The catastrophic sinkhole that opened up in Dunedin, Florida has brought attention to limits of the new law that was passed in 2011 by the Florida Legislature. This law made it extremely difficult for homeowners to get proper coverage or alternatively pay a hefty price for a very limited sinkhole policy. Many of the changes are not good for property owners as the new law also negatively impacts the way insurance companies handle and pay for sinkhole claims when they arise.

The existing law only requires Florida insurance companies to provide coverage for “catastrophic ground collapse” meaning insurance coverage kicks in only if the property literally collapses into the ground and also meets other strict criteria/definitions.  Sinkhole damage to pools, driveways or any structure other than the main building have been legislated out of existence!

While people can purchase additional coverage that covers the more common type of sinkhole damage that causes serious cracks in the walls or floor in addition to doors and windows not opening, the coverage has become very expensive and the homeowner is left with the burden of first paying out of pocket for testing and repairs before getting reimbursed. So few take out policies, leaving them vulnerable.

A question that must be asked is if the structure of this law is creating a moral hazard as policyholders may choose to wait before doing anything to prevent further damage. If sinkhole type damages show up (non catastrophic) there is no coverage. So policyholders may just wait to see if their house collapses when there is coverage! The whole burden has been shifted back to the policyholder to spend their money to protect the insurance industry. If they don’t, then the insurance company will likely say you did not mitigate your damages and thus we are not giving you coverage even for your catastrophic sinkhole. In a sense, the way this sinkhole insurance has been set-up is that the coverage actually can be illusionary. You paid for something you may not get regardless of the type of sinkhole loss you had.

While this recent sinkhole situation may seem cut and dry, it is not.  Insurance coverage under the new law only will cover for the collapsed building(s) leaving other adjacent structures out.  This is a serious concern as typically where there is sinkhole activity under one building there is activity under others.  The fact that insurance will not pay to stabilize the remaining buildings makes an already dangerous situation worse as it may happen again.  

Our public adjusters have handled numerous sinkhole claims in our history and confirming its existence is only the first step. Taking measures to both properly repair and limit further damage is what insurance coverage should do. It’s time for the legislature to take another look and this time, consider the homeowner. 

If you have questions regarding any property insurance related issues, please call 800.321.4488 or contact us to submit a question to one of our public adjuster or loss assessor experts.

See Video Explaining Current Florida Sinkhole Law