Sinkhole Report to Become Legislative Fodder

By: Michael Peltier, The News Service of Florida
By: Michael Peltier, The News Service of Florida

Tallahassee, FL - A state-run insurance pool, stricter regulations on public insurance adjusters and shifting the burden of proof on claims are among the options posed by Senate committee for curbing sinkhole claims that have tripled since 2006.

Setting the stage for a hearing next week and possible action later this month, the Senate Banking and Insurance Committee this week released an interim report on sinkhole insurance claims, which the industry says have cost insurers $1.6 billion since 2006, an increase fuelled in part, insurers say, by questionable claims from property owners who pocket the cash instead of doing repairs.

Echoing concerns raised by the industry and the Office of Insurance Regulation, the 47-page report will give fodder to those who say homeowners are using loopholes and ambiguities in state insurance rules and the law to pay off mortgages and raise cash with claims for damage that may not be sinkhole related.

“A major driving force for the significant increase in sinkhole claims is the fact that many policyholders are incentivized to file such claims because they can keep the cash proceeds from the claim instead of effectuating repairs to their home or remediating the land,” the report concluded.

According to the report, total claims increased from 2,360 in 2006 to 6,694 in 2010, totaling 24,671 claims throughout that period. Total sinkhole claim costs amounted to about $1.4 billion during that time.

In 2009, Citizens Property Insurance Corp., the state-created insurer, incurred over $84 million in sinkhole losses plus adjustment expenses, yet obtained only $19.6 million in earned premium to cover those costs.

Industry officials hailed the report as verification of what they have been saying for the past several years: Sinkhole claims in a handful of counties are costing all property owners millions in higher premiums and in many cases, the claims are questionable at best.

“It documents what we have been saying,” said Sam Miller, executive director of the Florida Insurance Council. “It verifies the concerns that Insurance Commissioner (Kevin) McCarty raised before the Cabinet and we raised before the Cabinet. It helps make the point that somebody is paying for this and that ‘someone’ is everyone in Florida.”

The Senate report called for:
- Changing the burden of proof in court cases to make policyholders prove damage was done by sinkhole, rather than having companies prove it wasn’t.
- Establishing a two- or three-year statute of limitations on filing claims. Currently, there is no statute of limitations.
- Requiring claims payments to be used on repairs
- Making sinkhole coverage optional as long as insurers provide policies for catastrophic ground collapse
- Revising the Florida Building Code to require pre-construction testing, thicker foundations and added reinforcements to prevent settling
- Create a statewide sinkhole pool to which private insurers could cede coverage.

Not everyone applauded the report. Again a target of critics, public adjusters said the committee report overlooks recent decreases in claims and would single out sinkhole policyholders by requiring that they put their claim payments toward repairs, a restriction not levied against other insurance policyholders.

“Unfortunately, the Committee staff recommendations on sinkhole insurance promote legislation that would unquestionably harm consumers,” said David Beasley, president of the Florida Association of Public Insurance Adjusters. “While the recommendations for changes in the Florida Building Code have merit, the report as a whole lends great weight to insurance company interests at the expense of Florida homeowners.”

The Senate Banking and Insurance Committee is scheduled to be briefed on the report at its meeting next week and include sinkhole provisions in a wide ranging insurance bill to be rolled out two or three weeks later, committee chairman Garrett Richter, R-Naples, told the New Service of Florida Wednesday.

Richter said he favors a lot of the report’s recommendations on statutory changes but has yet to be convinced that the state should go into the sinkhole insurance business by setting up a state-run program to handle sinkhole claims.

“I don’t think a facility is the way we should go initially,” Richter said. “I think we should see if the private market can take care of this. If that doesn’t work, then we can go further.”

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  • by Anonymous on Jan 6, 2011 at 04:09 PM
    Tampa, you can have the ag subsidies but you will need the roads to run like scared rats while you houses flood and blow down.
  • by Anonymous Location: Tampa on Jan 6, 2011 at 10:43 AM
    If you inlanders don't want to help coasters with insurance, then stop taking our sales tax revenue for your roads and ag subsidies.
  • by Anonymous on Jan 6, 2011 at 10:05 AM
    To Anon, Thanks for the info. My answer to your question whether we all should pay for a "windfall for a few" is NO. In the same regard, inland homeowners should not have to bear the risk for those homeowners that choose to live on the coast.
  • by Anon Location: Florida on Jan 6, 2011 at 05:33 AM
    A few corrections to the article and the comments. 1. There has been no decrease in sinkhole claims. that comes from misreading the OIR report which only was on Closed Claims. If Open (currently in progress) claims had been included, it would have shown an increase. 2. A whole in the ground is covered by everyone and not an issue. that is called Catastrophic Ground Collapse and the industry is fine covering that. 3.It is the Sinkhole Activity coverage that is the issue, and if it were not required by statute, insurance companies would not offer it because it is an uninsurable risk. We are all paying for this in higher premiums, so the first question is whether the rest of us should be financing a windfall for a few, no matter how the money to pay for it is collected.
  • by Anonymous on Jan 5, 2011 at 08:53 PM
    Steve, they aren't talking about Citizen's Property insurance. They are talking about about creating a new pool of money that they can pilfer away, similar to Citizens but not unlike the pension fund. To Insurance Man, The only legislation necessary is increasing the penalties of those committing the fraud. If the insurance companies don't want to take on the risk, then don't write the policies. It's like they just want to collect the money but don't want to pay the claims. A good example is insurance companies refusing to pay claims after hurricanes by claiming the damage was from flooding and wasn't covered by the homeowners policy after the hurricane blew off their roof and dumped 5 inches of rain in their house. I can just see some poor homeowner having to pay "thousands and thousands" of dollars to prove the big hole where their garage use to be was from a sinkhole and not a meteorite which isn't covered by their policy.
  • by Anonymous on Jan 5, 2011 at 07:40 PM
    The state should not be in the insurance business nor should residents that live inland take on the risk from those that choose to live on the coast. Let the market work. If the private insurance companies don't want to take the risk then don't write the policies. If you can't afford the market rate to insure your home move. Contrary to the republican campaign promise to reduce regulation on business, this is one of the first things they want to do. The only thing the state government should be involved in is prosecuting those that are committing the fraud. If this is done then you don't need more regulations, you don't need another pool of money for the legislature to spend on private hangers for the cronies, and the fraudsters will move on the something else, like medicare fraud. Our new governor found this to be quite lucrative.
  • by Steve on Jan 5, 2011 at 06:09 PM
    Anonymous, The State-run insurance has been around for years, have you been sleeping?
  • by Insurance Man on Jan 5, 2011 at 05:01 PM
    To Anonymous: Insurance Industry 1, Citizens of Florida 0? Really. You must be either uninformed or simply an idiot. Based upon your comments, you're clearly not involved with the insurance claims process of handling a sinhole claim nor are you familiar with the state law regarding what an insurance company is required to do whenever a sinkhole claim is filed. The real problem here is that various "citizens of Florida" and/or unscrupulous public adjusters who talk those citizens into filing sinkhole claims when there is no reasonable belief that a sinkhole actually exists for the purposes of committing fraud cost insurance companies thousands upon thousands of dollars in geotechnical engineers and testing expenses which the state requires the insurance comapnies to do. Companies have to cover those unnecessary costs so it comes out of your pocket when premiums are increased for all policy holders. Don't blame the insurance companies - blame those who are committing fraud.
  • by Anonymous on Jan 5, 2011 at 02:55 PM
    "A state-run insurance pool, stricter regulations on public insurance adjusters and shifting the burden of proof on claims ..." Really? So much for the state getting out of the work private business can do. Create another state-run insurance entity, increasing regulations on business, and screwing the home owners by making them prove a sinkhole caused there garage to fall down. Ha Ha Ha, did you really think they meant it when they said things would be any different than they have been the last 12 years? Let's keep count: Insurance industry 1, citizens of Florida 0.
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