Sinkhole Insurance Coverage
In 2011, the Florida legislature changes the statutes on how insurance companies handle sinkhole claims and issue sinkhole coverage. Before 2011, sinkhole coverage was automatically included into everyone’s homeowner insurance policy and the insurance companies were required to investigate every claim. That included everything from catastrophic collapse sinkholes that cause severe damage to homes to slow developing subsurface sinkhole activity that can take hundreds to thousands of years to form a sinkhole but can still cause damage to overlying structures.
That all changed when Senate Bill SB408 was passed in May of 2011. The new laws now made sinkhole coverage an optional and separate rider on home insurance policies. This also allowed insurance companies to opt out of coverage entirely. If the insurance company felt that the risk was too great, they either cancelled the policy or gave the homeowner the option of purchasing the additional rider for a separate and, in some areas of Florida, greatly increased rate. Many homeowners were left with no option but to drop their coverage. It is important to note that everyone who has homeowners insurance is still automatically covered for catastrophic collapse sinkholes that cause the home to be condemned. Dramatic cover collapse sinkhole, like the one in Seffner in February 2013, will always be a covered loss. That will likely never change.
Let’s take a look at the current 2015 definitions in Florida Statutes 627.706-707
- According to Chapter 627.706 (2) (h), a “sinkhole” is defined as a “landform created by subsidence of soil, sediment, or rock as underlying strata are dissolved by groundwater. A sinkhole may form by collapse into subterranean voids created by dissolution of limestone or dolostones or by subsidence as these strata are dissolved.”
- According to Chapter 627.706 (2) (i), “sinkhole activity” is defined as “settlement or systematic weakening of the earth supporting such property only when such settlement or systematic weakening results from movement or raveling of soils, sediments, or rock materials into subterranean voids created by the effect of water on a limestone or similar rock formation.”
- According to Chapter 672.706 (2) (j), “sinkhole loss” means structural damage to the covered building, including the foundation, caused by sinkhole activity.
- According to Chapter 627.706 (2) (k), “structural damage” means a covered building, regardless of the date of its construction, has experienced damage that meets at least of one of the five criteria listed in the statute:
What this means for Homeowners?
This new legislature redefined what it takes for a sinkhole loss to be covered by insurance companies and also introduced a five pronged definition of “structural damage.” Now the home has to exhibit structural damage before a sinkhole loss can be confirmed, even if sinkhole activity is determined to be present at the home. If a homeowner has sinkhole coverage and files a claim today, the insurance company will send an engineering firm out to determine if the damage is severe enough to be classified as “structural damage.” They will not test to determine if sinkhole activity is present unless structural damage exists.
Now let’s address the difference between a “sinkhole” and “sinkhole activity” in the eyes of the law. When someone says “My house or neighbor’s house has a sinkhole” that usually does not mean that an actual sinkhole – a large hole in the ground that could potentially swallow the home – formed. It means that an engineering company hired by the insurance company to investigate a sinkhole claim, determined that conditions that could potentially lead to the formation of sinkhole (sinkhole activity) was present at the property and a contributing factor to the distress. Collapse sinkholes are very rare and comprise less than 1 percent of all reported sinkhole/sinkhole activity claims in Florida. Homeowners are covered if the collapse feature caused structural damage to the home.
What does all of this mean for you? Sinkhole coverage can still be obtained but the availability and costs are greatly dependent on where you live. In areas that are prone to sinkhole activity like Pasco, Hernando, and Hillsborough counties, it is nearly impossible to obtain sinkhole loss coverage. In areas that are less sinkhole prone, sinkhole loss coverage is readily available and fairly affordable. Geohazards can help you assess whether you are located in a sinkhole activity prone area and what step can be taken if you a concerned that you have a sinkhole activity issue.