A former insurance defense attorney called me yesterday, asking if I would represent him and his wife in their sinkhole insurance dispute. While he oversaw many sinkhole matters from the insurance company’s position, I guess he knows that a lawyer who represents himself has a fool for a client. His call to me is part of a trend, sinkhole loss calls to our Tampa office have been on the rise. Last week, the St. Petersburg Times ran a front page lead article, Geologists Worry About Drought’s Effects on Sinkhole Season. The insurance coverage available, various statutory changes, caselaw, science, and repair of sinkhole losses make these cases fairly complex. Extreme rains or droughts seem to make sinkholes more frequent.

To appreciate the complexity of the legal coverage involved with the science and repair of sinkholes, I will quote part of the appellate decision from a case David Pettinato of our firm won in Nationwide Mut. Ins. Co. v. Chillura, 952 So. 2d 547, 550-551 (Fla. Dist. Ct. App. 2d Dist. 2007):

"…the trial court had for consideration estimates prepared by Certified Foundations, Inc. (CFI), a contractor retained by the Chilluras to estimate the cost of the repair plan prepared by their experts. However, neither party argued that the trial court should consider the merits of the grout injection separately from the insertion of the pins. Similarly, neither side argued that the cost of one repair should be separated from the cost of the other repair. Rather, the focus of the argument at the summary judgment hearing was whether the "subsurface foundation stabilization and/or foundation modification repairs" as a whole were covered under Coverage A.

Nationwide argued that the cost of injecting grout under the foundations and inserting pins through the foundation slabs did not fall under Coverage A of the policy, but rather was covered under other policy provisions that provided for reimbursement of such costs once the repairs were actually performed. Accordingly, Nationwide argued that it was not liable for the costs because the Chilluras had not made the repairs and that, therefore, there could be no finding of a breach of the insurance contract. Nationwide premised its argument on several theories.

First, Nationwide argued that the grout and pinning were repairs to the soil and not to the structure. Since Coverage A of the policy specifically excluded damage to the soil, Nationwide maintained that these repair costs were excluded. Second, counsel argued that the pins and grout were not related to repairing the damage caused by the sinkhole, but rather were needed to prevent future damage. Counsel maintained that while the cost of repairs to prevent future damage was recoverable under other policy provisions, but not under Coverage A, those other policy provisions required that the repairs actually be performed, which the Chilluras had not done. Additionally, Nationwide argued that, in any event, the measure of damages was actual cash value and that there could be no determination of such. Because the determination of actual cash value would involve reducing the repair or replacement cost by a factor to recognize depreciation, such a method could not be applied to the grout and pins, which were not a part of the original covered structures and were not susceptible to repair or replacement. As such, Nationwide argued that actual cash value could not be determined and that Coverage A of the policy could not apply.

Finally, in a related argument, Nationwide contended that the pins were not a repair to the foundation slabs, but rather were the creation of new structures. Unlike the original structures, in which the foundations were supported by soil, the foundations of the new structures would be supported by pins resting on rock beneath the surface of the soil. Since Coverage A was intended to provide coverage for damage to existing property and not to provide for the construction of a new structure different from the original structure, Nationwide argued that these costs were not included in Coverage A."

There are so many legal issues involved that it would be hard to count them all. Eventually, David Pettinato followed the trial and appellate win with a claims practice lawsuit (known as a bad faith lawsuit in other jurisdictions) which was resolved on a confidential basis. Today, he is mired in a significant eight figure sinkhole loss with Citizens Insurance Corporation—it has so many legal issues that we keep them listed on an Excel spreadsheet.

The Florida Legislature has not helped policyholders suffering with sinkhole losses over the past several years. The investigatory and remediation process has components of administrative law. In many cases, insurers invoke statutory repair processes, which often leaves policyholders with poor remediation of the sinkholes and significant lost value because of inferior repairs. As a result, for most policyholders not wanting to take a financial beating during the sinkhole adjustment process, the legislature has almost required policyholders to seek legal assistance.

A sinkhole case that I previously posted about in Settlements and Litigation finally went to appellate argument last week. Citizens Property Insurance Corporation appealed a trial I won for our clients, Mr. and Mrs. Leeds. Jean Niven, of our firm, argued the appeal and did a fantastic job–at least it appeared that way, because the judges were hammering Citizens counsel with tough questions. In my prior post, I noted:

"The press reported the Leeds trial win. The Leeds’ neighbors were ecstatic because our theory of loss was that the Leeds’ home was on the ridge of an ancient relic sinkhole which caused the entire community to have homes damaged by earth movement covered under their policies. As a result of that trial, the neighbors also have hope for a recovery. We have more clients as a result of the publicity. But instead of acknowledging the loss and paying the Leeds’ claim, Citizens Property Insurance has fought us every step of the way, seeking to overturn the jury verdict. It has now been 18 months since the trial, and we have put no money in the Leeds’ hands. While we have publicly won so far and have not "kissed our sister" through a settlement, I am certain that our clients wished we could have obtained their recovery, which will be very large compared to the initial claim, through a much quicker private resolution rather than the public loss we are putting Citizens through."

While virtually all of our cases resolve far quicker than this particular matter, I was thinking that the Leeds are making about 10.5% in legal interest on the value of the loss starting on the date the claim was reported. Assuming we prevail, Citizens will also pay our attorneys fees and costs, and the Leeds will probably end up far ahead of where they would have been had they not fought. While property has been losing value, they are still getting that interest. It’s a fine day when the good guys win, and the bad guys are held accountable for their wrongs.

Happy Mother’s Day!