The sinkhole epidemic in Florida is not an easy problem to solve. Florida’s Hernando and Pasco counties suffer more from this peril than any other counties in the country. The peril of sinkhole loss has its own statutes and has its own endorsement in most insurance policies. Below is a common sinkhole endorsement.
1. We insure for direct physical loss to property covered under Section I caused by the peril of “sinkhole loss”, including the costs incurred to:
a. Stabilize the land and building; and
b. Repair the foundation;
In accordance with the recommendations of the professional engineer who verifies the presence of a “sinkhole loss” in compliance with Florida sinkhole testing standards and in consultation with you.
(6)(c) We will pay no more than the actual cash value of the damaged property; not including underpinning or grouting or any other repair technique performed below the existing foundation of the building, until you enter into a contract for the performance of building stabilization or foundation repairs.
What this endorsement covers is (1) the subsurface repair of the structure; and (2) the above ground damages caused by sinkhole activity. Many are focusing on the issues that are related to subsurface repairs, including battles of the proper remediation and whether the carrier can require a policyholder to enter into a contract without consulting with the policyholder as the policy and Florida Statute 627.707 require. Remediation of sinkhole losses is a subjective science. .
Policyholders commonly overlook the carriers’ obligation to immediately provide indemnification for the above ground repairs for physical damage to the property.
The above endorsement requires the carrier to issue payment immediately for the actual cash value of the above ground damages.1 Nonetheless, carriers routinely underpay these damages so drastically that it would be comical if not such a serious matter. The carriers defend their position by claiming they will come back after the property has been repaired to issue a second check. The problem with this logic is policies do not provide for such a protocol.
The policy language above is unambiguous, “[w]e will pay no more than the actual cash value of the damaged property; not including underpinning or grouting….”
If you have twenty thousand dollars in actual cash value damages at the time you reported your claim and the carrier issues a check for five thousand dollars, the carrier has failed to fulfill its obligations under the policy.
When carriers underpay claims and/or fail to fulfill their obligations under the policy, the carrier is in breach of the policy and policyholders need to seek professional assistance. It is important to ensure the proper repair protocol is implemented in repairing the subsurface of your structure the first time. However, it is just as important to understand what you are entitled to prior initiating those repairs for the above ground damages as well.
1 For an explanation of actual cash value take a look at Vivian Persand’s January 27, 2012, blog post, Depreciation: One Perspective on Calculating Actual Cash Value.