Sinkhole or Settling? Fla. Insurance Committee Attempting to Find a Definition

April 1, 2005

House Insurance Committee members meeting in Tallahassee, Fla. are attempting to hammer out a bill to better define sinkholes, a common problem in many counties in which entire highways, neighborhoods and houses are sometimes swallowed up in one gulp.

The magnitude of such problems became evident last week when several lanes of an major Florida highway collapsed, tying up traffic for hours and requiring major reconstruction.

An earlier version an insurance bill, which the panel dropped, would have set up a legal process for resolving disputes and forcing homeowners to help pay the costs of investigating claims if it is determined sinkholes didn’t cause the damage.

“The Legislature doesn’t define what a sinkhole is,” Tom Hagerty, a State Farm spokesman told the Daytona Beach News-Journal. “We and the other insurers don’t know, either.”

House Insurance Chairman Dennis Ross, R-Lakeland, said lawmakers will continue to look at broader sinkhole issues as the bill moves forward. But he was afraid controversy about the issues would bog down the overall bill, which deals primarily with insurance issues stemming from last year’s hurricanes.

“We have to address sinkholes at some time,” Ross said.
Sinkholes have been a major issue in Volusia County in recent months as at least six sinkholes opened in the southwestern part of the county. But Volusia’s sinkhole woes pale compared to those in areas north of Tampa Bay, such as Pasco County.

Private insurers have stopped selling policies in many of those areas, forcing homeowners to get coverage from the state-backed Citizens Property Insurance Co. By law, Citizens must charge rates that are far higher than private companies charge.

Insurance companies are becoming more and more involved in legal battles with policyholders about whether the collapse of a structure is due to a sinkhole, or simply a foundation settling. They would like the Florida Legislature to provide a definition of sinkholes and therefore decrease the number of disputes. If it is determined that such a collapse is caused by the ground “settling,” many homeowners policies do not cover these repairs.

Insurance companies say the sinkhole issue is causing them to limit coverage or raise rates in some sinkhole-prone parts of Florida. They say they are forced to spend thousands of dollars to investigate claims they contend are often caused by homes settling or shoddy construction — not sinkholes.

“We believe most sinkhole claims are not bona fide sinkholes,” Sam Miller, executive vice president of the Florida Insurance Council told the News-Journal.

Rade Musulin, an actuary for Florida Farm Bureau Insurance, said it’s unclear whether sinkholes will cause insurers to leave southwest Volusia County or raise rates.

The legislative debate, however, doesn’t focus on the types of massive sinkholes that damaged a home and four lanes of Deltona’s Howland Boulevard in December. Instead, it is about cases in which homeowners might see cracks in their floors or walls and file insurance claims because they fear sinkhole damage.

“Nobody really disputes when a 20-foot hole opens up, and your home gets sucked into it,” Musulin, who lobbies for Florida Farm Bureau said.

Insurance companies want changes in state law, at least in part to more clearly define when a sinkhole occurs. That could help them defend against lawsuits filed by homeowners whose claims are denied.