Second sinkhole appears. Does your insurance cover sinkholes?

It’s been an eventful geological week in Florida. Just days after a massive sinkhole opened up in Tampa suburb, swallowing an entire home in the process, another smaller (yet sizable) sinkhole appeared a few miles away, in a residential neighborhood between two homes in Hillsborough County.

Sinkholes that large, sudden, and disastrous are relatively rare. However, thousands of smaller ones occur in the eastern United States every year, and because of its geological makeup, the entire state of Florida is particularly prone. They can occur gradually or all at once, causing damage as small as a cracked sidewalk or as large as a swallowed car. The recent spate of newsworthy sinkholes may have many homeowners wondering: Does my insurance cover that?

In most states, the answer is no. Only in Florida and Tennessee – where sinkholes are common – are home insurance providers required to offer coverage for damage related to earth movement.  “In California, earthquake coverage is optional,” says Lynne McChristian, the Florida representative for New York-based Insurance Information Institute. "The home and your property are covered but not the land. Insurers in Florida are required to cover land as well.”

Florida Statute 627.706 requires insurers to include coverage for “catastrophic ground cover collapse,” and offer additional separate coverage for other sinkhole damage. Under Florida law, “catastrophic ground collapse is defined as 'geological activity' that results in all of the following:

1; The abrupt collapse of ground cover

2. A depression in the ground cover that is clearly visible to the naked eye

3. Structural damage to the building including the foundation

4. The insured structure being condemned and ordered to be vacated by the government agency authorized by law to issue such an order for that structure.

In other words, if a sinkhole swallows your home or part of your home outright, you should be compensated with a typical home insurance policy. Beyond that, things get a little tricky. All-encompassing sinkhole coverage was required in Florida until 2007, but it was dropped in favor of the “ground cover collapse” language, leaving additional coverage to be offered as a supplement. Then, in spring 2011, Florida Senate Bill 408, narrowed the definition of damage that qualified in the face of fraud and rising costs for insurers.

Sinkhole insurance in the Sunshine State has been somewhat of a nightmare for policyholders and providers alike in recent years. Rates for sinkhole coverage jumped last year, with state-run Citizen’s Property Insurance hiking rates 50 percent in parts of  “sinkhole alley” – pockets of Hernando, Pasco, Hillsborough, and Pinellas counties, in and around the greater Tampa area, according to the Consumer Insurance Guide. Private insurers hiked rates up to 200 percent. 

Part of the reason: Residential insurance claims for sinkhole damage ballooned. The Tampa Bay Times reported that sinkhole claims for Citizens nearly tripled between 2007 and 2011. “We ended up with an enormous explosion in the amount of sinkhole claims coming forward,” says Robin Westcott, Florida’s Insurance Consumer Advocate, in a telephone interview with the Monitor. “We were handing out checks to people with cracks in their driveways and patio for sinkhole damage and it didn’t mean repairs were required. There was not a clearly defined threshold for what structural damage was covered.”

The goings on of Florida's porous limestone underground can be difficult to predict and diagnose."To do a thorough engineering test for sinkhole damage, it costs at least $10,000," Ms. McChristian says. In many fraud cases, it was more difficult for and insurer to verify a sinkhole claim than to go ahead and pay it. 

Bill 408 “tightened up the loopholes,” she adds. “Now, if you get paid for sinkhole damage you have to use the money for repairs.”

But with less serious structural damage largely written out of insurance claims, Ms. Westcott expects insurance claims to plummet, and she would like to see those hiked premiums do the same, eventually. “Catastrophic ground cover collapse” accounts for less than 1 percent of sinkhole claims, which she argues will lower the cost for insurers substantially in the coming years. “You had a game changer of a bill in 408 that should reduce your claims substantially. And even if you could justify a 100 percent increase it would be unfair to people.”

For homeowners worried about their coverage, she recommends assessing the risks associated with your location and being proactive in going over them with your insurer. But while recent news has driven some curiosity over sinkhole coverage, such discussions are a matter of routine for the typical Florida homeowner. From hurricanes to sinkholes, the state’s capacity for natural disaster is so wide-ranging that “consumers get completely fatigued trying to figure out what is and isn’t in their homeowners insurance down here,” she says.
 

“But frankly, we’re probably a little more aware because of it," she adds. "We have a lot of specific touch points with our insurance that I doubt people in other places even think about.”