By Michael V. Laurato, Esq.
Since 1981, insurers offering property insurance to homeowners in Florida have been required to offer coverage for damages resulting from all classifications of sinkholes, in one form or another. Recent changes in the sinkhole law have permitted insurance companies to exclude certain types of sinkhole losses, after the making certain statutorily required disclosures, if not specifically requested and paid for by the homeowner. Thus, while coverage for all forms of sinkhole loss was once mandatory and automatic, presently, only one type of sinkhole coverage is mandatory, with the remaining sinkhole coverage being optional.
Under the present statutory scheme, if requested by the homeowner, and in exchange for an additional premium, an insurance company must still provide sinkhole coverage for all insurable types of sinkhole losses. The optional sinkhole coverage, which must be provided upon request and in exchange for an addition premium, is known as “sinkhole loss” coverage. In addition to the optional “sinkhole loss” coverage, current law provides mandatory sinkhole coverage for “catastrophic collapse” coverage. Thus, every policy of homeowner’s insurance in Florida must insure for “catastrophic coverage collapse” sinkholes, but may exclude “sinkhole loss” coverage, unless requested and paid for by the homeowner through an additional premium, in which case, “sinkhole loss” coverage must be provided in addition to coverage for “catastrophic collapse.”
The difference between “sinkhole loss” coverage and “catastrophic collapse” coverage is not readily distinguishable. Indeed, both types of coverage, at first glance, appear to insure against sinkhole losses, but there is a significant statutorily-created distinction. Accordingly, the place to begin the analysis of the different classifications of sinkhole coverage is with the statute itself. Initially, it is sufficient to note that “catastrophic collapse” is a narrower form of coverage, relatively speaking, when contrasted with the broader, more inclusive, “sinkhole loss” coverage. Let us begin our analysis by turning to the relevant sinkhole statute and the definitions contained therein.
As mentioned, “catastrophic collapse” coverage is mandatory and cannot be excluded, under any circumstances, by an insurance company from any homeowner’s policy. “Catastrophic collapse” coverage is automatically endorsed onto all Florida policies of homeowners insurance. By statute, “catastrophic collapse” is narrowly defined and limited to a sinkhole which (1) causes the abrupt collapse of the ground cover, (2) causing a depression which is visible to the naked eye, (3) that results in structural damaged to the building and foundation, and which (4) results in the structure being condemned and ordered to be vacated by the governmental agency authorized by law to issue such an order for that structure. If any one of the four prongs of the statutory definition is not met, the definitional threshold for “catastrophic collapse is not met, and the coverage grant is not implicated, as the loss will not be considered to be either “catastrophic” or a “cover collapse.”
Cover collapse sinkholes are rare occurrences, relatively speaking, within the applicable geological field. Together with the geologically infrequent incidence of cover collapse sinkholes, the other qualifying aspects of the statute’s definition, render “catastrophic collapse” coverage an even more atypical and extraordinary situation. For example, a cover collapse sinkhole which opens up, but does not result in the home being condemned, will not invoked “catastrophic collapse” coverage. While potentially damaging the structure, the cover collapse did not result in an order to vacate the home or official condemnation proceedings by the responsible governmental agency.
Sinkhole loss coverage, on the other hand, is optional coverage that may be purchased, in exchange for an additional premium, by a homeowner and is much broader form of coverage. It, therefore, applies to many other, widespread types of sinkhole activity, even to those sinkholes that do not result in the ground cover collapsing. “Sinkhole loss” is statutory defined, simply, as structural damage to a building, including the foundation, caused by sinkhole activity. In turn, “sinkhole activity” is broadly defined as (1) the settlement or systemic weakening of the earth supporting such property (2) that results from the movement or raveling of soils, sediments, or rock materials into subterranean voids created by the effect of water on a limestone or similar rock formation. For “sinkhole loss” coverage to be implicated there is neither the requirement that the ground open up, nor the requirement that the home be condemned and rendered inhabitable. As long as there is structural damage to the home, a policy providing for “sinkhole loss” coverage requires the insurer to conduct certain minimums tests to exclude sinkhole activity and if sinkhole activity cannot be scientifically excluded, coverage must be extended.
Policies of insurance are sometimes arcane and nuanced. Many of the provisions are written in legalese and employ unfamiliar phrases or concepts. In addition, there is an entire body of law, known as the insurance code, which is incorporated into every policy of homeowners’ insurance, as a matter of Florida law. Although insurers are required to provide homeowner’s with a checklist of the coverage afforded by the policy, by virtue of statute, these coverage checklists cannot be relied upon to create any coverage not afforded by the policy itself. If a homeowner has a question about the sinkhole coverage provided by an homeowner’s policy, the homeowner would be best served by seeking the advice of an attorney familiar and experienced with both the insurance code and Florida’s sinkhole law.