Catastrophic Ground Cover Collapse Coverage—What Does It Cover?
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When it comes to insurance policies, like many things in life, cheaper is not always better. Often less expensive coverage equates with less inclusive coverage. A new Florida sinkhole insurance law, created on the premise of reducing costs for the insured and insurer alike, will likely actually result in additional economic strain for already-struggling property owners.
How Does the New Law Differ?
Signed into law by Governor Charlie Crist on June 1, 2009, Senate Bill 742 (which becomes effective January 1, 2010) will give insurance companies that provide coverage to Florida homeowners and businesses the option of not renewing sinkhole loss coverage for property owners in Pasco and Hernando counties. Instead, the insurance companies can replace this coverage with catastrophic ground cover collapse coverage.
The problem for homeowners, though, is that this coverage is not equivalent.
Sinkhole loss coverage encompasses all losses caused by sinkhole activity, provided there is damage to the building and its foundation as a result. This includes any damage caused by the settlement or weakening of the ground supporting a property as the result of the shifting or subsidence of soil, sediments or rocks into a subterranean hole created by water in the underlying bedrock.
Catastrophic ground cover collapse, on the other hand, covers only a small portion of damages caused by sinkhole activity. Under Florida law, catastrophic ground cover collapse includes geological activity resulting in the following:
Abrupt loss of ground cover
A depression in the ground clearly visible to the naked eye
Structural damage to the building, including the foundation
Government condemnation of the insured structure and an order to vacate the premises
By the express terms of the coverage, catastrophic ground cover collapse only covers damages when the insured property is condemned by a governmental agency and ordered vacated. Consider the damage that the property must sustain before a government agency would force a family out of their home, and it becomes clear just how worthless this coverage is.
A home or other building can suffer incredible damage without reaching the point of condemnation. If the property only has catastrophic ground collapse coverage, the property owner will be required to pay all of the repair costs.
What Are the Practical Consequences of the Change?
The new law does not prohibit sinkhole loss coverage; homeowners can purchase additional insurance to cover the broader range of sinkhole-related losses. However, this coverage will result in higher insurance premiums. Additionally, if an insurance company drops the sinkhole loss coverage, the company will require an inspection before insuring the property again. This inspection, performed at the insured’s expense, can easily cost hundreds of dollars. Some mortgage providers, in fact, require sinkhole coverage, essentially forcing property owners to incur the costs of the expanded insurance and the inspection.
Rather than purchasing the additional sinkhole insurance coverage, home and business owners could choose to accept the less-inclusive catastrophic ground cover collapse coverage. However, because this coverage is so limited in scope, many property owners with damage relating to sinkhole activity will be required to pay for the damages out of pocket.
Ultimately, property owners are caught between a rock and a hard place — they either resign themselves to paying higher premiums for expanded coverage, or they are stuck paying for costly repairs when sinkholes damage their homes or businesses and their foundations. In Pasco and Hernando counties, colloquially known as “the sinkhole capital of the world,” this damage seems almost inevitable.
Given this precarious situation for property owners, some have argued that rather than reducing costs for the insured, this new law only lowers costs for insurance companies. By not renewing policies and forcing all policyholders to complete inspections before providing coverage again, the insurance companies can sift through properties with signs of sinkhole damage before providing the same coverage they had previously offered. By providing fewer sinkhole policies, the insurance companies will probably have to pay fewer claims when sinkhole damages develop.
Only time will reveal the ultimate effects of this new law, but currently it appears rather unfavorable for property owners. If you have questions about the new catastrophic ground cover collapse coverage and how it the changes will affect your property rights, consult a lawyer who has experience handling sinkhole damage claims and their consequences.
