On April 6, 2016, Florida Governor Rick Scott signed into law S.B. 1274, which amends Florida’s sinkhole insurance statute. These changes will go into effect on July 1, 2016 and will provide Florida homeowners with more options in procuring sinkhole insurance coverage.
Florida’s terrain is particularly susceptible to sinkholes, one of which is infamously known for swallowing up a man's home in Tampa in 2013. Between 2007 and 2011, sinkhole litigation was at an all-time high, with filed claims skyrocketing, and insurance companies incurring huge losses to pay out these claims. Many claims were frivolous, including claims for minor sidewalk cracks. In response to numerous and sometimes fraudulent sinkhole claims in the state, the legislature passed a law in 2011 limiting sinkhole insurance coverage only to instances where the sinkholes caused "catastrophic ground cover collapse," which would protect you if your home fell into a sinkhole, but not much else. As a result, insurance companies had more power to deny coverage for lesser sinkhole damage and could obtain high premiums for sinkhole coverage.
The 2011 legislation, however, has shown to be too far-reaching in the opposite direction, and S.B. 1274 is an attempt to bring the pendulum closer to the center. Under current law, homeowners are unable to obtain coverage for cracks in the floors or walls in their homes, and some cannot afford to make these repairs themselves. Unrepaired sinkholes not only decrease the value of the home with damage, but also the surrounding homes as well. This newly created Section 627.7151 of the Florida Statutes will allow insurance companies, at their option, to provide limited sinkhole coverage insurance to homeowners, which would provide coverage for a "sinkhole loss," which is a lower threshold of damage than "catastrophic ground cover collapse" and is defined as "structural damage to the covered building, including the foundation, caused by sinkhole activity." Additionally, the bill maintains the current requirements that if the insured’s professional engineer determines that the repairs exceed the policy limits, then the insurer must pay to complete the recommended repairs or tender the full policy limits to the homeowner.
Among other things, insurance companies also must abide by the following exceptions:
- Coverage is only available for personal lines residential coverage;
- Coverage may be limited to repairs to stabilize the building and repair the foundation, and may not include coverage for contents and additional living expenses;
- Citizens Property Insurance Company cannot issue this insurance;
- Insurer and insured can agree on the deductibles;
- Insured and insurer can agree on policy limits, but limits less than $50,000 are prohibited unless that amount exceeds the full replacement cost of the property; and
- Insured must sign special notices stating that insured understands the limits of the policy, including when the policy limits coverage to less than the full replacement cost of the property, or when the deductible exceeds the amount permitted under Fla. Stat. § 627.706(1)(b).
Through the enactment of this new law, sinkhole insurance coverage options will no longer be limited to situations when someone’s home is swallowed up by a sinkhole, and homeowners will now have the opportunity to insure themselves against lesser sinkhole damage.