Insurance coverage for sinkholes may change

Jul 11, 2008

Lake City Reporter--July 11, 2008


Recent state legislation changed the guidelines for insurance that covers sinkholes, according to a paper written by David Thompson of the Florida Insurance Research Library.

The legislation took effect in late 2007 and adds a new definition, “catastrophic ground cover collapse,” Thompson said.

One of the key notations homeowners should see as a warning in regard to traditional sinkhole coverage is that, “Your policy provides coverage for a catastrophic ground cover collapse that results in the property being condemned and uninhabitable,” he said. “Otherwise, your policy does not provide coverage for sinkhole losses. You may purchase additional coverage for sinkhole losses for an additional premium.”

Insurance companies, except Citizens, are mandated to provide this notice on renewals when this is the case, according to the new law. Homeowners still see an option to buy the added coverage.

One insurance agent went on record about sinkholes and traditional coverage. Another agent was on vacation and two other insurance company agents chose against giving comment.

Bruce Drawdy, of the Drawdy Insurance Agency in Lake City, said most homeowners’ policies cover losses from sinkholes to the limits of the property and of the policy.

When a problem is seen, he said, the insurance company typically will send its geological engineers to determine if the costs of repair or remediation outweigh the value of the home as covered by the policy. Sometimes, the company will just buy the house, he said.

There is an issue after a sinkhole, Drawdy said.

“Once you’ve had sinkhole activity, no one wants to insure you any more,” he said. “Insurance companies have the right to non-renew due to claims history. What would be the point of not renewing once the repair has been made? I would think they would renew.

“It’s not like the person left a candle burning and the house burned down,” Drawdy said. “There is no negligence on the part of the homeowner.”

A sinkhole, Drawdy said, is among the reasons people buy insurance. It is an unavoidable, unforeseeable, unforecast event that can’t be prevented.

“That’s exactly why you buy insurance,” Drawdy said.

Homeowners who renewed or became insured in 2008 may want to check their policies to see the coverage limits and conditions.

Citizens Property Insurance Corp. notes the following, according to the paper by Thompson, “Under Citizens homeowners and dwelling policies the peril of sinkhole will no longer be included in the policy form, it will be an endorsement, Sinkhole Loss Coverage Endorsement.”

The legislation excluded Citizens from warning consumers as much as other insurance companies must warn them, Thompson wrote.

“Citizens (and only Citizens) is not required to send non-renewal notices dealing with the removal of sinkhole coverage in Pasco and Hernando counties, but instead may use a notice of coverage change to notify policyholders of the removal of sinkhole coverage,” Thompson said.