Sinkholes Become Black Holes for Florida Insurers

Posted September 21, 2010 in Insurance Law by Arthur Buono

You know the old saying about a home being a money pit? Never truer for underwater mortgagees, and it’s become a literal reality for homeowners and their insurers in Florida. A plague of Florida sinkhole insurance claims threatens the solvency of some Florida insurers.

  • Sinkholes swallowing homes, shifting foundations, causing other damage
  • Zealous or overzealous public adjusters urging sinkhole claims on homeowners
  • Insurance payouts exceeding premium income; rate increases sought


Eager Public Adjusters Chase Sinkhole Claims

Florida’s geology makes it susceptible to sinkholes. Sinkholes form when the ground surface collapses into the underground caverns formed as subsurface water erodes limestone bedrock. Not every claim involves a sinkhole swallowing a house whole. Homeowners have filed many smaller claims for things like cracked driveways. A sinkhole may have caused the damage, or not. Insurers think the culprit may in fact be a plague of public adjusters instead.

Public adjusters represent insureds when they evaluate losses. They work on a contingency basis, earning up to 20 percent of the proceeds an insured receives from an insurer. The number of public adjusters in Florida has increased fourfold in five years. Insurance companies say adjusters are drumming up questionable claims in a money grab.

Sinkholes are usually within the standard earth movement exclusion. Coverage requires a separate rider and premium. Some insurers have paid out more in sinkhole claims than they’ve received in sinkhole coverage premiums. That can’t continue, so rates must rise for insurers to keep providing sinkhole coverage for the risk. Regulators are investigating the situation, because they must approve any rate increases insurers seek.

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