Senate Bill No. 742 was approved by the Governor on June 16, 2009, and took effect on January 1, 2010, as an amendment to Florida Statute 627.706. This amendment is important to note because it allows an insurer to non-renew an insurance policy which contains sinkhole coverage in Pasco County or Hernando County and instead offer coverage which only includes catastrophic ground cover collapse coverage. In other words, it is now the insurer’s option to remove the coverage in Pasco and Hernando counties.

627.706 Sinkhole insurance; catastrophic ground cover collapse; definitions.—
 

(5) An insurer offering sinkhole coverage to policyholders before or after
the adoption of s. 30, chapter 2007-1, Laws of Florida, may nonrenew the
policies of policyholders maintaining sinkhole coverage in Pasco County or
Hernando County, at the option of the insurer, and provide an offer of
coverage to such policyholders which includes catastrophic ground cover
collapse and excludes sinkhole coverage. Insurers acting in accordance with
this subsection are subject to the following requirements:

(a) Policyholders must be notified that a nonrenewal is for purposes of
removing sinkhole coverage, and that the policyholder is still being offered
a policy that provides coverage for catastrophic ground cover collapse.
(b) Policyholders must be provided an actuarially reasonable premium
credit or discount for the removal of sinkhole coverage and provision of only
catastrophic ground cover collapse.
(c) Subject to the provisions of this subsection and the insurer’s approved
underwriting or insurability guidelines, the insurer shall provide each policyholder with the opportunity to purchase an endorsement to his or her
policy providing sinkhole coverage and may require an inspection of the
property before issuance of a sinkhole coverage endorsement.
(d) Section 624.4305 does not apply to nonrenewal notices issued pursuant
to this subsection.

Prior to this amendment, and still in counties other than Pasco and Hernando, an insurer was required to offer a renewal policy that contained sinkhole coverage, but the insured could opt-out of the coverage if he/she elected to do so. Without any action on behalf of the insured, sinkhole coverage would remain in the policy. That has now changed in Pasco and Hernando counties. For residents of those counties, I suggest you review your policy to see if sinkhole coverage has been removed. If your policy has not yet come up for renewal this year, please pay close attention to the new policy that is issued and any notices your insurer sends. This new law does give insureds in Pasco and Hernando counties the ability to purchase sinkhole coverage by way of endorsement for an added premium. If you have property in Pasco or Hernando county and you have a policy where sinkhole coverage has been removed by the insurer, you should consider paying the additional premium to have the coverage added back into the policy. Sinkhole losses are most often total losses. Without sinkhole insurance, a sinkhole can be financially devastating.

Most homeowner policies in Florida are "all risk" policies, which means the peril that caused the damage is covered unless specifically excluded in the policy. Generally, to defeat coverage under an "all risk" policy, an insurance company must prove that a specifically excluded peril caused all of the damage.

Even if sinkhole activity is not affirmatively found in the SPT borings that are done on the property, if sinkhole activity cannot be ruled out as a cause OR contributing cause of all OR part of the damage, there is coverage for the loss. Simply stated, if sinkhole cannot be ruled out as one of the possible causes contributing to some of the damage to the house, there is coverage.

All a homeowner has to prove at trial is that there was a loss to the property during the policy period and that there was resulting damage. The homeowner does not have to prove that there is coverage; i.e. prove that there is a sinkhole on the property. Rather, the carrier has to prove that sinkhole can be ruled out completely even as a possible contributing cause to some of the damage. If the carrier cannot meet it's burden, there is coverage under the policy for the loss.

Here are sample jury instructions (click on the image to view):

Insurance companies have come up with a whole new excuse not to pay covered sinkhole claims. The recent trend has been to deny payment on confirmed sinkhole losses by arguing the damage is not "structural" damage as defined by Florida Statute 627.706.

627.706 Sinkhole insurance; catastrophic ground cover collapse; definitions.--  

.....

(c) "Sinkhole loss" means structural damage to the building, including the foundation, caused by sinkhole activity. Contents coverage shall apply only if there is structural damage to the building caused by sinkhole activity.  

The meaning of the word "structural" was recently brought before Judge Barton in Hillsborough County and he ruled against the insurance company, holding that "structural" damage means damage to the "structure," which includes purely cosmetic damages. See Judge Barton’s order below:

While this is not an appellate decision, it is persuasive authority and insurance companies who take this position should be challenged every time.
 

The last time I wrote, I stressed the importance of maintaining sinkhole coverage on property located in Florida and I explained the very restrictive application of catastrophic ground cover collapse coverage. Now, I want to stress the importance of properly completing the insurance application.

While most everyone relies on their insurance agent to fill out the application and signs the application without reading it, it is a very bad idea to do so. Everyone who signs an insurance application should read it thoroughly and make sure all information is correct at the time the application is submitted. If there is damage or disrepair at the property (i.e. cracks, etc.) or if there are any known sinkholes in the area at the time the application is filled out, this information must be disclosed. Even if you follow the advice in my last post and purchase sinkhole coverage, if you do not disclose all information on the application, the insurance company may nonetheless deny your covered claim. Don’t let that happen to you.

Be familiar with the condition of your property at the time you fill out the application and disclose all known conditions that are responsive to questions presented in the application. If you don’t, you may be buying a very big headache down the line.

In 2009, the Florida legislature passed a law allowing Florida residents to opt-out of sinkhole coverage. The purpose of the law was to help insureds lower their yearly insurance premiums. The practical effect, however, has been that we now have many in this state who have insurance policies that effectively cover nothing in the event of sinkhole damage.

Sinkhole coverage covers the circumstance where soils ravels into fractures created in the underground limestone. That raveling of the soil causes a home's foundation to settle unevenly. This uneven settlement (called differential settlement) causes damage to the home and its foundation. A sinkhole is not normally a hole or depression that you can see. Instead, it is something that occurs deep below the home or other structure that is not visibly apparent until damage to the home or other structure begins to manifest. The only way to determine if there is sinkhole activity on a property is to do geological testing deep underground.

Catastrophic ground cover collapse coverage, on the other hand, is far more narrow and restrictive. Most policies are written that in order for a catastrophic ground cover collapse to be covered, the insured must show that:

1. There is a visible depression;
2. There is structural damage to the home or other insured structure; and
3. The home or other insured structure must be condemned. If an insured cannot show all three, there is no coverage. It's at that time the insured wished they paid the additional premium to keep sinkhole coverage.

The best advice is to never opt-out of sinkhole coverage. Catastrophic ground cover collapse is very unusual. That is usually not how sinkholes present themselves. Therefore, the policy providing only catastrophic ground cover collapse coverage effectively offers no coverage at all.

Usually, a person’s home is their most important investment. With the frequency of sinkhole activity in this state, protect your investment and do not opt-out of sinkhole coverage.