As background to this issue, when a homeowner prevails against their insurance company on a sinkhole claim (or any insurance claim) the insurance company is required by statute to compensate the homeowners lawyer for their services. The court will look to how many hours the lawyer spent working on the case and then multiply that number by what the court believes the lawyer is worth per hour. In addition to that it has been allowed for decades here in Florida that the court could increase that number even more, we call this a multiplier. The court would consider things such as if the case was unique or complex or if the homeowner had difficulty finding a lawyer to even take the case in the first place. The court can also look at the potential risk of losing the case when the lawyer took it on. In other words, the goal is to reward lawyers who are willing to risk their time and their own money to take on a risky, unique or complicated case and do it on a contingency fee basis. Contingency fee means they only get paid if they win the case. Many judges at the trial court level have continued to award these multipliers to lawyers that win sinkhole trials but lately the appellate courts have been reversing these. The recent trend has been that its no longer difficult to find a lawyer to take on a sinkhole case these days and because there are so many sinkhole cases around now that they are no longer so unique or complex. Any lawyer that has ever represented anybody in a sinkhole claim should disagree. These cases are extremely expensive, time consuming and risky. They also remain extremely complex and unique due to the ever changing law that accompanies these cases. And of course, we can’t forget that to be a good sinkhole lawyer you also have to be a amateur geologist, contractor and engineer to boot. I just don’t understand the rationale behind these new cases other than they are being decided by people that don’t see the daily complex scientific and legal battles that we face.
Thats right, well kind of. A sinkhole opened up on the Upper West Side of New York swallowing a BMW and part of a dance studio several weeks ago. Granted the sinkhole was the result of a water main break and not necessarily natural causes like we associate with sinkholes here in Florida. In similar news a sinkhole opened up in Miami on the turnpike. This was also the result of a water main break. I have always taken a little exception to these water main breaks even being called sinkholes. Sinkholes as we know them are natural causes and not man made. Most “sinkholes” portrayed in the news are actually the result of water mains and not naturally occurring.
While the two may seem completely unrelated, a hurricane on the surface and a sinkhole below the ground, hurricanes, storms and heavy rains can have a dramatic impact on sinkhole formation. In fact, heavy rain may be the biggest driving force in sinkhole development. Everyone probably thinks of sinkhole activity as a hole below the ground and in a way that is right. However, without any movement of the earth above that hole it just sits dormant and not causing any problems. So what causes the soils to move downward? Gravity if course has an impact but water is the biggest driving force of soil movement. Water entering the ground surface can drag soil particles down and into voids bellow ground. Once this happens we see the true impact of sinkhole activity and the soils begins o move and ravel downward resulting in an impact at the surface.
One of the most common questions we get is after someones claim has been denied based on a lack of structural damage how do we proceed for here. There are actually several different paths you could take that depend on the individual homeowners situation. One path is to request the carrier to do the additional sinkhole testing. Upside is it saves money and could give you an idea early on as to whether sinkhole activity is present or not. Plus if sinkhole activity is found to be present by the carriers own engineer that makes it a much tougher case for them to convince a jury to go their way. Downside is if the carrier enforces the statute it could cost the homeowner $2,500 to do the testing and remember that the carrier picks the engineer, not the homeowner.
A second path you could go down is simply evaluate whether the structural damage exists and out the issue of sinkhole activity on the back burner. In that case you would have a second structural engineer evaluate the home and if he or she has a a different opinion and finds that structural damage is present then you proceed with the lawsuit on just that issue. We file these lawsuits as declaratory judgment actions. In other words, you are asking to win a declaration that structural damage is present and that the carrier now has to come test your home for sinkhole activity. Upside is these cases are easier, cheaper and faster to litigate and if you lose you don’t have a finding of sinkhole activity to depreciate the value of your property or make finding new insurance impossible. Downside is even if you win this portion of the litigation you now have to wait for the insurance carrier to do the testing and they may just deny your claim a second time if they don’t believe sinkhole activity is present.
A third path is similar to the second path above where you hire a second structural engineer to evaluate whether structural damage exists or not. This time if the engineer says structural damage does exist you go and do the sinkhole testing on your own and if find sinkhole activity then you can submit the entire claim in one package to the carrier. Upside is you can have all the answers to the claim upfront and only have to pursue one lawsuit. The downside is if you lose that lawsuit your home is red flagged as a sinkhole home with no insurance money to help. Every case is different and we evaluate each clients situation and specific facts and goals to evaluate which path is best for you.
No great legal insight here, just a notice that we are moving our offices as of June 13th. We have purchased a building just for us and our growing law firm (now five lawyers). The new office address is 6812 W. Linebaugh Ave, Tampa, Florida 33625. Phone numbers and emails will all remain the same and of course the website and blog are still great ways to reach us. While you are at it, we revamped our webpage so go take a took at that too.
Surplus lines insurance carriers and basically insurance companies that are willing to take on large and/or riskier properties. Because they do so, they typically don’t have to be qualified by the State and therefore don’t necessarily have to follow the same guidelines that your typical domestic, private insurance company does. Whether that is good or bad remains to be seen how the case goes but, it will be different. Most surplus carriers we have dealt with in the sinkhole arena have very odd (for lack of better term) language. Many have older, antiquated definitions of what sinkhole activity is that really no one else uses any more. Many of them offer “sinkhole collapse” coverage verse “sinkhole loss” coverage. These often come with arbitrary and again odd definitions of what is required to qualify as a collapse. Some even go as far as describing how big the hole has to be (5 feet by 5 feet for example). Many require that the collapse have occurred suddenly, within a short time frame to qualify. In other words, these coverages are very different than the typical slow reacting sinkhole activity below the ground that gradually causes cracking damage. These policies try to limit their coverage to when an actual hole opens up out of nowhere. Lastly, many of these policies contain the same antiquated and odd language when describing what the coverage actually pays for. Many of these policies say that they don’t “fill holes” or that they don’t insure the land and try to really limit what they have to pay for. How you can fix a true sinkhole collapse without filling a hole is beyond me plus there is much debate about the purpose of filling a hole or whether underpinning a building is the same as filling a hole. To make matters even more complex, if the insurance company investigates the sinkhole claim by the Florida Statutes they may waive their right to use their own policy language. Long story short, these can be really complex cases because of the ambiguous language and antiquated processes that these carriers use. You really got to know what you are doing to handle these cases and be prepared for several legal battles over the policy terms. I certainly understand that many people and business are forced to turn to these types of policies but if you don’t have to, I wouldn’t recommend it.
The coverage itself is usually quite similar. Remember that the sinkhole insurance offered here in Florida is written by Statute so all domestic insurance companies follow the same guidelines. Big differences in the coverage can arise when you have surplus lines carriers which often are the only options for a large, riskier commercial property. (More on surplus lines in another post). Commercial properties will still have to prove the presence of structural damage and sinkhole activity. In our experience structural damage is more common to find at a commercial building than residential. When you consider the increased amount traffic coming in and out of the building, the different ingress and egress flows and code requirements and ADA restrictions, etc. safety hazards are much more common. Commercial properties can also have very unique issues you would never see at a residence. For example, performing sinkhole repairs at a gas station was a task that took some real time and creativity to work on. Also, many commercial structures are multi-story and sometimes multi-unit, allowing for more ways for damage to express itself in the structure.
The biggest differences in commercial projects we have worked on usually is procedural due to the sheer volume of money, time and people involved. Apartment complexes for example require a ton of time in just scheduling alone to be able to inspect the different units. Often these types of properties are overseen by property management companies and homeowners associations which can create a different dynamic as far as communication goes. Have a smooth system of interfacing with everybody involved is critical. Finally, the amount of money necessary to properly work a larger case up can be daunting sometimes. We settled a large case in 2013 that our firm had invested three quarters of a million dollars into. In short, if you have a large commercial property or a property with very unique issues make sure you hire a firm with the financial resources to take on the task and with the time and attorney resources to properly work it up.
Should I pay the $2,500 to get the sinkhole testing done when they tell me I don’t have “structural damage”?
I say no usually. Of course every situation has to be looked at uniquely but I frequently deter people away from this option. To make sure we understand what it is we are talking about, the current law requires a structural evaluation to determine whether structural damage is present at your home first. If they do not find what they believe to be structural damage then they can deny your claim without ever testing for sinkhole activity at all. The statute does say that the homeowner has the option of requesting that the testing for sinkhole activity be performed but, will have to pay out of pocket $2,500 of the cost. Unless you are just simply curious and have money to throw away, why would you do this? Remember, your claim was already denied. Even if they find sinkhole problems below the ground they have still already determined that the damage is not sever enough to qualify for coverage. Plus remember that they are just going to send out the same engineers that already said you don’t have any damage to be concerned about. Haven’t they already told you they don’t think you have an issue to be worried about? So why would we think they would lean in favor of the homeowner in any way no matter what they find below the ground. Remember that sinkhole activity is a matter of opinion after all. The likely result is you waste $2,500 for them to gave you a biased opinion that you don’t have sinkhole issues or if they do in fact find sinkhole activity, what good did that do you because your claim is still denied. If you don’t want a sinkhole or don’t want to fight the insurance company, walk away. Don’t waste your money. If you think you have a real issue and want to challenge their denial of your claim, then hire a lawyer. A lawyer can help from the cost of the testing and have the testing performed by an engineer not working for the insurance company. The value a lawyer has by simply having the financial resources and knowing the right people is often equal to their legal skills in a courtroom can be.
With the current state of the law many people are often confused about what their insurance company will do when they report a claim. In short, don’t talk to your neighbors that had a sinkhole claim years ago because their experiences will be very different than yours. Under the current state of the law when you report a claim the insurance company is supposed to begin the process by sending an adjuster out to look at the damages. At that tine they may take a statement from you, document damage and even write a preliminary estimate of the damages they see. The adjuster is supposed to evaluate the damages and see if there is an obvious cause for the damage other than sinkhole. Rarely, if ever, has an insurance adjuster by themselves been able to look at damage and say for sure that it is not caused by sinkhole activity. Because of this, some insurance companies skip this first step and go right to hiring an engineer or they may hire the engineer the same day they inspect the house.
If the insurance company denies your claim without ever sending an engineer out, call a lawyer. Something is wrong. Either that most likely means you don’t have sinkhole insurance at all, they found some other unusual reason to deny you or they didn’t do the proper investigation. If they can’t tell whether the damage is sinkhole related or not then they are supposed to hire an engineer. That engineer will be asked to determine whether the damage rises to the level of being “structural damage”. If they determine it is not then their investigation is complete and your claim is denied without any further testing. If they do determine that the damage is structural then they will do further testing below the ground to determine whether sinkhole activity is the cause of the damage. If sinkhole activity is found to be the cause, they pay the claim (absent some other issue). If they don’t find sinkhole activity then they deny your claim.
As you can see, there are several opportunities for the carrier to deny your claim. I commonly refer to theses as the three “gates” you have two pass through. Right at the outset they can say the damages clearly aren’t sinkhole related or find some other unrelated issue such as the damages pre-existed their policy period or that you misrepresent something on your application with them. Get through that gate and they send the engineer out who can say the damage isn’t structural (the majority of claims shut down at this stage). If you have made it that far, then they can say the structural damage is not from sinkhole activity. The odds are good one of these gates gets slammed in your face.
We see many types of insurance policies but insurance that is force placed is often the most difficult to wrap your head around. These types of policies are actually purchased by the mortgage company when the homeowner fails to get insurance on the home themselves. Essentially, the mortgage company buys insurance for itself. This means the mortgage company is the “insured”, not the homeowner. The homeowner is usually named as only the “borrower”. That means the mortgage company gets first right to any and all insurance benefits paid out and the homeowner is a spectator. That can be an especially tough pill to swallow considering most homes with forced placed policies are already in foreclosure as not paying the mortgage usually goes hand in hand with not getting insurance. These homeowners are watching the same mortgage company taking their home away collect the insurance benefits too.
In addition, the policies are often taken out only for what is owed on the mortgage and not the value of the cost to replace the home. This means if the house burns down, the mortgage company will collect what it owes on the mortgage and move on with no chance the home gets rebuilt. These policies are really meant to protect the banks own money more than to protect the house or the homeowner.
In short, if you have a a forced placed policy and can afford to get private insurance, do it immediately. These are the worst types of policies to have. If you are not sure of what type of insurance you have, the most common forced placed insurance polices are usually Balboa, QBE or American Security/Assurant. Most of these companies are actually owned by the same mortgage mortgage company on the home.