Flimsy sinkhole insurance claims targeted by Legislature

TALLAHASSEE — Florida needs new laws to make it harder for homeowners to file sinkhole insurance claims based on cracks in homes or driveways, senators were told Tuesday.

Members of the Senate Banking and Insurance Committee said they would heed the warnings, addressing problems they said are most severe in Hernando and Pasco counties — in the area known as "Sinkhole Alley" — but are spreading across the state.

Senators discussed a detailed staff report that said an epidemic of sinkhole claims threatens the stability of the insurance market and is weakening the tax base of cities and counties.

Total sinkhole claims in Florida tripled from 2006 to 2009, and total losses totaled $1.4 billion over that period, according to the state Office of Insurance Regulation. In some cases, the report found, insurers have paid homeowners the maximum amount allowed under their policies for hairline cracks in their homes' foundations.

"The magnitude of this problem is extreme," said the panel chairman, Sen. Garrett Richter, R-Naples. "It's affecting every homeowner in our state."

Richter described a "cottage industry" of sinkhole claims, nurtured by a small group of lawyers and public adjusters who receive a portion of claims paid to the homeowners they represent.

Sen. Mike Fasano, R-New Port Richey, whose district includes portions of both counties, said the lack of severe hurricanes for the past five years was a contributing factor by those seeking to make money off sinkhole claims.

"Because we haven't had a hurricane in several years, they've decided to find another niche," Fasano said.

Among the changes to be considered by lawmakers:

• Creating a legal definition of "structural damage" based on scientific standards.

• Placing a time limit, or statute of limitations, on filing sinkhole claims.

• Making sinkhole coverage optional, not mandatory.

• Eliminating the "one way" attorney's fee provision that requires an insurer to pay a home­owner's legal fees if it loses in court, but if the insurer wins, the homeowner isn't liable for fees.

• Requiring greater disclosure by home sellers to buyers on the amount of sinkhole claims and whether the money was used to repair the home.

Florida has required insurers to sell sinkhole insurance since 1981. Citizens Property Insurance Corp., the state-run insurer of last resort, now covers 61 percent of Hernando County's homes. From 2005 to 2009, sinkhole losses in the county were almost seven times the amount of premiums collected to cover those losses.

Hernando County Property Appraiser Alvin Mazourek told lawmakers that sinkhole claims in his county skyrocketed to 877 in 2010 alone, more than double the number of claims from the previous year. Since 2005, Mazourek said, sinkhole activity has resulted in a drop of $173 million in property values on the county's tax roll.

He said that's because fewer than half of Hernando homeowners who receive claims actually spend the money to repair their homes.

"It's spent to pay off mortgages or used for other expenses," Mazourek testified.

Steve Bousquet can be reached at bousquet@sptimes.com or (850) 224-7263.

Flimsy sinkhole insurance claims targeted by Legislature 01/11/11 [Last modified: Tuesday, January 11, 2011 10:29pm]

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