Having Trouble Getting Sinkhole Insurance in Tampa Bay?

Posted by Calum MacKenzie on Thursday, March 15th, 2012 at 7:21pm.

If you’re a Tampa Bay homeowner, or considering buying a home in Tampa Bay, by now you’ve probably gotten an unexpected education on sinkholes and if you haven’t, you’re about to.  Before I dive deep into this topic, I want say that I’m not a registered insurance agent, and you should always consult directly with your insurance agent for specific questions and concerns, but because we’re working with Buyers in Tampa Bay on a daily basis, this is continually a topic of conversation and one I follow with interest. Additionally, most of the data for this article was taken from Florida Office of Insurance Regulation’s report, “Report on Review of the 2010 Sinkhole Data Call”.  If you ever have trouble falling asleep at night just pick a copy of this legal thriller and you’ll be fast asleep in minutes.

Sinkholes have become the latest hotly debated topic in the Florida insurance industry thanks to recent law changes, which are leading to reform in sinkhole coverage for homeowners. Citizens Insurance, the state run insurance company is set to raise sinkhole coverage rates by 50%, Citizen’s Board Approves Sinkhole Rate Increase, and looking for additional rate increases in the future.

First, all insurance companies offering homeowners insurance in Florida are legally required to provide

“Catastrophic ground cover collapse” means geological activity that results in ALL of the following:
1. The abrupt collapse of the ground cover;
2. A depression in the ground cover clearly visible to the naked eye;
3. Structural damage to the building, including the foundation; and
4. The insured structure being condemned and ordered to be vacated by the governmental agency authorized by law to issue such an order for that structure.

Note the “...that results in all of the following:”, so all of those conditions need to be met for your standard homeowners policy to cover the loss. So how is a “sinkhole” different than “catastrophic ground cover collapse”?

Well, the legal description of a sinkhole according to Florida Statutes is....

“Sinkhole” means a landform created by subsidence of soil, sediment, or rock as underlying strata are dissolved by groundwater. A sinkhole may form by collapse into subterranean voids created by dissolution of limestone or dolostone or by subsidence as these strata are dissolved.”

So now you’re thinking, great, two definitions I barely understand, what does that mean in terms of my homeowners insurance.  Well, between 2006 and 2010 only 1.1% of closed sinkhole claims fell under “catasrophic ground cover collapse”, which means 98.9% of claims would not have been covered with your standard homeowners policy, they would have needed a specific sinkhole rider, addenda, or language to be covered.

Tampa Bay homeowners are especially sensitive to the topic because many homes in the Tampa area cannot obtain sinkhole coverage. Why is it so difficult in Tampa? According to the Florida Office of Insurance Regulation (FLOIR), 78.4% of all sinkhole claims in 2010 came from four Tampa area counties, Hernando, Pasco, Hillsborough, and Pinellas.   

2010_sinkhole_claims_pie_chart_400 

 Source: Florida Department of Insurance 2010 Sinkhole Data Call

Here’s the kicker, all insurance companies licensed in Florida are required to offer sinkhole coverage, see Florida Department of Financial Services, yet in the Tampa area it’s difficult to attain coverage.  How’s that possible? Well, I’m not a lawyer, but I think the keyword here is “offer”. Insurance companies are “offering” coverage, but if you want coverage, you’ll be required to have your home inspected for potential sinkhole risks, which will cost you about $70 to $100, and if the home fails the inspection, you’ll be denied coverage. 

How does a home fail a sinkhole inspection in terms of qualifying for coverage?  The underwriting guidelines are different for each insurance company, but Security First provides a list of common reasons a home might fail, including, be located on any body of water, and my favorite “Any cracking in any location - dwelling, foundation, garage, driveway, sidewalks, pool deck, etc.”, come on, really? Show me any home in Florida that does not have some sort of cracking. In fact show me any home anywhere that doesn’t have some sort of cracking. I don’t think there’s a home in the entire state that would pass this inspection.  Here’s link to the complete list, Security First Sinkhole Loss Coverage Disclosure Form.

Citizens Insurance, the state run insurance company, automatically requires an inspection in 16 counties (Alachua, Citrus, Hamilton, Hernando, Hillsborough, Lake, Manatee, Marion, Pasco, Pinellas, Polk, Seminole, Sumter, Suwannee, Wakulla, and Washington).  See page 7 in their Rules of Practice for Homeowners.  I could not find any specific information on the criteria Citizens uses in its inspections to determine whether a home passes or fails an inspection, but I’ve heard one of the main criteria is that if there has been any sinkhole activity within a mile radius of the home, you’ll be denied sinkhole coverage.  Citizens has a sinkhole FAQ page on their website that is helpful in answering some general questions, Citizens Sinkhole FAQs.  

Why have sinkholes become some such a huge issue for the insurance industry? Well, from 2006 to 2009 sinkhole related insurance claims rose by over 300%, going from 2,360 claims in 2006 to 7,244 claims in 2009, that’s a huge increase in three years. According to FLOIR, the average cost to the insurance company for inspecting a sinkhole claim in 2009 was $8,004.  So even if the claim is invalid, denied, or fraudulent, it cost the insurance company $8,004 just to determine its validity. 

Why have claims risen by so much?  Insurance companies believe it’s primarily due to fraudulent and frivolous claims.  It was not until recently that homeowners were legally required to use the money received from a sinkhole claim to actually fix the home.  In the past the homeowner could essentially take a big fat check and walk away from the home without fixing it.  I’m sure it doesn’t help that from 2006 to 2010 Florida experienced probably its worst housing crisis in history.

The problem, at least in my opinion, is that insurance companies, instead of addressing the underlying problem of fraudulent and frivolous claims, have just stopped providing coverage for Tampa homeowners, which punishes the good and bad.  If frivolous claims are truly the problem, why not provide the coverage but require a deductible, like we have with Hurricane riders?  If a homeowner had a 10%, or $10,000 deductible, on a sinkhole claim, I’m guessing they would think twice about filing a frivolous claim.  Then at least Tampa homeowners have at least some sort of protection against large sinkhole claim.

So, how can Tampa homeowners protect themselves against sinkhole?  That’s a good question, start by first speaking to your insurance agent and exploring all possibilities. If you’re buying a home and want to make sure you’ll be able to attain sinkhole coverage on your home, speak with your real estate agent about using an Insurance Addendum on your purchase contract.

As end note, I’d like to send out a huge thank you to Nona Camposano with Towne Center Insurance Agency, she was fantastic in helping me research this topic, I could not have done it without her assistance.  If you’re in the market for homeowners insurance I highly recommend giving her a call.  Her direct line is (813) 775-4100 ext. 16.

Sinkhole Resources

Florida Department of Financial Services

Florida Office of Insurance Regulation

US Geological Survey

Southwest Florida Management District - Sinkholes


5 Responses to "Having Trouble Getting Sinkhole Insurance in Tampa Bay?"

Frank P wrote:
I already had a sinkhole claim (no catastrophic damage) and it was fixed using grout injection (all paid by the insurance company). #1) would i need sinkhole coverage for an event that probably would not happen again, and #2) do I really need it?

Posted on Sunday, April 15th, 2012 at 9:08pm.

Calum Mackenzie wrote:
Frank,

That's something you would need to talk to your Insurance Agent about.

Thanks,
Calum

Posted on Monday, April 16th, 2012 at 7:40am.

Jay Whie wrote:
The 10% deductable isn't a good solution unless it's capped at a reasonable amout, say $5 - 10,000 at an absolute maximum. Citizens and others force us to pay higher premiums by greatly inflating a home's value. By doing this they are falsely inflating any % deductables too! So on a home like mine that appraises at about $120,000 (where 40% of that is the value of the acre-plus lot the home sits on) Citizens forces an owner to pay insurance and % deductables on their inflated value of $280,000. My home PLUS lot wasn't worth anything near $280,000 at the top of the market! So the current market has a $70,000 value on the structure Citizens will actually pay a claim on (remember they don't cover any damage not done to the actual living portion of the home... no yards, trees, sidewalks, patios, driveways, etc.) but Citizens requires the homeowner to pay rates based on THEIR $280,000 value. That would make a 10% sinkhole deductable $28,000, which would really be a 40% deductable based on the true value of the insured structure! Who will pay $4000 a year for that? Oh wait, they DID offer me a whopping $349 discount to accept a 10% or $28,000 deductable (which I declined). There needs to be a more fair solution.

Citizens will get State residents in trouble with this "inflated value" policy because we are the ones who will be responsible for their failed policy should a huge catastrophe force Citizens to pay out that inflated value to a large amount of policyholders (forcing a Citizens insolvency). Yes I know it would cost more than $70,000 to re-build my home but if my loss is more than it's worth I don't want to re-build there anyway! Give me market value and let me move on.

One last comment... When you can draw a 3-mile circle around your home and check that area against the map the State of Florida provides showing every sinkhole EVER reported in your county, and the results are one tiny, tiny hole in a cow pasture 2 miles away back in the 80's I think, and one sinkhole that affected one home 11 years ago (with unstated damage), how can Citizens actuaries be acurately determining risk? I think they are just charging outrageous rates to take in premium to make up for their past management failures, or forcing people to drop their policies. All we want is to be charged a fair rate based on the actual risk to the true value of our homes. Why is that so hard for the Gov., House & Senate to understand?

Posted on Monday, April 16th, 2012 at 11:56am.

Steve Miller wrote:
Nowadays, sinkhole coverage is "offered", but denied on a policy. As stated, "a crack in the driveway" is all it takes. The only homes anywhere in the USA that don't have a crack in the driveway are brand new homes with driveways poured last week. You can find a crack any a driveway anywhere in the USA, and no recordings of sinkhole coverage anywhere within 1000 miles, yet because of that single crack, they can legally deny coverage.

Bottom line, sinkhole coverage is a thing of the past. Nobody can get it. You have to hope that if you get a sinkhole, it swallows up the whole house so it can be condemned. Even then, the insurance company will fight you.

Posted on Sunday, July 1st, 2012 at 10:53am.

alan p wrote:
I too was denied sinkhole coverage, on high, dry solid ground in clearwater fl. After I paid for the Citizens inspection in 2011 ($100+), it was denied. They said they sent the denial explanation to my agent, but they never received it. They said they would mail it to me, but never did. Didn't matter, I"m sure it was due to "cracks", like a 30 yr stucco house wouldn't have any cracks. So no, the offer is a farce. I wish my agent would have told me the odds were completely against me before I paid $$ and got frustrated afterwards.

Posted on Wednesday, December 12th, 2012 at 6:39pm.



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