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Sinkhole Insurance Laws

Sinkhole Laws

While sinkholes are a threat to Florida property owners, the fact is they are relatively rare. Pasco County, Hernando County and the northern areas of Hillsborough and Pinellas Counties seem to be the most active areas on Florida’s west coast. Still, sinkholes can be found throughout Florida and the South East United States.

Until recently, all property insurance policies sold in Florida provided coverage for sinkhole damage. Surrendering to pressure by the powerful insurance lobby in 2007, the Florida Legislature changed the law regarding sinkholes. This action significantly reduced consumer protections and created a windfall of new-found revenue for insurance companies. Florida and Tennessee are the only states to require insurance companies to offer sinkhole coverage. Florida Statute 627.706 requires every insurer authorized to sell property insurance to provide coverage for catastrophic ground cover collapse and shall make available, for an additional premium, coverage for sinkhole losses on any structure, including contents of personal property contained therein, to the extend provided in the form to which the coverage attaches.

A policy for residential property insurance may include a deductible amount applicable to sinkhole losses equal to 1 percent, 2 percent, 5 percent, or 10 percent of the policy dwelling limits, with appropriate premium discounts offered with each deductible amount. A sinkhole loss means structural damage to the building, including the foundation, caused by sinkhole activity. Contents coverage shall apply only if there is structural damage to the building caused by sinkhole activity.

Some homeowner’s insurance policies include full coverage for sinkhole repair and expenses related to sinkhole damage, but many insurance providers have now limited this coverage to minimize their risk of loss. Many insurance companies are now "selling" sinkhole insurance exclusions. They claim this exclusion will save the homeowner money by lowering their insurance premiums while still providing coverage for catastrophic sinkhole damage. Sinkhole insurance exclusions simply shift the burden of loss from the insurance company to the homeowner. If a homeowner does not have adequate sinkhole insurance coverage -and the unthinkable were to happen, the homeowner may have to pay a significant amount of money for remediation and repair.