Property Insurance Coverage Law Blog : Florida Insurance Lawyer & Attorney : Merlin Law Group Law Firm : Tampa, Houston, Coral Gables, Gulfport

In the event of a sinkhole, insurance companies typically rely on the "settlement of loose, sandy soils" and "concrete shrinkage and bulging" exclusions in denying coverage. In order to prevail, the insurance company must prove that the excluded event; i.e. the settlement of loose, sandy soils and/or the shrinking or bulging of materials caused ALL of the damage to a residence.

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):

Sandy Burnette and I reminisced about Butler Pappas while he was editing his Guest Blog, Sandy Burnette Defends Insurance Fraud Fighters. Sandy joined Paul Butler while I was a law clerk in 1981. The firm was then known as Butler and Neilson. Lane Neilson is still practicing insurance defense in Orlando Florida. Sandy recounts that the prior names of the current Butler Pappas have been:

Wilson and Butler

Butler and Neilson

Butler and Burnette

Butler, Burnette & Wood

Butler, Burnette, Wood & Freemon

Butler and Burnette

Butler, Burnette & Pappas

Butler and Pappas

Butler, Pappas, Weihmuller, Katz & Craig

Attorneys have a peculiar way of coming and going at law firms. Few of us, especially litigators, ever stay in one place during our entire legal career.

Paul Butler came to Tampa via Atlanta. His mentor was Clayton Farnham. Paul is an ordained Methodist minister. Like Clayton Farnham, Paul is a consummate gentleman, driven, and very bright. Like many Methodist ministers, he can touch one’s soul with eloquent rhetoric. I was at a trial he won where the jury was crying with Paul during his closing argument.

John Pappas and I were not only classmates, but also on the Law Review and Moot Court in law school. He was a hardworking student and a very competitive debater. When Paul Butler indicated that they needed to hire more attorneys because of the firm’s growth, I recommended John. I felt he would be a perfect fit for the type of practice Paul Butler was establishing. I have been proven right about that.

John Pappas is as dedicated to the insurance industry as I am to the advocacy of policyholders. It is not uncommon for tough feelings and bitter disagreements to come about between lawyers on opposite sides of a case where the stakes are high. Possibly as a result of competitiveness for our clients, John and I have not seen much of each other socially for a long time. However, while many who meet John may think he has a serious and unrelenting personality, he personally has a light sense of humor. I would encourage reading his From Beautiful Brazilians to Bear-Catchers to gain a glimpse of Pappas’ humor.

Yesterday, I replied to a comment concerning Surplus Lines Insurers, Sinkholes, and the Law of Mars. I thought a lot about how attorneys and policyholders view our opponent’s representatives and wrote in part:

“The attorney in the above cited case, Donna Devaney, represented insurance companies at one of the largest law firms in Florida. After becoming a partner and finding that status was not all it seemed when she was younger, she switched over to the policyholder side with us.

Donna has always been successful. Fortunately for her, she is now able to use her considerable talents to help people.

One of the reasons I left the representation of insurance companies in 1985 is because I did not want to go see my Maker and explain that I used my talents to help save Travelers $25 million dollars. This is not to say that I do not respect my adversaries. The vast majority of insurance counsel are very honorable, good people, and play an important role in society. However, we all have a choice to make at the endeavors we try to be successful.”

I was very fortunate to have Paul Butler as a mentor early in my career. Indeed, I may have been blessed. Without Paul teaching me this line of legal work, I would never have become an attorney for policyholders. It is interesting how one thing leads to another in life’s journey.

Generally, surplus lines carriers are free from the rate approval process admitted carriers have to go through. In many states, they do not have to file policy forms for regulatory approval and are not subject to financial audits for solvency. In short, surplus lines carriers are free from many laws and regulations that admitted carriers have to follow.

Invariably, questions arise regarding how much freedom surplus lines carriers should have from the insurance laws where they underwrite risks. Typically, the surplus lines carrier, following a loss, does not want to comply with claim regulations because doing so would provide coverage or more benefits to the policyholder. The attorneys for the surplus lines carriers argue that their clients do not have to follow claims laws because the legislatures have exempted them from such state rules and regulations.

More than one judge has heard me say in response:

"Your honor, if it does not have to follow this state's law, what law does it have to follow? The law of Mars?"

Donna DeVaney beat a surplus lines carrier on this very issue. She represented a client with sinkhole loss. Scottsdale Insurance Company, a surplus lines carrier, hired Rimkus Engineering to conduct a test. Rimkus confirmed the loss was caused by a sinkhole. Scottsdale then denied the claim, saying that sinkhole loss was not covered under the policy. (How much do you want to bet that Rimkus would have found a different cause of loss if Scottsdale admitted sinkhole loss was covered?)

Donna filed a Motion for Partial Summary Judgment and a Memorandum on this issue. Interestingly, she did some investigation and showed the trial Court that Scottsdale had paid at least two other policyholders for sinkhole loss with the same policy. The Court, citing the recent Florida Supreme Court case of Essex v. Zota, 985 So. 2d 1036 (Fla. 2008) issued an Order ruling in our client's favor. 

Surplus lines insurance policies can be complex because it is never clear which laws apply, and do not apply, to their contracts. Policyholders and adjusters have to be vigilant to understand the legal framework of these contracts to make certain all benefits are claimed and received.