Good question and the answer is…maybe…but probably not. Unfortunately, in the mid 2000’s, the insurance industry had a crisis on their hand that caused some companies to leave Florida, or worse, became insolvent. There were some attorneys and public adjusters that started to “test” the language of the insurance policy which stated that sinkhole was the “settlement and cracking that may be caused by a sinkhole”. Many homes in Florida have cracking or settlement damage. Our homes are usually built on clay and/or sand….but it may be a sinkhole.
The Sinkhole Problem
Therefore, when the economy crashed, some attorneys would actually tell clients they could get out of their debt by filing a sinkhole with their companies. Billboards in Pasco and Hernando started to pop up stating “Are you thinking about filing for Bankruptcy? Call us.” Another one stated “Do you have settlement or cracking? Could be a sinkhole. Call us”. When a sinkhole claim was filed, the insurance company would be required to send out a Geo-engineering firm to test for sinkholes immediately adding over $15,000 to the claim expense. Some results tested negative for sinkhole. But, because attorneys and public adjusters would get a percentage of a “claim pay-out”, they would make money even if their client’s claim was denied.
The Property Market Response
To stop the bleeding, most companies no longer covered “sinkhole”, and instead provide coverage for “catastrophic ground collapse” which is a visible sinkhole that makes the home condemned and unlivable. Other companies switched to a 10% sinkhole deductible. This means the insured would have to pay for the engineering costs themselves.
Sinkhole vs Catastrophic Ground Collapse
Today, some companies will offer sinkhole coverage with a 10% deductible, but they will require an “acceptable” sinkhole inspection. This inspection costs a homeowner around $150 and the inspector simply looks for cracking in the interior and exterior of the home, (including driveways and sidewalks). From what I understand, 80% of the inspections do not pass. A few insurance companies will offer sinkhole coverage on new construction only. But it is an additional premium and a very high deductible. Overall the industry has not completely recovered. Catastrophic Ground Collapse coverage is on most homeowner policies and would cover what most would consider to be a sinkhole claim. However, if a sinkhole opens up near a client’s home, and it is not determined to make the home “unlivable”, the client may be stuck without coverage based on the definition of catastrophic ground collapse coverage.
As a side note, the industry has a new crisis known as “Assignment of Benefits”. When the well dries up, certain people find other loopholes to try and profit from insurance companies. This means higher premiums for all. Yesterday’s sinkhole fraud is today’s roof and water fraud.