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Sinkhole claims can be complex and often require the involvement of attorneys and experts, such as professional engineers and geologists.
Understanding Coverage for Sinkhole Claims
Sinkhole claims are the subject of many statutory regulations. For example, according to § 627.706 (entitled “Sinkhole insurance; catastrophic ground cover collapse; definitions”), a sinkhole is defined as: “a landform created by subsidence of soil, sediment, or rock as underlying strata are dissolved by groundwater. A sinkhole forms by collapse into subterranean voids created by dissolution of limestone or dolostone or by subsidence as these strata are dissolved.”
Florida Statute § 627.706 defines a “sinkhole loss” as structural damage to the covered building, including the foundation, caused by sinkhole activity. It also defines “structural damage” as a covered building, regardless of the date of its construction, has experienced the following:
1. Interior floor displacement or deflection in excess of acceptable variances as defined in ACI 117-90 or the Florida Building Code, which results in settlement-related damage to the interior such that the interior building structure or members become unfit for service or represents a safety hazard as defined within the Florida Building Code;
2. Foundation displacement or deflection in excess of acceptable variances as defined in ACI 318-95 or the Florida Building Code, which results in settlement-related damage to the primary structural members or primary structural systems that prevents those members or systems from supporting the loads and forces they were designed to support to the extent that stresses in those primary structural members or primary structural systems exceeds one and one-third the nominal strength allowed under the Florida Building Code for new buildings of similar structure, purpose, or location;
3. Damage that results in listing, leaning, or buckling of the exterior load-bearing walls or other vertical primary structural members to such an extent that a plumb line passing through the center of gravity does not fall inside the middle one-third of the base as defined within the Florida Building Code;
4. Damage that results in the building, or any portion of the building containing primary structural members or primary structural systems, being significantly likely to imminently collapse because of the movement or instability of the ground within the influence zone of the supporting ground within the sheer plane necessary for the purpose of supporting such building as defined within the Florida Building Code; or
5. Damage occurring on or after October 15, 2005, that qualifies as “substantial structural damage” as defined in the Florida Building Code.
Important Timing Issue Regarding Reporting Sinkhole Claims
In any event, an important issue to remember with regard to sinkhole claims is that any such claim is barred unless notice of the claim is given to the insurer in accordance with the terms of the policy within 2 years after the insured knew or reasonably should have known about the sinkhole loss.
Investigation of Sinkhole Claims by Your Insurer by Inspection of the Property
Pursuant to Florida Statute § 627.707 (entitled “Investigation of sinkhole claims; insurer payment; nonrenewals”), when an insurer receives notice of a sinkhole claim (for a property insured by a policy that includes coverage for sinkhole losses), it must meet the following standards in investigating the claim:
(1) The insurer must inspect the insured’s premises to determine if there is structural damage that may be the result of sinkhole activity.
(2) If the insurer confirms that structural damage exists but is unable to identify a valid cause of such damage or discovers that such damage is consistent with sinkhole loss, the insurer shall engage a professional engineer or a professional geologist to conduct certain testing to determine the cause of the loss within a reasonable professional probability and issue a report either confirming or denying that sinkhole activity caused damaged to the property.
With a few exceptions, the fees and costs of the professional engineer or professional geologist are paid by the insurer. One such exception occurs when an insurer obtains written certification from the professional engineer or professional geologist that there is no sinkhole loss or that the cause of the damage was not sinkhole activity, and the insured submitted the claim without good faith grounds to do so. In that scenario, the insured is required to reimburse the insurer for 50 percent of the actual costs of the analyses and services provided by the professional engineer or professional geologist up to an amount of $2,500.00. However, the insured is not required to pay this amount unless before the insurer orders the testing by the professional engineer or professional geologist, it informs the insured in writing of the policyholder’s potential liability for reimbursement and gives the insured the opportunity to withdraw the claim.
A second exception occurs when an insured requests that the insurer test for a sinkhole loss by a professional engineer or professional geologist after the insurer determines that there is no sinkhole loss and denies the claim without having such testing done. In that scenario, the insured shall pay 50 percent of the actual costs of the analyses and services of the professional engineer or professional geologist for the testing or $2,500, whichever is less. However, the insurer will reimburse the insured for these costs if the engineer or geologist confirms that there is a sinkhole loss at the property.
What Happens After the Inspection of the Property?
After the initial inspection of the insured’s premises, the insurer must provide written notice to the insured disclosing the following information:
(a) What the insurer has determined to be the cause of damage, if the insurer has made such a determination.
(b) A statement of the circumstances under which the insurer is required to engage a professional engineer or a professional geologist to verify or eliminate sinkhole loss and to engage a professional engineer to make recommendations regarding land and building stabilization and foundation repair.
(c) A statement regarding the right of the policyholder to request testing by a professional engineer or a professional geologist, the circumstances under which the policyholder may demand certain testing, and the circumstances under which the policyholder may incur costs associated with testing.
What Happens if the Insurer Does Not Engage a Professional Engineer or Professional Geologist to Conduct Testing, but Still Determines there is No Sinkhole Loss and Denies the Claim?
The insured may demand that the insurer have the property tested by a professional engineer or professional geologist. However, it is important to remember that such a request by the insured for testing must be communicated to the insurer in writing within 60 days after the insured’s receipt of the insurer’s denial of the claim. It is also important to know that the insured may be responsible to pay 50 percent of the actual costs of the analyses and services of the professional engineer or professional geologist, or $2,500, whichever is less. However, the insured will reimburse the policyholder such costs if the engineer or geologist confirms that there is a sinkhole loss.
What Happens if the Insurer Determines that a Sinkhole Loss Exists?
The insurer shall pay to stabilize the land and building and repair the foundation in accordance with the recommendations of the professional engineer who inspected the property. This occurs after notice is provided to the insured. The payment is subject to the terms and coverage provided by the policy.
The insurer is also required to pay for other repairs to the structure and contents in accordance with the terms of the policy.
Payment of Sinkhole Losses and Timing Issues
If a covered building suffers a sinkhole loss, the insured must repair such damage or loss in accordance with the insurer’s professional engineer’s recommended repairs. However, if the insurer’s professional engineer determines that the repair cannot be completed within policy limits, the insurer must pay to complete the repairs recommended by the insurer’s professional engineer or tender the policy limits to the insured.
It should be noted that an insurer may limit its total claims payment to the actual cash value of the sinkhole loss (which does not include underpinning or grouting or any other repair technique performed below the existing foundation of the building) until the policyholder enters into a contract for the performance of building stabilization or foundation repairs in accordance with the recommendations set forth in the insurer’s professional engineer’s report.
To prevent additional damage to the building or structure, the insured must enter into a contract for the performance of building stabilization and foundation repairs within 90 days after the insurance company confirms coverage for the sinkhole loss and notifies the policyholder of such confirmation. This time period is tolled if either party invokes the neutral evaluation process (described below), and begins again 10 days after the conclusion of the neutral evaluation process.
After the insured enters into the contract for the performance of building stabilization and foundation repairs, the insurer shall pay the amounts necessary to begin and perform such repairs as the work is performed and the expenses are incurred. The insurer may not require the insured to advance payment for such repairs. If repair covered by a personal lines residential property insurance policy has begun and the professional engineer selected or approved by the insurer determines that the repair cannot be completed within the policy limits, the insurer must complete the professional engineer’s recommended repair or tender the policy limits to the policyholder without a reduction for the repair expenses incurred.
The stabilization and all other repairs to the structure and contents must be completed within 12 months after entering into the contract for repairs, unless: (1) There is a mutual agreement between the insurer and the policyholder; (2) The claim is involved with the neutral evaluation process; (3) The claim is in litigation; or (4) The claim is under appraisal or mediation.
Pursuant to Florida Statute § 627.7073 (entitled “Sinkhole reports”), as a precondition to accepting payment for a sinkhole loss, the insured must file a copy of any sinkhole report regarding the insured property which was prepared on behalf or at the request of the insured. The insured is responsible for the cost of filing and recording the sinkhole report.
What Happens After the Repairs are Complete?
The professional engineer responsible for monitoring the repairs shall issue a report to the property owner which specifies what repairs have been performed and certifies within a reasonable degree of professional probability that such repairs have been properly performed.
Alternative Procedure for Resolution of Disputed Sinkhole Claims
Pursuant to Florida Statute § 627.7074 (entitled “Alternative procedure for resolution of disputed sinkhole insurance claims”), the Florida Department of Financial Services administers a neutral evaluation process for disputed sinkhole claims. The neutral evaluation process determines: (a) whether a sinkhole loss has been verified or eliminated within a reasonable degree of professional probability; (b) whether the cause of the property damage was due to sinkhole activity; (c) all methods of stabilization and repair both above and below ground; and (d) the costs for stabilization and all repairs.
The neutral evaluation procedure can be elected by either the insured or the insurer, however, it is mandatory if elected. It is also non-binding, which means the parties do not have to comply with or agree to the findings of the neutral evaluator, and maintain the right to dispute the claim via litigation. The insurer is responsible to pay the reasonable costs associated with the neutral evaluation process.
A party can elect to initiate the neutral evaluation process after: (1) a sinkhole evaluation report is issued by the insurer’s professional engineer or professional geologist; or (2) an insurer denies a sinkhole claim.
Once a party elects to engage in the neutral evaluation process, the Florida Department of Financial Services provides the parties with a list of certified neutral evaluators. The parties then attempt to agree on a neutral evaluator and appoint him or her to act as the neutral evaluator. If the parties cannot agree on a neutral evaluator, the Florida Department of Financial services appoints a neutral evaluator. Selection of a neutral evaluator is subject to certain requests to disqualify such evaluators.
Once the neutral evaluator is assigned, he or she will notify the parties of the date, time, and place of a neutral evaluation conference. At the conclusion of the neutral evaluation process, the neutral evaluator shall prepare a report outlining the issues noted above (including whether, in his or her opinion, the sinkhole loss has been verified or eliminated within a reasonable degree of professional probability and, if verified, whether the sinkhole activity caused structural damage to the covered building, and, if so, the need for and estimated costs of stabilizing the land and any covered buildings and other appropriate remediation or necessary building repairs due to the sinkhole loss), and send it to the parties.
If the insurer agrees to comply with the neutral evaluator’s report, payments shall be made in accordance with the terms and conditions of the applicable insurance policy pursuant to Florida Statute § 627.707(5).
Things to Do After Your Property Sustains Damage as a Result of a Sinkhole
- Have someone determine if the property is safe? If not, leave the premises immediately.
- Review your insurance policy. Almost every homeowner’s insurance policy has a section outlining the homeowner’s obligations.
- Promptly report the sinkhole loss to the insurance company.
- Record the damage by photographs or video.
- If you can do so safely, protect your property from further loss or damage as a result of the sinkhole.
- Show the insurance company the damaged property, and otherwise allow it to inspect the loss.
- Keep accurate records of expenditures for repairs to the damaged property (and provide them to the insurance company upon request) as a result of the sinkhole.
- Provide a “sworn proof of loss” (a form outlining the amount you are claiming for the damage to your property) to the insurer as required by the policy.
- Give statements (sometimes called examinations under oath or “EUO’S”) to the insurance company regarding the loss as required by the policy.
Your property insurance policy may require other obligations so it is important to read it carefully before and after a loss. Many of the obligations above involve sensitive matters which should be handled with great care. If you are confused or have questions, call The Law Offices of Donald M. Kreke at 305-669-0281.
How The Law Offices of Donald M. Kreke can Help You with Your Sinkhole Property Insurance Claim
Our office helps homeowners and business owners in all phases of the insurance claim process – from filing initial claims (or supplemental claims) to resolving claims through mediation, appraisal, or litigation. We assist individuals and business owners with the following.
- Reporting the loss and establishing claims. After an individual or business sustains a property loss, the insurer that insured the property at the time of the loss should be put on notice of the damage. Reporting the loss in a timely manner makes it more difficult for an insurer to argue that it has been prejudiced by late notice of a claim. When the claim is submitted, a representative from the insurer will usually issue a claim number for all future references to the damage and associated repairs.
- Coordinating and if needed, attending inspections of properties. It is very common for insurers to send adjusters or other consultants of various kinds to inspect the loss sustained to the insured property. Cooperating and coordinating these inspections with the insurer helps to prevent the insurer from arguing that it was prejudiced because it was not granted access or timely access to the loss location to inspect the damage.
- Completing and submitting sworn proofs of loss. At some point after receiving notification of a loss, insurers typically request that the insured provide a “Sworn Proof of Loss.” Generally, this is a one or two page document that requests very general information concerning the loss, including the amount of the loss (although that amount is not always known by the insured because the insured is usually does not have the expertise to how much damage has been sustained and how much such damage would cost to repair).
- Gathering, compiling, and submitting documents to insurers substantiating losses and repairs. Insurance companies commonly request that their insureds provide any and all documents related to the damage sustained to the property, and proof of repairs, etc.
- Attending and protecting the interests of insureds during examinations under oath (commonly referred to as an “EUO”) or recorded statements. Insurers often exercise their rights pursuant to insurance policies to take a “sworn statement” and/or recorded statement of the insured(s) (and others) regarding the loss.
- Working with other professionals assisting insureds during the claims process. Often, it becomes necessary for an insured to employ the services of other professionals to help resolve a claim. Those professionals include public adjusters, experts, and consultants. Public adjusters are insurance professionals who are hired by insureds to evaluate the scope of the damage to the property, and to determine the cost to repair or replace the property. In doing so, they often provide a sophisticated estimate (similar to the estimates provided by the adjusters employed by the insurance companies) in support of the insured’s claim(s). Sometimes forensic experts and consultants are also retained by insureds to more accurately and fairly evaluate the insured’s losses.
- Attending and protecting the interests of insureds during pre-suit mediations. Florida has initiated a mediation program to assist with the resolution of property insurance claims. See Fla. Stat. § 627.7015; Fla. Admin. Code R. 69O-166.031; 69J-166.002; and 69J-166.031. Our office helps insureds initiate the request for mediation, coordinate the scheduling of the mediation, and attend the mediation with the insured.
- Invoking appraisal on behalf of insureds. When appropriate (and there is an appraisal clause in the insurance policy), we assist the insured in requesting an appraisal to determine the amount of the loss, and selecting an appraiser and umpire. At times, we also serve as the insured’s appraiser.
- Assisting insureds settle their property insurance claims. Litigation is not always necessary. When possible, we attempt to secure a fair settlement on behalf of our clients. This often involves a sophisticated process of negotiation with an insurance company and its adjusters and/or attorneys.
- Filing Civil Remedy Notices of Insurer Violations (often referred to as “CRN’S”) on behalf of insureds. When factual and legal support exists to support a potential claim for bad faith insurance practices against the insurance company, we draft and file CRN’S with the Florida Department of Financial Services on behalf of our clients. This is often due to an insurer and its representatives unduly delaying the investigation and payment of a claim, unjustifiably denying a claim, or engaging in some other unfair practice as it relates to the handling of an insured’s claim.
- Litigating property insurance claims on behalf of insureds. At times, it is necessary to initiate a lawsuit against a property insurance company. In the event a lawsuit is filed, we will attempt to recovery of attorney’s fees and costs for our clients. See Fla. Stat. §§ 627.428; 626.9373; 631.70; 768.79; 624.155; 59.46; 57.104; and 627.351.
Just because your sinkhole claim has been denied does not mean that you cannot further pursue that claim. Our firm often handles claims that have been previously denied.
If your insurance company fails to fully pay your sinkhole claim, or fails to adequately or accurately determine the scope of damages for your sinkhole claim, you can file a supplemental or “re-opened” claim. Our office can assist you with the filing and handling of such claims.
Has Your Property Sustained Damage Due to a Sinkhole that is Potentially Covered by a Property Insurance Policy? Has Your Insurance Claim Been Denied, Delayed, or Underpaid?
Call The Law Offices of Donald M. Kreke today for a free consultation regarding your property insurance claim. If you are unable to come to our office, we will come to see you.
Other Legal Matters Handled by The Law Offices of Donald M. Kreke
In addition to sinkhole claims, The Law Offices of Donald M. Kreke handles other legal matters including: personal injury matters (including, but not limited to, truck crash claims, automobile accident claims, motorcycle wreck claims, boating collision claims, claims against cruise lines, premises liability claims, slip and fall accident claims, negligent security claims, dog bite claims, and defective products claims), other property insurance claims – both residential and commercial – and inception claims, and supplemental and re-open claims (including, but not limited, broken pipe claims, fire claims, flood claims, hail claims, hurricane claims, mold claims, roof leak claims, storm claims, tornado claims, vandalism and theft claims, water claims, wind claims, loss of business income claims, and extra expense claims), bad faith insurance claims, property damage claims, collection matters, criminal defense matters, traffic offenses (including speeding tickets), claims against insurance brokers and/or agents, medical malpractice claims, nursing home claims and elderly abuse claims, and matters involving contract disputes. We also assist clients with reviewing and drafting contracts. If your legal issue or matter is not listed above, please contact us. We may be able to help.