Florida’s Citizens Property Insurance Board To Consider Major Change in Sinkhole Coverage Eligibility Rules

Mar 19, 2013


At its meeting this Friday, March 22, 2013, Citizens Property Insurance Corporation’s (“Citizens”) Board of Governors (“Board”) is scheduled to consider a major revision to its sinkhole rules that would allow broader eligibility for certain properties that have repaired sinkhole damage, including those with total limit losses. 

Citizens’ current rules on sinkhole “All Other Perils” coverage provide that properties with prior total limit sinkhole losses are not eligible for coverage, regardless of the level of repairs completed on the property. 

In response to market feedback, Citizens reviewed its sinkhole claims experience, contract language and market availability to determine the appropriateness of its underwriting position for the Florida market.  The review was expanded to also include partial sinkhole losses (which represents over 82 percent of Citizens’ closed claims) to ensure consistency.

During the research, it was noted that a common policyholder misunderstanding is what constitutes “repaired” as it relates to the remediation of a sinkhole-damaged property.  When reviewing a request for coverage, Citizens references 627.707, F.S. as amended by SB 408, which clarifies that an insured must repair the property in accordance with the engineering recommendations upon which any payment or policy proceeds were based.  However, this may not actually be occurring in the marketplace, inasmuch as it has been found that some homeowners repaired their homes by alternate, less expensive means and used the claims proceeds for other reasons.  Some of these individuals then sold their homes to unsuspecting buyers, providing little or no documentation of what repairs, if any, had been completed.

A review of the Florida Real Estate Disclosure laws also indicated the potential for misinformation to be provided during a property sale, with no associated punitive action for doing so.  This conclusion was supported by calls received by Citizens’ Underwriting Department indicating that the subsequent new property owners had no knowledge of a prior sinkhole claim and no documentation for the repairs that may have been completed.

Citizens is therefore proposing revisions that would allow “total loss” properties repaired in accordance with original engineering recommendations to be eligible for sinkhole coverage, as well as effect changes pertaining to eligibility for properties suffering previous partial losses.

The proposed changes follow:

  • If a property has been remediated in accordance with the engineering recommendations upon which a partial or total payment was based and full documentation is provided, the property would be eligible and Open Peril HO-3 or DP-3 policy.
  • If a property has not been remediated in accordance with the original engineering recommendations, the property is only eligible for a Named Peril DP-1 (or an HO-8 policy) subject to the shared-cost inspection process whether sinkhole loss coverage is requested or not. The applicant must also provide a 4-Point Inspection for the home. (These reports will ensure that all cosmetic damages have been repaired, there are no unusual hazards or existing damage remaining and all of the home’s systems are in good working condition).
  • Applications on any property that has previously suffered a sinkhole claim/loss must be submitted to Citizens’ Underwriting unbound at least 30 days in advance to allow sufficient time to review all documentation of remediation.

In light of the current real estate disclosure laws, Citizens notes that a differentiation between the original owner (that filed the claim and received the claims proceeds) and a subsequent (new) owner is appropriate.  Thus, the following recommendations are also being made:

  • Citizens’ Underwriting rules should differentiate between the original owner who filed the sinkhole claim and determined how the claims proceeds should be spent versus the subsequent (new) owner of the property. The real estate disclosure documents would be requested to substantiate claims the new owner was unaware of the prior sinkhole issues or was provided with misinformation related to the sinkhole damage and possible repairs. Additional coverage options would be available for these homeowners.
  • To ensure that all properties previously damaged by sinkhole activity are known and appropriately underwritten up front, Citizens’ Staff is requesting approval to pursue a competitive solicitation to enable Citizens’ Personal Lines Underwriting Department to order loss history reports initially on all HO-3 and DP-3 applications received in the four primary sinkhole counties (Hillsborough, Hernando, Pasco and Pinellas).

To view the supporting documents for Citizens’ sinkhole proposal, click on the hyperlinks below.


Board Agenda Includes Actuarial and Underwriting Proposals

As part of its lengthy March 22 agenda, the Board will consider a slate of proposals emanating from Citizens’ Actuarial and Underwriting Committee.

  • An increase of the Commercial Residential Multi-Peril A-rates to 8.6 percent and the Commercial Residential Wind-Only A-rates to 3 percent
  • Restoration of Builders’ Risk coverage options
  • Buyback program for mobile homes’ additional structures such as carports and screened enclosures
  • A clarification of Citizens’ Personal Lines definition of “short-term rentals” based on the Florida Public Lodging definition (Section 509.013, F.S.) and as outlined in Citizens’ current Commercial Lines definition
  • Changes to the recently adopted shutter deployment incentive endorsement

In a follow-up to his presentation to the Florida Cabinet today, March 19, 2013, Citizens President and CEO Barry Gilway will present a number of human resources-related operational changes for Board approval.

He will also review Citizens’ recent wind-only depopulation measures, which he described today as having reduced all Florida policyholders’ assessment exposure by nearly 40 percent in one year.

To view the complete Board agenda, click here.


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