The poor policyholders whose homes cracked, popped, and dipped as a result of sinkholes induced by citrus farmers spraying their crops to prevent freezing damage should be happy it happened to them this year. Newly proposed anti-consumer sinkhole legislation would limit policyholders to 25% of their coverage limits for the most common sinkhole problems.

Florida House Bill 1447 Provides:

Section 10. Subsection (1) of section 627.706, Florida 288 Statutes, is amended to read:

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

(1) …. In order to reduce the impact of sinkhole-related insurance fraud, the insurer making sinkhole coverage available under this subsection shall specify a sinkhole coverage limit equal to no more than 25 percent of the structure ("Coverage A") limit under the policy. The sinkhole coverage limit does not affect the coverage limit for catastrophic ground cover collapse. The coverage limit for sinkhole losses includes payments for both indemnification and expenses.

The full amount of the limits are available for "catastrophic" sinkholes. But, catastrophic collapse is extraordinarily rare compared to the typical sinkhole collapses that afflict most homeowners. Most sinkhole catastrophes result in a slow death of a structure– losing its soil support over months and years. Fixing those sinkhole problems in an inexpensive manner has proven difficult and this is where many battles exist between insurer and policyholder.

Insurance companies that have these losses want to pay as little as possible. Policyholders want a repair that will work and not subject them to concern that the home will start sinking again.

The cheap sinkhole fix that insurers want, and many bought and paid for insurance company experts support, is through the use of grout. Grouting a sinkhole loss as a repair method does not work in the long term and often does not work in the short term. I have had policyholders come to me after their home was destroyed during grouting. Neighborhood homes and roads can be impacted by grouting. I had a condominium retain me after the insurer poured so much grout into the sinkhole that no more policy limits remained. Many "grout only" sinkhole clients become repeat clients just a few years later.

Homeowners who repair a sinkhole with grout alone will lose significant market value of their home. It is bad enough that a homeowner loses value just by having a fully repaired home that has the stigma of being inflicted with a sinkhole. Losing additional value because potential buyers know that a "grout only" repair was performed is another reason why this legislation is so bad. The only repair homeowners will be able to afford is to repair with "grout" and in many, if not the majority, of instances, even a "grout only" cheap fix will exceed 25% of the available coverage.

Yesterday, I noted how insurance industry lobbyists used "spin" to sell their agenda to our well-meaning legislators. In this instance, the insurance lobby is using "insurance fraud" and "insurance abuse" as the "spin" to package an idea and agenda that will appeal to our well-meaning officials.

Who is against "insurance fraud?" Everybody is. Even if not fraud, who is against "insurance abuse?" Everybody is.

When insurance industry lawyers and lobbyists start using these terms to justify the reasons to limit coverages and benefits to policyholders, conservative legislators should understand that those lobbyists are "playing" them. Anytime an insurance company claims adjuster wrongly underpays a claim to a customer, the excuse and fall back is that the otherwise innocent and good insurance customer is deviously getting something they do not deserve and "inflating" the claim. The insurance industry would have your legislators believe that their own constituents are evil wrongdoers by requesting and claiming full f benefits when the insurer under-estimates and under-pays. If this were true, insurance would be the most defective product ever devised by mankind because it makes otherwise innocent citizens into crooks whenever they want more than the insurer thinks is owed.

The new mantra of insurance propaganda and the insurance lobby "spin" is:

"It is not only fraudulent claims that are wrong. All "inflated" claims are wrong and we have to do something about it."

Sounds good. And, it is "spin." From the insurance company perspective, "inflated" means more than what the insurance company calculates a claim should be paid. The insurance propaganda suggests that innocent policyholders are manipulating the system to get something they do not deserve, rather than the reality: the sophisticated claims adjusters and insurance company claims technicians have devised methods and arguments of repair, after thousands of similar claims, that are routinely under paying the full benefits owed to a policyholder.

It is extraordinarily profitable and provides a competitive advantage to devise methods to underpay claims and get away with it.

There was a reason why Allstate lied about the existence of and failed to fully turn over secret and internal property insurance claims documents to the Florida Senate and the Office of Insurance Regulation several years ago. Those documents evidenced a homeowners claims methodology that applied Allstate’s carefully studied ways to make its property claims department a "profit center" by paying less on homeowners claims than other insurance companies. Allstate was so afraid to turn over these documents that it was sanctioned to not sell policies until it provided the Florida Senate and Office of Insurance Regulation with them.

I sometimes wonder whether our legislators have forgotten about these lessons and problems of underpaid and delayed claims in just a few years. I wonder whether they remember Allstate lawyers refusing to frankly and honestly answer questions. I wonder why they would be so inclined to now listen to insurance industry lobbyists and lawyers today, after they were so discredited just a few years ago.

These experiences and knowledge are sometimes overlooked today because legislators are our representatives for a relatively short time. Many were not present when these issues were raised just a few short years ago. The insurance industry has time on its side and the resources to develop and implement effective strategies to influence legislators.. I can now appreciate how our elected officials can be swayed by the clever insurance lobby.

In contrast, there are not so many insurance consumer advocates. Policyholders are working at their jobs, hoping that their elected officials will protect them. At the same time, full time insurance lobbyists are trying to provide the needed "political protection" to legislators that support the insurance industry proposed laws by providing the "spin" that will be placed into newspapers, magazines, and television so that otherwise anti-consumer legislation falsely appears as good public policy.

Insurance issues are generally not new. Problems that occur generally have arisen in the past or for reasons that are difficult to solve. The current debate about health insurance is an example of how difficult it can be to find a simple answer to these tough questions.

However, having a insurance product that leaves people with only a portion of the money needed to fully and properly repair an unfortunate calamity is a defective insurance product. Laws should not encourage such underpayment. HB 1447 may be grounded upon legitimate concerns which should be addressed, but it is the wrong solution to the problem for the unfortunate policyholder that has suffered sinkhole damage.

  • greg

    “(1) …. In order to reduce the impact of sinkhole-related insurance fraud”

    How exactly does this bill reduce the impact of fraud?

  • None of the bills being presented actually reduce fraud.

    The fraud has to stop – they need to start up the “insurance fraud busters” program again – to incentivize citizens to turn scam artists in – with the economic atmosphere – i’m sure people would be more than happy to have the potential of getting a 25K reward for turning in a person or company who offered to involve them in a fraudulent claim.

    This is not about fraud though – this is nothing more than spin to reduce benefits for homeowners who are already struggling with their own economic disasters. One sinkhole, fire, hurricane or other disastrous claim and not enough coverage that was bought and paid for can translate into the economic collapse of a person or family.

  • Chip Merlin

    Greg and Nancy,

    Both of you are exactly right–fraud has nothing to do with this issue. However, when the insurance industry wants to pass anything that reduces benefits, they try to make an argument that by reducing potential benefits, they also reduce insurance fraud.

    Sounds great, but it is totally illogical. Indeed, if one were to pass the most effective law to prevent insurance fraud, it would be to outlaw insurance.

    Fraud has nothing to do with this. And, that was my point.

  • Joe Insurance again

    It will lower fraud because the cost benefit will only fix the home to a hypothetical “portion” instead of a total loss. The insured will then have to make a decision to whether he wants his home to be an official “sinkhole” home and have the equity shrink in half because he doesn’t want to look at a couple spider crack and hates to use more than 5 lbs of pressure when opening a window.

    Witht his change people will think twice before putting in a claim…

  • TAM

    This law will only benefit the insurance companies not the homeowner. Take it from someone who is still going thru the sinkhole process as of January 2010. It is a depressing situation to be in. It is heartbreaking to find out you are going to lose a signifcant amount of money on your biggest investment because of a sinkhole that has been properly fixed and documented. Personally I am upset about this proposed law. I have friends and neighbors who have either gone thru the sinkhole situation or are going thru a sinkhole situation as we speak.