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Sinkhole Insurance Claims Rising in Florida

Source: WSJ

Posted on 20 Apr 2010

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There are sinkholes throughout Florida. In fact, many of the state's lakes started out as sinkholes. And some Florida sinkholes are huge, others lurk underground, causing cracks in driveways. As result, sinkhole insurance claims have gone way up. The claims are followed by insurance surveyors with small wagons equipped with ground-penetrating radar -- and by fights over whether a house has a sinkhole or something vague and uninsurable, like "subsidence."

Too much rain provokes sinkholes. So does too little rain. In the town of Plant City, Florida, a sinkhole crisis has been set off by strawberries. Plant City is Florida's strawberry capital, and during a record cold snap this past winter, farmers pumped millions of gallons of water onto their strawberries to keep them warm. Cavities in the limestone aquifer emptied, weakened and gave way.

On Jan. 11, the day before Haiti's earthquake, Cindy Kersey was in her kitchen making pesto. She heard a "pop." It sounded like ice breaking up. She went outside. No ice. She heard a "bang" and found a crack in her bedroom wall. She called her mother to ask whether a house could crack in the cold. Her mother told her to call the police.

By the time her husband, Evan Chreitzberg, got home, the live oaks on the lawn were strung with crime-scene tape and the one-story stucco house was three feet lower than it had been that morning.

Sinkholes are a booming business for Florida lawyers.

It was the couple's lucky day. Their house fell into an unchallengeable sinkhole—no survey needed. In sinkhole parlance it's known as "winning the Florida lottery." The total loss was covered without a quibble as a "catastrophic ground-cover collapse."

"We came out on top," Mr. Chreitzberg said not long ago. He and his wife, both in their forties, were stopping by the house to retrieve odds and ends. They bought it for $130,000 in 1999. Even if the house still stood on terra firma, today's real-estate market couldn't beat their insurance payoff: $175,000.

Ms. Kersey ventured inside and came out with a box of Mad magazines. "It's a strange way to move," she said. Mr. Chreitzberg, who happens to sell life insurance for a living, found his tennis racket in the garage. He said, "We started looking for a new house. It's a good time to buy—just not in this area."

The area was called Mud Lake before developers came. Now it's called Walden Lake and Walden Lake East. Strawberry-linked sinkholes dimple its curvy streets, but only a few homeowners have experienced a catastrophic collapse. The rest are still living on the edge—physically and financially.

Evan Chreitzberg

For insurance companies, non-catastrophes are disasters. A slight crack in a rec-room wall can lead to a claim that requires the insurer to employ the geological equivalent of a $10,000 CAT Scan to confirm or deny. If a test finds a sinkhole, the fix is to pump it full of concrete and stand the house on steel piles. It can cost $200,000.

Some owners take the insurance, pay off their banks and sell cheap to "sinkhole home buyers" who rent the houses out. Others hire "sinkhole public adjusters" to push their claims. Florida had 678 of them in 2004; it has 2,914 now.

"Folks think sinkholes and public adjusters go together," says Rich Fidei, a lawyer and insurance lobbyist. Ken Thomas, a public adjuster, says, "Insurance companies hate sinkholes. A property has a few cracks and they have to pay big money. It bothers them." He adds, "I didn't make the rules."

But the legislature can change them. Sinkholes are political tiger traps in Tallahassee. Insurers are threatening to quit Florida if costs can't be cut. In January, a law took effect letting them charge extra to cover noncatastrophic sinkholes. So homeowners are filing crack claims like crazy before their old policies expire.

In Plant City, they include Steve and Susan Crochunis, whose house backs on Evan Chreitzberg's and used to be level with it. Now it seems to sit on a hilltop. The sandy soil in its yard slopes down toward a newly U-shaped board fence. Mr. Crochunis, 51 and a Honda mechanic, pushed a metal stake into the ground with no effort.

"Everything's loose," he said. There was a web of fissures on the walls of his house, 50 feet from the slope's edge. He had marked its advance with duct-tape patches. "I believe the house is being pulled toward the hole," said Mr. Crochunis.

He and his wife bought the place for $165,000 in 2004. It's insured for $263,000. They would have trouble selling it for firewood now. The surveyors have come and gone but haven't yet told them whether they have an insurance-grade sinkhole. One visitor recommended covering the cracks with "elastic paint," said Mr. Crochunis. His wife said, "We just sit here and watch them grow."

Mr. and Mrs. Crochunis aren't eating strawberries while they watch. They're boycotting them, even though the cold spell and the winter's heavy watering have made for a sweet spring crop.

A cultural abyss has opened in Plant City between its strawberry fields and sinkhole subdivisions. Ted Campbell, head of the growers' association, can see why. Yet sinkholes, he says, have been "a natural disaster in Florida for a long, long time."

And while the strawberries are sweet, the late bloom and Californian competition have glutted America's fruit stands. Prices are too low now to make all the fields worth harvesting. So Plant City's growers are giving their strawberries away, or pulling them up to make room for cantaloupes. As Mr. Campbell points out, nobody sells insurance to cover that.