Sinkholes, Property Insurance, the Option to Repair and Assignments of Insurance Benefits….Watch out!

A recent media article following the new catastrophic sinkhole loss in Dunedin, Florida caught my attention the other day as it looks like we have two forces on a collision path. And wouldn’t you know that the poor insured policyholder is caught in the middle.

The media recently reported that a Citizens Insurance claim committee will vote on a resolution where going forward, they will start making repairs to ALL sinkholes reported to them. In other words they will select the contractor and the insured policyholder will be out of the picture, since no money will be paid to the insured for their loss. More importantly, they will have no say in the repair method. Now remember the Dunedin, Florida homeowner was a Citizens insured. That insured reportedly had been fighting with Citizens for over two years about his sinkhole, including the correct way to remediate the loss and damages.

It was reported that this insured fearing a fate similar to the Seffner, Florida sinkhole victim (his body was never recovered) finally agreed to let Citizens “fix” his sinkhole. Well, now we and the rest of the nation now know the result of the Dunedin matter, catastrophic failure with a complete loss of this homeowner’s residence and all their personal property after the Citizens’ contractor started pouring grout down the hole.

Would the outcome have been different if Citizens had followed the homeowner’s suggestion of repair by putting pin piles as well as grout under the house two years ago rather than the cheaper fix of concrete grout going into a void possibly over to another property owners subsoil?  Of course it would! Now Citizens has to pay a total loss and I suspect the cost of the grouting up until the complete failure.

So what you have here is a case where Citizens de facto exercised their option to repair with catastrophic results! Now they want to do this with all future sinkhole claims, which by the way is the cheaper version of a “fix” for a sinkhole by pumping grout down a hole.

Now here is where the problems really kick in if the full Citizens Board adopts their claim committee proposal to “fix” all sinkholes.  Citizens wants to control the process to save money. So they go out and line up their contractors, who under a master servant relationship, are subservient to Citizens, their boss, who is paying them and who they depend on for future sinkhole jobs.

But who signs the contract with the sinkhole repair contractor?  My experience is that Citizens will tell their insured that they have to sign the contract and besides, what building official in the towns and cities where the loss occurred will give a permit to a non-owner of the property? Keep in mind that we are talking about private property. The officials at the law and ordinance window down at the town hall are not a party to an insurance contract so you can imagine the push back that will result when contractors show up to get permits on property they do not own and presumably have no interest in other than to serve Citizens Property Insurance Company. And let’s not forget one other minor detail. What happens if repairs are initiated and the local building official comes out and red tags the job?  This means the work being performed is either substandard, not to the plans submitted or to the current building code. To fix the building department’s requirements to be in compliance is all about money and more likely more than Citizens reserved for the loss. Will Citizens pay the additional cost, pass it along to the contractor to eat out of his profit margin, or tell the policyholder they must pay because the additional scope and price is not covered or agreed to by the Citizens claim adjuster?

But there is always a loophole or a work around for these problems. Citizens will likely say they are using their select contractors who are working for them but that you must first sign the contract, and be required to use them or they will not fix your sinkhole. Ok, fair enough, but the other shoe drops when Citizens tells their insured that it is the insured who really hired the contractor and if there are up charges or scope issues the insured will need to sort it out with THEIR contractor. How many times have I seen this played out in the past when repairs do not go as planned? And what we hear from the insurance company is,” sorry we do not agree with the charges or supplement” and oh by the way, you the policyholder signed the contract not us.

BEWARE.  This is where they get you, as you, not Citizens may be responsible for any cost overruns, code upgrades, etc.  After all, “technically” you the policyholder signed the contract and the contractor, not Citizens, is responsible for substandard work and if warranty is offered and needed. It’s the contractor’s warranty, not Citizens. So who did the due diligence on the contractor?

Finally, there will likely be an ASSIGNMENT of BENFITS clause in the contractor’s contract so you may well be assigning all your insurance policy benefits over to the contractor sent out by Citizens. Yes, that’s right--all benefits! The irony of this is that Citizens is reportedly mounting a legislative action to remove the assignment of benefits for contractors as they have reportedly been ripping Citizens off big time with the assignment of benefits clauses in South Florida on water losses.

Two colliding insurance forces; “option to repair” and “assignment of benefits.”  WATCH OUT! In my 41 years in the adjusting claim business, I have never seen a successful OPTION TO REPAIR OR REPLACE plan or protocol work when the insurance industry takes on these tasks. In the end, it is usually the INSURANCE companies who get tangled up in litigation and then heads roll in the claim departments.

After the dust settles someone suggests there must be a better way to fairly pay the policyholder based on the terms and conditions of the insurance contract and the vicious cycle starts anew. Let me know what you think!

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.


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