Column: Sinkholes – a new frontier of fraud

Feb 15, 2011

The following article was published in the Miami Herald on February 15, 2011:

Sinkholes a new frontier of fraud

By Fred Grimm

We think small. Mostly, we’re content to fake car wrecks.

Not that South Florida, led by Miami and Hialeah, doesn’t do a bang-up job staging bang-ups. According to the National Insurance Crime Bureau, South Florida ranks second in the nation among metropolitan regions prone to collecting insurance claims for phantom injuries in auto accidents that never occurred. The report speaks to a certain theatrical flair endemic to South Florida’s brand of insurance fraud. (Lending new relevance to the old stage expression, “break a leg.”)

But for sheer audacity, we’ve got nothing on those nice folks up in central Florida, whose insurance claims suggest the whole damn region is being sucked, homes and all, down into the very bowels of the earth.

Geologists insist they’ve noticed no particular increase in geological activity. No sudden burst of chasms, fissures, dents, voids, cavities thereabouts. Yet it was as if homeowners of Hernando, Pasco and Hillsborough counties (affectionately known among insurance adjusters as “sinkhole alley”) were living through some real life disaster movie.

The earth did not move. No more than usual. Yet since 2006, the Citizens Property Insurance Corporation has been beset with sinkhole claims. In Hernando, according to a Florida senate report issued in December, sinkhole claims have risen 375 percent, in Pasco by 187 percent, in Hillsborough by 384 percent.

We wouldn’t mind so much in South Florida (having a rather tenuous perch on the moral high ground when it comes to insurance fraud), except the state-run Citizens has also become our flimsy provider-of-last-resort for windstorm insurance. It comes as something of a shock to discover that although we’ve been bypassed by major hurricanes since 2005, our pricey public-run catastrophic insurance company has become engulfed in a financial sinkhole. Citizens now pays out about four times more in sinkhole claims than it receives in premiums.

The Senate report suggests that fraud accounts for the sinkhole epidemic. As proof of unseemliness afoot, the Senate report noted that sinkhole claims have arisen in an area with not much history of sinkholes but with plenty of history of insurance fraud. “Sinkhole claims have also increased in areas generally not subject to sinkhole activity, like Miami-Dade and Broward counties . . . The number of claims from these two counties in 2009 was seven times what it was in 2006.”

South Floridians may be expert at faking fender-bender neck injuries, but sinkholes would seem a logistical challenge of another magnitude. We’ve all seen those photographs of homes collapsed into a gaping hole in the ground.

Turns out, only one percent of 200 or so sinkhole claims paid out by Citizens each month are based on “catastrophic” hole-in-the-earth occurrences. Most are for mere cracks in the walls and floors, more likely to have come from lousy construction, back when Florida was in a slap-’em-together home-building frenzy, than sinkholes.

But insurance companies have found it easier and less expensive to pay off claimants than make a fuss. The average settlement comes to about $130,000.

The state senate report cast further suspicion on the sinkhole epidemic, noting that 79 percent of the homeowners receiving a settlement check fail to spend their insurance windfall on repairs. (Last month, the Hernando County Sheriff’s Office arrested two men who collected sinkhole settlements then re-sold the unrepaired homes to unsuspecting homeowners.)

The state legislature is considering a number of changes to state law to fix before the Citizens Property Insurance Corporation disappears into one of these yawning chasms. And before South Floridians claim phantom injuries incurred when their cars are suddenly sucked into one of these mysterious sinkholes.

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