Many policyholders who suffer a sinkhole loss do not know their insurance carrier has the right to repair their property. In other words, the carrier can elect to retain the necessary contractors to perform subsurface and above-ground repairs. The policyholder wins under these circumstances because if the repair method fails, the carrier must pay for further repairs. If the repair method is effective, the policyholder has been properly indemnified as required by the contract of insurance.
A typical example of this policy language reads:
Our Option. We may, at our option, repair or replace any covered part or item of damaged property. If an identical replacement is not available, substitute replacement of equal or greater features, and functions will be substituted.
Once a carrier elects to repair a property affected by sinkhole activity, a new contract is formed between the insurer and the insured. It is important to distinguish between a carrier’s right to “elect to repair” a sinkhole affected property and the carrier’s right to require a subsurface repair contract based on its recommendations. If a carrier is not “electing to repair” a property and instead is only requiring a subsurface repair contract, it may argue it has no responsibility if the repair proves to be inadequate.
When a client walks into my office, I am often asked whether his or her carrier will take responsibility for its recommended repair. Except for carriers “electing to repair” property, not one carrier assured me its recommendations will remediate sinkhole activity. As you can imagine, this response does not provide any assurance to my clients that their carriers will honor their contractual obligations.
Interestingly, carriers rarely “elect to repair” a damaged property. Why not? Perhaps they do not believe their repair recommendations will truly remediate the damage.
Next week, I will write about methods to repair property affected by sinkhole activity.