New Limited Personal Lines Residential Sinkhole Coverage Now Florida Law

Apr 11, 2016


Signed into law by Governor Rick Scott on April 6, 2016, SB 1274 will now allow insurers to offer a new type of personal lines residential sinkhole insurance coverage in Florida.

Effective July 1, 2016, the legislation creates s. 627.7151, F.S., which provides for limited coverage for “sinkhole loss,” defined as structural damage to a covered building (including the foundation) caused by sinkhole activity.   It also prohibits Florida’s Citizens Property Insurance Corporation from offering the new coverage.

Under the new law, limited sinkhole coverage would also be subject to the statutory requirements for sinkhole insurance in ss. 627.706-627.7074, F.S., with the following exceptions:

  • Coverage may be limited to repairs to stabilize the building and repair the foundation;
  • Coverage does not have to include contents replacement or coverage for additional living expenses;
  • Deductibles may be in an amount agreed to by the insured and insurer;
  • Policy limits may be in an amount agreed to by the insured and insurer, provided policy limits below $50,000 are not allowed unless that amount exceeds full replacement cost of the property;
  • A notice signed by the applicant is required that the applicant has read and understands the coverages of limited sinkhole coverage, including when insuring for less than replacement cost or agreeing to a deductible greater than allowed in s. 627.706(1)(b), F.S.
  • If a loss exceeds the policy limits, the insurer must agree to pay above policy limits to complete the repair or pay a contractor policy limits after the policyholder has signed a contract to repair. If the insured obtains a lower-cost alternative repair recommendation, the insurer must pay up to policy limits to complete the lower-cost alternative repair.
  • Insurers are allowed to establish limited sinkhole policy forms not subject to filing with and approval by the Florida Office of Insurance Regulation (“OIR”);
  • Insurers may file rates for limited sinkhole coverage that are not subject to the filing and review requirements of s. 627.062(2)(a) and (f), F.S. until October 1, 2019.
    • Under this option, insurers must:
      • Notify the OIR of any change to sinkhole insurance rates within 30 days after the effective date of the rate change and include the average statewide percentage change in rates;
      • Maintain actuarial data on sinkhole insurance rates for two years after the effective date of those rates; and
      • Have their rates examined by the OIR to ensure that the rates are not excessive, inadequate or unfairly discriminatory (Note:  The OIR may require the insurer to pay for the examination).

SB 1274 also establishes surplus requirements of $7.5 million for new and existing insurers that solely transact limited sinkhole coverage insurance.  Insurers providing limited sinkhole coverage must notify the OIR at least 30 days prior to offering the coverage in the state.  Such insurers must file a plan of operation and financial projections (or revisions to such plan, as applicable) with the OIR.

Until July 1, 2020, SB 1274 allows a surplus lines insurer to write the new coverage without the agent obtaining the requisite three declinations for insurance from Florida licensed sinkhole insurers.  This provision is similar to the language in place for flood insurance regarding surplus lines insurers.  However, the other requirements governing the exporting of coverage to the surplus lines continue to apply. 

To read a legislative analysis of SB 1274, click here.  To access the bill information page for SB 1274, click here.


Should you have any questions or comments, please contact Colodny Fass.



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