that do not close or torn pool screens. Most often the cause of this damage is determined not to be caused by a sinkhole.
The cost of determining the cause of the damage is on average $5,000 to $16,000 and is paid completely by the insurance company. The presence of a sinkhole does not have to be confirmed, and sinkhole claims are paid if an engineer cannot eliminate sinkhole as a cause of damage. A large part of the cost of a sinkhole claim is to pump grout into the sinkhole. The damage to the structure in most cases is cosmetic in nature, but policy limits, in most cases, are paid in full.
Due to the involvement of some public adjusters and/or attorneys, claims have been filed for sinkhole losses, and the companies have incurred large costs for investigation, running geological tests and, in some cases, court defense costs for claims that were later deemed to be non-sinkhole losses.
What each resident of Florida has to realize is that sinkhole coverage is now becoming an endorsement, which may or may not be offered by their carrier and thus can be and should be charged adequately for, according to the area where the property is located.
This is along the same lines as adding replacement-cost coverage, computer equipment, a lower deductible, jewelry or any other special enhancement that may be available for your policy. If you desire the broader coverage, there is an increased cost associated with the extra risk and exposure taken on by the carrier, and the consumers must make the decision to decide whether they can afford this extra cost or not.
Floridians faced the same issue after Hurricane Andrew. Carriers started offering a separate hurricane/named-storm deductible, and consumers complained that banks would not accept these deductibles, and this new deductible would cause foreclosure and financial burden for the consumer. The banking industry adapted, and the public now better understands these deductibles and what they would be responsible for in the event of such a loss, and now hopefully they better prepare for this large expense.
I am not saying that there are not legitimate sinkhole claims, and I am not saying that public adjusters and attorneys are the main problem. What I am saying is that when a leak springs in the dam, you need to plug it before it floods the town. If our state and the insurance carriers that do business here do not limit this sinkhole issue, all consumers will suffer and we could lose our “freedom of choice” to find affordable property insurance.
We, the consumers, are also on the “hook” for hundreds of millions of dollars in exposure that exists with Citizens Insurance Corp. Every Florida resident would share in the losses of Citizens if it could not pay all its obligations to its policy holders. This would be triggered by policy taxes, which we are paying now, special assessments, which are a part of every Citizens policy, and finally higher rates.
This sinkhole issue is doing just that; depleting the claims-paying ability of Citizens as well as all carriers doing business in the state.
Consumers should ask their agent to explain the coverages of their policy, and the consumers should understand what it is they would be responsible for in the event of a loss, such as their deductibles, rejection of coverage or possible assessment that may occur if their carrier would not be able to cover obligations to policyholders.
Louis J. Carron Jr. is the owner of Carron Insurance Agency in Tampa.
