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Florida Court Rules Insurer Cannot Limit Sinkhole Coverage

Source: BestWire

Posted on 21 Mar 2013 by Neilson

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Florida sinkholeA Florida court will not allow two insurance companies to limit sinkhole loss coverage to a fraction of the overall coverage amount, finding the practice would make "the optional coverage valueless," court records say.

Florida Farm Bureau Casualty Insurance Co. and Florida Farm Bureau General Insurance Co. wanted to amend its endorsement form limiting sinkhole loss coverage to 25% of the overall coverage amount of the insured home, but the Florida Office of Insurance Regulation shot down the proposal, records say.

They're at odds over language in the state's statute mandating catastrophic ground cover collapse and optional sinkhole coverage. The statute says insurers shall make available, for extra cost, coverage for sinkhole losses on any structure to the extent provided in the form to which the coverage attaches.

Florida Farm Bureau contends the form to which coverage is attached is the policy endorsement, while the OIR says the coverage attaches to the base insurance policy. The court, the Florida 1st District Court of Appeals, ruled the optional sinkhole coverage attaches to the base insurance policy.

Florida has more sinkholes than any other state, according to the Florida Department of Financial Services. Property insurers in Florida must offer coverage for catastrophic ground collapse, but sinkholes are defined differently and insurers only have to make optional coverage available, according to the Florida DFS.

Florida insurer have grappled with losses from sinkhole-related claims and one insurer, HomeWise Preferred Insurance Co., in 2011 became insolvent because of sinkhole claims and was placed into receivership.

Just as the company went under, reforms were on the way to help Florida insurers limit their payments in sinkhole claims. The reforms, which were part of S.B. 408 that was passed in 2011, included a two-year statute of limitations on claims, new definitions of what a sinkhole is, and the ability for insurers to offer customers policies where the company would only pay for new items actually purchased.

"These are very significant reforms and we believe they are starting to work," said Sam Miller, executive vice president of the Florida Insurance Council. Miller said Florida's Citizens Property Insurance Corp., in its reports to the Financial Services Commission, still reports high loss ratios on sinkhole covers, but "it's getting better."

"It seems to be clear that at least going forward, that the major reforms on sinkholes ... are effective," Miller said. "Given time they may really, really have a positive impact."

Sinkholes have recently garnered the national spotlight in several states, including Florida where a sinkhole opened up underneath a home near Tampa, swallowing the contents of a bedroom and killing a man who was sleeping in his bed, according to the Hillsborough County Sheriff's Office. Other sinkholes have been reported recently near Bethlehem, Pa. and in Illinois, where a sinkhole tried to consume a golfer, who was able to escape.

Florida Farm Bureau Casualty Insurance Co. and Florida Farm Bureau General Insurance Co. both currently have a Best's Financial Strength Rating of A (Excellent).