The Florida Senate issued a sinkhole insurance report this week and concluded there is no geological reason insurers are paying three times more in sinkhole claims in 2009 than they did in 2006. Whew! That means Florida is not disappearing into the sea. It does mean, however, that the sinkhole problem is likely manmade.
The report says policyholders may feel an incentive to file sinkhole claims since they can keep the payout without repairing any of the sinkhole damage. I explained how that works in a recent blog about Florida being the only state paying the total claim upfront without a holdback; other states pay a portion of the claim upfront and pay the rest when a contract for repairs is signed. Some homeowners are winning twice by letting sinkhole damage go unrepaired: They get payouts from insurers, plus lower market valuations on their property. The 47-page report proves there are loopholes that need fixing, including the fact that current sinkhole statute does not define what “structural damage” is, so cosmetic damage is qualifying for claims checks.
Why are insurers paying claims for cosmetic damage to homes that may – or may not – be caused by sinkholes? The report from the Florida Senate says it is because two other statutes related to attorney fees and “bad faith” laws make it more cost effective to pay the claim than risk a lawsuit. And, those are two additional holes causing the sinking feelings over property insurance.
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