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Sinkhole Controversy May Mean Changes to Homeowners’ Policies

Wed Sep 1st, 2010 on     Homeowners Insurance,    

Florida homeowners are concerned that proposed sinkhole legislation will cause delays or denials of insurance claims. Insurers are pressing for the law change in response to a sharp increase in the number of sinkhole claims over the past few years.

In an effort to resolve the growing controversy, the Florida Office of Insurance Regulation (OIR) is surveying Florida homeowners’ insurance companies over the next few weeks. The findings will inform the office’s position on any proposed legislation.

Insurers say that sinkhole claims are in large part to blame for the stark increase in homeowners’ premiums. Insurers hiked rates as much as 30 percent from 2008 to 2009. They are also calling into question the legitimacy of some claims. Sinkhole claims have more than doubled in the past five years, according to one major insurer.

Florida’s geology makes the state especially prone to sinkholes. The porous limestone of the region contains deep fissures, and underground caves and streams are common. The OIR, though, doesn’t believe there has been sufficient geological activity to account for an increase in sinkholes.

The 20 people who lost their homes to sinkholes last winter would say that there are forces other than natural geological shifts at work. When last winter’s freezing temperatures hit, Plant City strawberry farmers sprayed their crops with water to prevent frost damage. But the water was groundwater, and the farmers pumped out so much that the water table fell by 60 feet. With those underground streams depleted, sinkholes opened in the area — at least 80 of them — damaging those 20 homes beyond repair.

Homeowners purchase the insurance to defray the costs associated with a sinkhole. Insurers report that investigating a claim can cost between $8,000 and $10,000, and repairs can run upwards of $200,000. Insurers complain that those expenses cause the companies to lose money on the coverage. And, as they pass those losses on to consumers in rate increases, they accuse some claimants of crying wolf.

The Florida Insurance Council hopes the OIR survey results will support its proposed legislation that would limit sinkhole payouts to houses with foundation damage. Homeowners may be wondering if insurers are prepared to handle an onslaught of claims appeals if that happens.

Resource: Insurance Journal “Florida Insurance Department to Survey on Sinkholes” 8/23/10

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