Main Property Bill Addresses Sinkhole Concerns
The current sinkhole claims crisis was one of the primary property insurance issues in the 2011 session. Insurers have paid more than $1 billion in sinkhole claims so far according to an Office of Insurance Regulation data call. Unfortunately, reviews found that up to 3/4 of policyholders filing these claims don’t make repairs. This has adversely affected municipal tax bases and in some cases has led to damaged homes being resold to other consumers.
The legislature adopted provisions in SB 408 designed to retain sinkhole coverage for what it hopes to define as legitimate claims while curtailing the abuses with unrepaired properties. The legislature included a lengthy expression of its legislative intent with the bill and made a series of clarifications and changes, including:
- The legislature continues existing law requiring property insurers to offer both catastrophic ground cover collapse coverage and sinkhole coverage. The legislature did, however, specify that insurers may limit coverage to the principal building defined in the policy.
- The definition of structural damage is updated to include what the legislature hopes to be clearer standards for identifying bona fide sinkhole losses. The legislature hopes to exclude cosmetic settlement-type cracking from the coverage requirements while retaining coverage for policyholders who suffer significant damage.
- The bill prohibits claims filed more than two years after the policyholder knew or reasonably should have known of a sinkhole loss.
- The requirement for insurers to report their losses to a centralized sinkhole database has been eliminated.
- The sinkhole investigation process is updated and clarified.
- The bill provides for damaged homes to be repaired in accordance with the engineering recommendations. There is an exception for losses that cannot be repaired within the policy limits.
- Policyholders will be responsible for publicly filing any sinkhole reports they obtain on their property. In addition, when repairs are completed, the professional engineer overseeing the work will file a certificate with the county clerk of court.
- Neutral evaluation procedures are updated.
The legislature also changed the definition of a covered claim for purposes of Florida Insurance Guaranty Association (FIGA) coverage. The newly revised definition specifies that a covered claim does not include any amount payable for a sinkhole loss other than for testing and for actual repair of the loss. FIGA will not pay attorneys’ fees or public adjusters’ fees in connection with sinkhole losses or pay policyholders directly.
Insurers should review SB 408 both for its impact on existing policies and procedures, as well as for the potential need to update policy forms and claims handling guidelines.