Tag Archives: Catastrophic Collapse

Difference Between Standard and Catastrophic Coverage

What’s the difference between standard sinkhole insurance coverage and catastrophic ground cover collapse?

Prior to 2008, every insurance company that sells property insurance in Florida was mandated to provide sinkhole insurance coverage, as provided for pursuant to Section 627.706, Florida Statutes. Under that statute, sinkhole activity was defined as “the sudden settlement or collapse of earth supporting such property resulting from the creation of subterranean voids created by the action of water on a limestone or other similar rock formation.”

That’s a lot of geology to come to this: There are rock layers beneath your home, which water can actually dissolve. When this happens, holes open up beneath the ground and can actually impact the surface where your home is located.

Before and After Catastrophic Collapse Option

Sinkhole insurance coverage for property insurance losses has been around for decades. However, in the past two years, the State of Florida authorized insurance companies to offer an option, which will save some property owners in some counties on their insurance premiums. This new coverage, which substitutes for sinkhole damage coverage, is called catastrophic ground cover collapse.

Previously, if sinkhole activity damaged your house, it was covered by the homeowner’s sinkhole insurance plan, even if the actual damage to your house was limited or gradual in nature. Nearly all geologists agree that sinkhole losses, when they do occur, do not result in catastrophic losses. Instead, the damage presents itself as stair-step cracks, internal tile damage, or deflection in the roof.

In my experience as a sinkhole lawyer, fewer than one percent of losses result in a cataclysmic event, where the home becomes uninhabitable, rendering this sinkhole insurance coverage nearly useless to homeowners.

Read more about the dangers of relying on catastrophic ground cover collapse for your sinkhole insurance needs.

Have a burning question you’d like to ask about sinkholes? Let us know.

Does Homeowner’s Insurance Cover Sinkholes?

Does homeowner’s insurance cover sinkholes?

Many homeowners look to their home insurance to fix every problem that occurs. Unfortunately, this is sometimes not the case and depends on your own insurance policy and your level of coverage. For example, if you elected only for catastrophic sinkhole coverage, your insurance will only be there for you if the damage is so bad, your home is condemned. That being said, what should you expect from your insurance? Does homeowner’s insurance cover sinkholes?

What is standard sinkhole coverage?

It is highly recommended that you spring for standard sinkhole coverage; though it’s pricier, and you may not think you’ll ever need sinkhole insurance, sinkholes are not easy to predict and even more difficult to pay for repairs.

If you did opt for standard sinkhole coverage, your insurance policy will cover the cost to stabilize the land and the foundation of your home. On top of that, they must also pay you the cost of any cosmetic damages resulting from the sinkhole.

The grouting loophole

Does homeowner’s insurance cover sinkholes? Well, yes, but always be aware that insurance companies are in the business to make money, and will take advantage of you if you allow them to.

One common loophole is the manner in which your land and your home are repaired. Insurance companies will usually pay to grout the soil, which is essentially one of the only ways to stabilize it. To grout the soil, a cement-based material is injected around the perimeter of the home and to an appropriate depth beneath it.

While this may sound great, this is not an appropriate repair, and your home will likely fail in the future. This is because while some areas have been stabilized, the upper 10 to 15 feet of your soil are likely unaffected by grout, leaving your home susceptible to another sinkhole. To fix this problem, the appropriate repair is underpinning, which connects your home to the ground with poles. While the right choice, this is expensive, so your insurance company is likely to avoid this route if possible.

The cosmetic damage loophole

Lastly, the insurance company must pay for the cosmetic damages to the home. This usually includes the cracking to the interior and exterior, as well as to the floors and the foundation itself.  To be exact, your insurance company is obligated to pay what is required to bring your home back to its pre-sinkhole state.

It is important that you do not receive this check until the repairs are completed because any of these cracks are not visible until the repairs are completed. If you receive payment before anything is fixed, it may feel nice to get some money to help out with your sinkhole repairs, but it is impossible for your insurance company to accurately assess how expensive repairs will be until all the damage is made clear.

Standard Sinkhole Coverage or Catastrophic Ground Coverage Collapse?

Getting the right insurance

Question: I’m aware that there are now options on sinkhole coverage, and I’m concerned I may wind up buying the wrong coverage. What do I need to tell my insurance agent to make sure that I get the correct insurance?

Some people will tell you that there are two categories of coverage now available for sinkhole activity: standard sinkhole coverage and catastrophic ground coverage collapse.

In my opinion, catastrophic ground coverage is equal to no coverage at all. This is because the events that would need to occur to get coverage under that option are so rare and uncommon to render the coverage illusory.

Your sinkhole insurance options

If you want the standard sinkhole coverage, the agent needs to make sure that you have the coverage provided pursuant to. This is the standard coverage that has been available, in various forms, for decades.

At the completion of the blog post, I will include language that you can cut and paste into a letter to send to your agent. Keep a copy for yourself, in the event there is ever a problem

The catastrophic coverage is also provided for under Florida law, so you need to make sure to differentiate it from the standard coverage. As I have said many times, the catastrophic ground coverage collapse coverage would be equal to living in California and not having insurance for earthquakes. It simply is not wise.

Sample letter for your insurance carrier

Dear Insurance Professional:

I am requesting that the property insurance provided for my home located at [address] include the standard sinkhole insurance, as provided for pursuant to Section 627.706, Florida Statutes. I require coverage for the damage to my home, its foundation, and the land upon which it was built. I am rejecting any coverage that limits my loss to catastrophic ground coverage collapse, which is different from sinkhole coverage and requires unique elements. I am relying upon you, the insurance professional, to assure that I have the broadest sinkhole coverage available by law.

Avoid Catastrophic Ground Cover Collapse Option

I’m thinking about dropping standard sinkhole insurance coverage and opting for the catastrophic ground cover collapse option to save some money. Is this a good idea?

Under the catastrophic ground cover collapse option, the house must be so badly damaged that you literally cannot legally live there. I say “legally” because, to get your home repaired, you must demonstrate four signs of sinkhole damage:

  1. The damage must result from an “abrupt” collapse of the ground (not defined).
  2. There must be a visual depression in the ground visible with the naked eye.
  3. The damage must rise to a level of actual, structural damage.
  4. The insured structure must actually be condemned and ordered to be vacated by the government, hence the legal right to live there being extinguished.

Evaluate If You Are a Good Candidate

If your intent is that your home can be a place you will live in and you have other housing options, you might want to consider this option. However, if you are like most people and you are concerned about the value of the property, which these sinkhole signs threatens, this is a dangerous option. Think about it this way: Try selling your house and telling the new owner that, while there is confirmed sinkhole activity on the property (and has damaged it), there is no concern about the home because it hasn’t yet been condemned. Realistically, the new option is not sinkhole coverage at all because if you have sinkhole activity with even minimal damage, the house is worthless. (Read more about the difference between the two plans.)

Evaluate How Much You Will Actually Save

You also need to consider the actual premium savings. I recently represented a homeowner on a case where she bought the new coverage and later found out that her home had signs of sinkhole activity. When we met with her, we determined that by moving to the catastrophic collapse coverage, she saved three percent (3%) on her premium. The average repair costs to her home ended up being half of the value of the property. Luckily, we were able to demonstrate that the loss had actually manifested itself before she lost the sinkhole coverage, and we got the claim paid.

Evaluate the Cost to Switch Back Later

On another note, to avoid a scheme many homeowners have tried – many times to their peril – some homeowners have tried to dump their standard coverage, with the idea that they would add sinkhole coverage back, if they detect sinkhole signs. This does not work. This is because most homeowners”™ insurance companies, who offer this coverage, mandate that the homeowner conduct a comprehensive subsidence investigation, like the one they would ordinarily do to investigate for sinkhole activity. This must be done at the expense of the homeowner and can cost between $10,000 and $15,000, eliminating any savings.

Have a burning question you’d like to ask about sinkholes? Let us know.