Florida regulators investigate rash of sinkhole claims

State insurance regulators are investigating what they see as a surge in sinkhole claims outside the traditional "sinkhole alley" in Hernando and Pasco counties.

Florida Insurance Commissioner Kevin McCarty said Wednesday that he has issued a "data call" to commercial and residential property insurers to collect sinkhole claims information.

Specifically, regulators are seeking details about claims opened anywhere in the state from 2006 to 2010. Included in the report will be the types of claims, testing procedures to determine legitimacy, costs of inspections, locations of claims, legal fees and public adjuster fees ,and amount of structural loss.

McCarty said the data will help his office learn more about the frequency, severity and location of claims to determine if any regulatory action is needed.

"We're going to try to take it out of the anecdotal realm and into the statistical realm," said Jack McDermott, a spokesman with the Florida Office of Insurance Regulation.

He said the department has heard "worrisome" reports of sinkhole claims as far away from sinkhole alley as South Florida, "which isn't known for sinkholes."

Among other issues, McDermott said, regulators are looking into whether public adjusters are encouraging questionable sinkhole claims. Unlike an adjuster who assesses claim damage for an insurer, a public adjuster works on behalf of a property owner.

Melissa Edwards of the Florida Association of Public Insurance Adjusters disputed that public adjusters are driving any trend, saying an estimated 2,600 public adjusters are far outnumbered by 77,000 adjusters who work for insurance companies.

"I wish we had the power," she said.

The association said it welcomes a review by McCarty's office, but hopes regulators also look at the number of claims denied based on reports from insurer-funded engineers, as well as which insurers have either eliminated or redefined sinkhole coverage so it's no longer available in most cases.

Ben Alvarez, a lawyer based in Miami who primarily represents property owners, defended the increase in sinkhole claims in his region. In Miami, he said, a combination of years of overdevelopment and several dry seasons have left the terrain susceptible to sinkholes.

The problem, he said, lies with insurers trying to fight valid claims. "We've got a bunch of sinkhole claims we're prosecuting and the carriers are fighting them tooth and nail."

McDermott said the state also is examining whether sinkhole damage payouts are being properly used to fix property and whether some homeowners are filing sinkhole claims for undamaged property just to get a "free and clear" bill of health from their insurer.

"Someone trying to sell a house, say, in Hernando County (could) file a claim with an insurance company, which investigates and says there is no (damage)," he said. "They could use it as a marketing piece."

McCarty's office and insurers have cited an increase in sinkhole claims as one of the drivers of higher property insurance rates.

Insurers have until Sept. 21 to submit their findings.