Tag Archives: Sinkhole Law

Material Misrepresentation in Insurance

What is material misrepresentation in insurance?

When filing an insurance claim, it might be a shock to be informed that your insurance company is attempting to assert a material misrepresentation defense against you, instead of interviewing you about your claim. So what is material misrepresentation in insurance? Should you be concerned?

When your claim can be canceled

In the state of Florida, an insurance company may rescind (or cancel as though it never existed) your insurance policy if they determine you have mispresented the underlying facts of your home and its history. If your insurance company believes that you withheld facts from them that would either cause them to deny your policy or charge you a higher premium, they can state they are not obligated to cover your claim or even your policy.

While this is a scary thought, keep in mind that while they may feel this is within the realm of possibilities, they must prove that you purposefully lied to them, and this is very difficult. This is because they must prove that you specifically told them something in your description of your home that was untrue.

What qualifies as lying?

This is where you’re likely in luck. As aforementioned, they must prove that you reported something that was untrue. Therefore, if your home had prior sinkhole damage but you didn’t know, you cannot be held liable for this information.

Second, you cannot be held liable for information that the insurance company did not ask for. If, for example, you were aware of a sinkhole that had opened next door to the house, but the insurance company never asked if there was a sinkhole next door, you cannot be held responsible for the insurance company’s negligence. It was their duty to get a well-rounded picture of your home, not yours!

Third, only information that has been confirmed and stated can be used against you. For example, if someone advised that “you better have that checked out” in reference to a crack in the foundation, it does not state that there are any issues with the foundation, nor any history of issues. There is no reason to expect a layperson to understand what a crack in the foundation might mean so it cannot be assumed that you withheld information.

Your home’s background is the insurance company’s responsibility

The basic idea is that material misrepresentation in insurance cannot be claimed about information that your insurance company did not directly ask you for. As long as you answered all the questions that were presented to you to the best of your ability, you have no reason to be concerned about your claim or policy being canceled.

While insurance applications tend to be ambiguous and poorly written, it must be proved that you outright lied in order to confirm material misrepresentation, and this is very difficult to do.

Once they press you for whether or not you told them any particular facts about the home, questions like the following arise:

  • Did they inspect the home?
  • Was the appearance of the damage normal for homes of its age?
  • Did you buy the home for a reasonable value?

If you bought the house at its actual market value and later it is determined the damage was sinkhole related, who would believe you would do this intentionally?

You Might Lose Sinkhole Coverage in Florida

Sinkhole coverage in Florida

You’ve purchased a home in Florida. You’ve been recommended a couple insurance policies, you’ve looked them over, and chosen one that you’re happy with. You shouldn’t have to worry about your coverage as long as you pay your premiums on time, right? Unfortunately not. As of January 1, 2010, you may lose your sinkhole coverage in Florida if you don’t pay attention.

Keep an eye on renewals

Homeowners insurance policies are annual policies that renew from the annual date you purchased them. Most of the time the process is without incident as homeowners usually pay their insurance through the escrow with their mortgage company.

When the policy renews, you will receive a notice from the insurance company about 45 days before the new period with changes noted in a large stack of endorsements, which are specific changes that will be made to the policy.

These are usually accompanied by a list of endorsements that apply as well. You can peruse these, and then decide whether or not you want to change the coverage. Of course, it’s generally advised that a homeowner looks over their policy even if they don’t wish to change it, but many don’t.

Don’t get tricked

For homeowners in Pinellas and Hernando Counties, a very significant thing occurred as of January 1, 2010. Due to a new law signed, there will be an automatic change to all homeowners policies in these counties. Under the new law, you will automatically lose your sinkhole coverage, unless you request that it be included into your policy.

Unlike other perils, such as fire or hurricane, the State of Florida is playing a game of cat and mouse – but only with the homeowners in these two counties. This was arguably because Citizens Property Insurance used their lobby to get the Florida Legislature to see how many homeowners they could catch who do not read their annual renewal notices.

It begs the question why they did this in two of the most common areas where sinkhole activity is found. Of course, they did it so that Citizens and other insurance companies can avoid their legal responsibility to offer sinkhole insurance coverage.

If you lose your sinkhole coverage in Florida

If you fail to notify your agent before your coverage lapses, you’re stuck in a pickle. Most companies are requiring that any insureds who allow a lapse in their sinkhole coverage can only get it back by paying for a cost-prohibitive sinkhole investigation. These cost between $8,000 and $12,000.

However, if you do one, in the hopes of getting coverage back, and the investigation finds some evidence of sinkhole activity of which you had no prior knowledge, you are most definitely going to be denied coverage. As you can see, insurance companies are handing you a double-edged sword if you don’t watch out.

Florida Representative Bryan Nelson Sponsors Anti-Consumer Choice Bill on Sinkhole Insurance

Fact-checking Bryan Nelson

We hear a variety of claims from politicians, and it can be difficult to dissect which statements are true, or even mostly true. Representative Bryan Nelson has made a few statements that have stood out to me, and I feel obligated to discuss a few facts.

Access to quality, affordable insurance

On his website, Representative Nelson lists “access to quality, affordable insurance” as his first objective as an elected official. He uses the word “quality,” while at the same time sponsors House Bill 1447, which seeks to destroy important consumer options to protect homes from sinkholes and sinkhole activity.

I do not know whether Representative Nelson knows what causes sinkholes, but he lives in an area that is not known for the frequency of sinkhole activity found elsewhere around the state. As such, it would appear that he is more interested in protecting the premiums of his insurance contracts, as he does sell property insurance as an insurance agent.

While we acknowledge the issues with the availability of property insurance in the state, this bill is not the answer.


Representative Nelson was honored last October 2009 by speaking with the GFWC Apopka Woman’s Club, at the First United Methodist Church. While I am sure he touted himself as being “pro-family” and other issues important to the women attending this conference, I suspect he was not completely honest about where his loyalties were.

Specifically, he may not have mentioned that for at least many of the homeowners in Central Florida, sinkhole damage is a significant problem. Seeking now to save his insurance contacts’ money by gutting the insurance coverage probably did not come up either.

Facilitating transparency ins our government

Note, too, that Representative Nelson associates himself with freedomspeaks.com, an organization with its stated goal of “facilitating transparency in our government.”

If Representative Nelson is true to the values of Freedomspeaks.com, then he should come clean about his intentions with House Bill 1447 because, if he wants to limit coverage for sinkhole damage to only 25 percent of the insurance coverage provided, he is essentially gutting the coverage.

This is going to mislead a lot of homeowners, who will confirm the presence of sinkhole coverage, only to discover later that they paid higher premiums for worthless coverage.

Habitat for Humanity

Lastly, Representative Nelson likes to list himself among supporters of Habitat for Humanity. While he wants to support a person’s right to own their own home, he acts at the same time to imperil their property. He’d rather give support to insurance companies, who accept millions of annual premiums and on some policies he even is paid a commission as an insurance agent.

To read more about the ill-conceived bill, read my post, New Florida House Bill Seeks to Gut Sinkhole Insurance. Then, read about what you can do to speak out against Bill 1447.

New Florida House Bill Seeks to Gut Sinkhole Insurance

What is Bill 1447

Bill 1447 is an insurance-backed bill designed to completely gut sinkhole insurance. While couched as a bill designed to reduce consumer insurance fraud, its contents are focused, among other things, in essentially ridding itself of sinkhole coverage for Florida homeowners, regardless of how much they want it.

The details: coverage

First, the bill does not expressly eliminate sinkhole coverage in property insurance policies. If it did that, the insurance company would be precluded from taking premiums for it. Instead, the bill seeks to limit coverage to twenty-five percent of the total coverage available.

Meaning, if your insurance coverage is $200,000, you would not be covered or more than $50,000 for the loss, regardless of how severe it may be. This renders sinkhole insurance coverage meaningless because virtually all confirmed sinkholes cost considerably more than this amount to repair.

Obviously, the larger the home (and the coverage), the more expensive the repair is. Even the most modest home with sinkhole coverage would not be able to be repaired for such a modest amount of the coverage.

Our insurance rights

Second, as we hear so much about keeping government out of our personal business, the bill patently interferes with our rights to buy and sell insurance. If an insurance company wants to sell insurance to me, for a premium, and I want to pay it, I should be entitled to do it. The insurance company sets their rates based upon their risks and accepts responsibility for it.

What right does the State of Florida have to preclude me from buying the insurance I believe is necessary to protect my home, which is my family’s largest investment?

The argument

Of course, the argument will be that Citizens Property Insurance Corporation, the “insurer of last resort” needs the break from covering sinkhole losses. If that is the reason for this bill, then Representative Bryan Nelson (who is an insurance agent) should be honest about the bill and call it what it is: an attempt to get rid of sinkhole coverage.

However, doing that would require him to make an honest statement about his intentions, where consumers could be misled into believing that twenty-five percent of the coverage would ever cover a sinkhole loss because it just would not.

Question for Representative Nelson: How many reported sinkhole losses would be fixable with less than twenty-five percent of the coverage? Answer: none.

Shame on you, Representative Nelson. House Bill 1447 is a rip off.

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.

Signs of a Sinkhole House

Signs of a sinkhole

We buy insurance to protect us against sinkhole damage because it is hard to necessarily predict where it will show up. As much as there are neighborhoods where sinkholes were found, there can be a house in the area that is unaffected. Conversely, you can buy a house in a neighborhood where there has never been sinkhole activity and no signs of a sinkhole, only to find out later you are the first one to find it.

Having said that, the first issue is to learn more about the area in which you are buying the home, regionally. Specifically, there are areas in Florida where sinkholes are especially prevalent. Areas such as Spring Hill, Safety Harbor, and Port Richey are prone to sinkholes. Lately, we are seeing more and more of them in Ocala and other areas in Marion County. This does not mean that they have “spread” to these areas. Instead, they are in areas where there has been an increased awareness, by looking for the signs of a sinkhole.

What are the signs of a sinkhole?

The second step to avoid buying a sinkhole house is to conduct a thorough investigation of the interior and exterior of the home.  Examples of signs of a sinkhole include:

  • Cracking in stucco
  • Cracked flooring
  • Cracked walls
  • Cracking near windows
  • Recent repairs or patching
  • Tilting trees or fence posts
  • Uneven foundation
  • Small ponds appearing after rain
  • Cracks in the ground
  • A suddenly draining pond
  • Depressions, dips, or slopes appearing in the yard
  • Dead patches of vegetation
  • Sinkholes appearing in surrounding areas
  • Patches of wilted vegetation
  • Discolored or contaminated well water
  • A cracked or buckled concrete slab
  • Odd bugs like centipedes or slugs appearing in the home
  • Earthy smell in the home after rain
  • Separations appearing between ceilings, walls, and floors
  • Cracked grout
  • Cracked staircases in blocks or bricks
  • Uneven floors: warped hardwood, sagging or bulging sections
  • Windows or doors that don’t open/close easily
  • Cracks in sheetrock

Lastly, under Florida law, all sinkhole reports where an insurance company has found sinkhole activity must be filed with the local Circuit Court or the Recorder of Deeds for your property address. Therefore, one of the most important signs of a sinkhole is a property officially registered as a sinkhole property.

What is a Notification of Reservation of Rights

What is a notification of reservation of rights?

When you file an insurance claim, the first information you receive may be a notification of reservation of rights. This may be a bit confusing, and you may not be sure what exactly it means. While you shouldn’t be too anxious, it’s always best to be educated about your rights and the rights of your insurance company.

This notification covers your insurance company’s bases

First, receiving this letter does not necessarily mean anything about your insurance claim, nor do you need to respond to it. Put simply, your insurance company is obligated to inform you that there may be a reason why coverage regarding your claim may be barred. This document should provide you with a variety of exclusions, and these exclusions may or may not necessarily apply to your claim.

This letter is sent out as soon as is practical and is meant to protect your insurance company from any lawsuits from you regarding these exclusions. According to Florida law, a reservation of rights letter must do several things:

  1. Include the policy language in play
  2. State the purpose of the letter
  3. Summarize the facts leading to the reservation
  4. Quote the exclusionary language

In very simple terms, a reservation of rights letter serves the insurance company by saying, “We are looking into your claim, but it may not be covered.” Thus, they are seeking to limit any argument later that their conduct created a basis for insurance coverage for an otherwise excluded claim.

Does this mean your claim will be denied?

The short answer to your question is no, the reservation of rights letter for a sinkhole claim is not the same as a denial letter. Instead, the insurance company is telling you that its continued investigation into your claim, by hiring an engineering firm, cannot be construed as a waiver of any policy defense. Settlement damage to a home is excluded unless it is sinkhole activity. If it is something else, it may be excluded, based upon the language quoted in your letter.

When you should contact your lawyer

Sometimes reservation letters get a bit carried away, and if your notification of reservation of rights includes statements about your conduct or your failure to act, you should respond and request further information as to why they included your actions.  This letter should be a reminder of the exclusions stated in your insurance policy, not a collection of potential ways to get out of paying your claim.

Protect Your Sinkhole Claim from Your Mortgage Company

Mortgage company listed on your insurance policy

While you may be concerned to find that your homeowner’s insurance policy includes your mortgage company as a beneficiary, rest assured that this is completely normal.

Your mortgage requires you to insure the mortgaged property. Therefore, most homeowners insurance policies identify the mortgage company or mortgagee as an additional insured.

Why this is the norm

Most standard homeowners insurance policies provide that if a mortgagee is named in the policy, any loss payable under the real property coverage of the policy shall be paid to the mortgagee and the policy holder “as interests appear.”

This means that your mortgage company has an interest in the proceeds of the insurance policy up to the balance of the mortgage. Your insurance company is therefore contractually obligated to protect the interest of the mortgage company when it pays your claim.

When would this happen?

For example, let’s say the balance of your mortgage is $60,000 and your mortgage company is listed as an additional insured/mortgagee on your policy. Eventually, you and your insurance company agree to settle a claim for $100,000.

In this case, the insurance company would then most likely issue two checks; the first check would be payable to you and your mortgage company in the amount of $60,000, and the second check would be made payable to you (and your attorney, if one is involved) in the amount of $40,000.

When to be concerned

Frankly, many mortgage documents (the mortgage itself or the promissory note) do not deal with this issue well. Many of these documents were drafted by out-of-state lawyers who would never have anticipated situations such as this.

The language in these agreements frequently deals with less complicated repair issues (e.g. fire, flood). Sinkholes, because of their repair nature, involve a lot of other issues.

Bottom line: do not permit a loan officer to tell you what to do, unless they have a basis to do so. If you want to repair the home and not pay down the mortgage, you should be able to do so. If you want to pay down the loan and not repair, you should be able to do that as well. But do not allow the bank/lender to tell you that you have to do something because “it’s our policy!”

Have You Checked Your Insurance Policy for Sinkhole Coverage?

When a sinkhole occurs

Any unexpected and dramatic sinkhole damages to your home can be shocking and devastating. A homeowner can be overwhelmed with the multiple issues that arise from the startling and unanticipated effects of sinkhole activity producing property damage to your residence. Most homeowners wonder why such events are happening and what they should do next in these unfortunate situations.

The foremost concern of homeowners who have experienced sinkhole loss should be the safety of their families and being sure there is no risk of imminent harm due to a collapse of the surface soils. If there is any risk of a collapse of the ground around your home, you should immediately evacuate, and then contact the local authorities to secure the property.

What to learn from new sinkholes

Recently, several sinkholes have appeared in Tampa Bay, providing a clear reminder that homeowners need to review their home insurance policies in order to verify they are properly covered for sinkhole damages.

On January 1, 2010, a new law took effect that allows insurance companies to drop sinkhole insurance coverage on policy renewals in Pasco and Hernando counties. All policies will continue to provide coverage for catastrophic ground cover collapse, which applies to extensive sinkhole damages that leave the home in an uninhabitable condition.

If you do have an endorsement for sinkhole loss coverage, you should immediately contact your insurance agent or insurance company to report the claim.

What you should expect

Generally speaking, the claims adjustment and investigation process are slow. Unless you are unlucky enough to have your entire home (or a good portion of it) suffer extensive sinkhole damage, your insurance carrier will likely not be in any hurry to respond to a claim or, for that matter, rush out to visit your home to perform the initial investigation.

Only the appropriately trained and educated professionals (geologists, geotechnical engineers, and engineers) are able to determine if damage to your home is caused by sinkhole conditions.

The professionals are hired by your insurer, and then these experts contact the homeowner to schedule a date for testing at your property. Once the appropriate tests occur and the data is collected, the expert report is prepared that provides an opinion on whether or not sinkhole conditions are the cause of the damages to the home. After that, your insurance carrier should advise you whether or not you have a covered loss.

Sinkhole Repairs and Policy Limits

When your insurance policy doesn’t cover your repairs

Question: My insurance company confirmed sinkhole activity but is telling me I have to sign the contract for repairs. But my contractor is telling me the costs of the sinkhole repair may exceed the limits of my insurance policy. Help!

Once your insurance company has determined that the damage to your home was caused by sinkhole activity, the insurance company must pay for stabilization of the ground and repair of the foundation of your house, as well as repair of the actual damage to your house (for example, cracks in your walls and ceiling).

However, the insurance company may withhold payment for building stabilization or foundation repairs until you sign a contract to have that work performed.

What will happen

This means that generally after a sinkhole loss is confirmed, the insurance company will issue a check to cover the cost of the cosmetic damage to the home. The company will typically send a letter with this check advising you to obtain at least two bids for the subsurface stabilization work from contractors who perform such projects.

When you provide a signed contract for the subsurface stabilization work, the insurance company will pay for that work as the work is performed and the expenses are incurred.

What your insurance company must do

The insurance company may not require you to pay in advance for subsurface stabilization. And, most significantly, if repairs have begun and the engineer selected or approved by the insurance company determines that the repairs cannot be completed within the policy limits, the insurance company must do one of two things:

  1. either pay to complete the engineer’s recommended sinkhole repair or;
  2.  pay you the policy limits without a reduction for the repair expenses incurred.

Therefore, you can rest assured that even if your insurance policy does not cover the number that the engineer has come to, you will not be left with a house you are unable to live in.