Florida Bill Would Affect All Property Insurance Claims, Including Less Sinkhole Coverage

February 20, 2011 (Press-News.org) The latest bill on the table of the Florida legislature focuses on property insurance.

According to legislators supporting the bill, SB 408 is aimed at creating more competitive pricing in the private insurance marketplace, making homeowners' insurance policies more affordable. Supporters say that premiums would be lowered because insurers would be able to lower their costs and pass on those savings to their policyholders.

But at the same time, if passed, the bill would reduce regulatory oversight on insurance companies, and actually end up harming many policyholders. If the insurer could show they are losing money on discounts to certain homeowners, they would be able to raise their rates. As a result, some homeowners would find their rates being drastically increased, especially those who spend additional money on hurricane and sinkhole coverage.

The bill would also remove the ability of regulators to restrict insurance companies' advertising spending and agent commissions.

The Current State of SB 408: What is a Sinkhole Loss?

The bill is currently before a Florida Senate committee, but voting was delayed on the matter in early February. Bloomberg indicates that committee members have requested additional testimony regarding the bill.

While the new law would impact all types of property and casualty insurance claims, it would have a particularly large impact on sinkhole coverage and claims.

According to the Insurance Journal, the Senate committee is not sure how to address sinkhole claims within the bill -- especially defining what constitutes sinkhole damage and whether insurers have the power to set underwriting criteria for sinkhole claims.

What is a sinkhole loss? Under current Florida law, a sinkhole loss is "structural damage to the building, including the foundation, caused by sinkhole activity." But the law does not define "structural damage." Insurers argue that some homeowners are paid for sinkhole damage that was caused by poor maintenance or general aging, not truly structural damage.

SB 408 would define "structural damage" as "foundation movement outside an acceptable variance under the applicable building code" that "prevents the primary structural members or primary structural systems from supporting the loads and forces they were designed to support." This definition would likely reduce the number of claims filed, even though homeowners may experience sinkhole damage to their homes outside of the law's definition.

Additional Impact on Sinkhole Claims

A report from the Office of Insurance Regulation indicates that sinkhole claims have skyrocketed the last four years, rising from 6,700 in 2006 to more than 24,000 in 2010 and cost over $1.4 billion since 2005, when the last major hurricane hit Florida. According to Business Week, two-thirds of the claims come from Tampa and the west-central Florida area.

One provision of SB 408 would allow insurers to stop offering sinkhole coverage altogether, making it difficult for those in sinkhole alleys to obtain insurance coverage. State Senator Mike Fasano, R-New Port Richey, says that insurers in the Tampa area already have the option to limit sinkhole coverage to only catastrophic instances -- basically where the home is uninhabitable. As a result, most insurance companies do not offer any other coverage, such as for cracked driveways. If SB 408 were to pass, insurers would no longer even have to provide coverage for those catastrophic cases. This would, in turn, devastate communities in sinkhole prone areas, such as Fasano's district outside Tampa, because properties would become unsellable.

The bill would not only affect residential homeowners, but also remove commercial properties from sinkhole coverage altogether.

Another provision would require policyholders to bear part of the cost of sinkhole testing; in the event the geologist or engineer determines there is no sinkhole, policyholders would have to pay for part of the $9,500 test. Many homeowners would not be able to afford even a portion of that amount.

Other provisions that would affect policyholders filing sinkhole claims:
- A two-year statute of limitation would be placed on sinkhole claims, requiring policyholders to file a claim within two years of when they knew or should have known about the sinkhole damage.
- Deductibles for sinkhole policyholders could be used to cover the cost of investigating sinkhole claims.
- Heightened requirements would be placed on those qualified to handle sinkhole claims, such as engineers, geologists and public adjusters.

Similar Bills Previously Introduced

Last year, the state legislature examined a comprehensive property insurance bill, SB 2044, supported by Florida Insurance Commissioner Kevin McCarty. According to the Orlando Sentinel, that bill was vetoed by then-Governor Charlie Crist because it was not consumer-friendly enough and he was concerned that it would lead to higher premiums.

A number of amendments to the current bill have been introduced, but continue to be hotly debated by legislators. While it is unclear whether SB 408 will pass as introduced, it is clear there will be a struggle for lawmakers to resolve the issue by the end of the legislative session in May of this year.

Article provided by Williams Law Association, P.A.
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