Tag Archives: Sinkhole Properties

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.

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.

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.

Not All Foundation Repairs Covered by Sinkhole Insurance

When sinkhole insurance won’t repair your foundation

To homeowners, the actual cause of damage to their home is not their primary concern. Instead, they are interested in resolving any settlement damage to the property regardless of whether it is associated with sinkhole activity or another, more exotic explanation.

However, because home insurance policies in Florida specifically exclude home foundation repairs that aren’t caused by sinkhole activity, a homeowner’s understanding of these other alternative explanations is crucial.

How clay can cause damage

The most common explanation for settlement damage, other than sinkhole activity, is commonly referred to as “expansive clay.” This explanation is best understood by understanding how a sponge takes on water.

When water is poured onto a sponge, the water occupies the spaces between the pores, causing the sponge to expand in volume. When the sponge dries, the water wicks out and the sponge returns to its original state. That is what can happen to your home, necessitating home foundation repairs.

The same event occurs with clay. Clay, unlike ordinary soil material, has pores in it, into which water can occur space. In some instances, the water can actually trigger a chemical reaction in the clay, which causes it to change characteristics and volume.

When a clay area beneath a home becomes extremely dry, it loses its volume. When the water returns, the clay expands and causes it to move. Ordinarily, when homes and other structures are built, the soil beneath them is expected to remain stable. However, if the contractor fails to make sure the soil beneath the home is not overly clayey, the movement of the soils due to volume changes can result in cracking damage and subsequent very expensive house foundation repairs.

Why this is important

Understanding the common confusion between clay and sinkhole is important too because a clay condition in the soil can also be an indicator of previous sinkhole activity. These kinds of differences serve as a common sticking point between a homeowner and their insurance companies and often require the retention of a sinkhole lawyer.

Therefore, if you’ve submitted a claim with your sinkhole insurance company and they respond with a denial on the basis of the soil being clay, you may still have a chance at getting your home’s foundation repaired.

Selling a Sinkhole Repaired Home

Selling a sinkhole repaired home

In the event that you’re selling a sinkhole repaired home, you’re likely worried about how to approach the fact that the property does have a history of sinkholes without scaring off the buyer or having to settle for less than the property is actually worth. So how do you disclose all the known information about your home in an ethical way, yet also seal the deal with your buyer?

Be clear that you’re selling a sinkhole repaired home

Above all else, you are obligated to disclose this information to your buyer. While there are fine lines to this rule, it’s advised that you be careful about what information you withhold from your buyer, as you don’t want to deal with a future lawsuit.

Your obligation

The fine print about your obligation to disclose information about your sinkhole is that you need to share the information that is not available through other means. For example, if you are in the possession of a repair report that is not made publicly available for confidentiality, you must send your buyer a copy of this report before selling a sinkhole repaired home.

However, if you do not have any documentation that is legally only available to you, you could potentially argue that the buyer could have gone to the building department to pull any construction permits, all of which would have provided them the history of your home. While you would technically be acting within the law if you do not disclose the knowledge that your property has been affected by a sinkhole, I would advise you be careful about a lawsuit if any repairs failed or another sinkhole opened in the future.

Seller’s disclosure statement

Another situation you are likely to be faced with is a seller’s disclosure statement. Most homebuyers require sellers to complete this statement, which asks specifically about repairs done to the home. If you are asked point blank about any past repairs, and you either state or imply that there is no history of sinkholes only for these repairs to appear down the road, you will find yourself in a sticky legal situation in which you have, point blank, lied on a legal document.

If you’re selling a repaired sinkhole home and state that there is no history of sinkhole repairs on a seller’s disclosure statement, you cannot state that that information was public record.

The best approach

While it may be scary to share this information, there is a way to go about selling a repaired sinkhole home without giving your buyer cold feet. A great way to inform your buyer without scaring them off is to provide them with a copy of the original report provided by the engineering firm that repaired your home and certified the repair as complete. This way, you are not only being upfront and transparent about the quality of your home, but you are also providing them a reason to be confident that they will not be faced with another related issue.

However, if you never completed the repair, this does put you in a more difficult position, as a sinkhole that has never repaired is likely to get worse over time, sinking the property value of your home. If you do not feel comfortable disclosing this information, you may want to simply sell your home “as is”. When you choose this route, you are not required to submit any documentation or prove the property value of your home. You will have to drop the sale price significantly, but you will not be obligated to discuss your sinkhole.

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.

Sinkhole Remediation Failed – What Now?

Failed sinkhole remediation

If you’ve gone through the process of sinkhole remediation, or you’re still in the middle of it, and symptoms of a sinkhole begin to appear again, you may be concerned, and rightfully so. Your sinkhole coverage policy is only up to a certain amount, and if the repairs haven’t even been completed yet, your insurance company needs to start again from square one. This means a lot of money. So what does this mean for you?

Your insurance policy

The amount of money your insurance company is required to spend on you is limited to the amount that your home is covered for. There is an exception to this rule, however: if you are in the process of sinkhole remediation (meaning an engineer has not yet confirmed that the sinkhole is completely repaired) and it’s determined that more repairs are necessary, your insurance company is likely on the hook for paying for these repairs.

Essentially, once your insurance company chooses an engineering firm to assess the damage and report the repairs needed, they have taken responsibility for the situation. Their ability to close the claim and minimize the flow of money relies on their engineer. Therefore, if the engineer advises that more repairs are needed or else they are not able to sign off on this sinkhole, your insurance company has to step up or else they can’t complete the claim.

Who determines the state of the sinkhole?

The engineer. More often than not, unless you have specifically taken it upon yourself to find your own engineer and come to an agreement that your insurance company will accept them, your insurance company is responsible for employing an engineer to asses the problem.

Therefore, if you come across more damage to your home while the sinkhole is being repaired or before the engineer signs off on it, you need to address this directly with the engineering firm. If you can provide photographic evidence that the damage occurred after the last assessment of your home, you may be able to help your case. However, the engineer’s opinion is the “end all, be all” of your sinkhole claim.

Is my insurance company responsible for failed repairs?

Since 2005, the Florida Legislature has been pushing for homeowners to take money received in sinkhole insurance settlements and use them to repair their homes, as opposed to just taking the cash. Due to this shift in responsibility towards insurance companies to get the job done, rather than have homeowners pay for it themselves, insurance companies are now potentially responsible for failed attempts to stop sinkhole damage.

The amount of responsibility for your insurance company can vary on a case-by-case basis. If you have questions regarding what you can do about your failed sinkhole remediation, please do not hesitate to contact us for a free consultation.