It's the Great Florida Sinkhole Lottery and the payouts are big in Hernando County.
A Spring Hill couple notices cracks creeping across the floors of their home. They claim sinkhole damage and their insurance company cuts them a check for $206,000.
A widower returns from his wife's funeral to find one room filled with water and a 2-inch gap between floor and door. He files a sinkhole claim and gets $211,000.
And a retiree from New York puts in a claim after his insurer says it plans to drop sinkhole coverage. He gets $260,000.
Insurance companies forked out more than a half-million dollars on these three houses alone, but the cracks and gaps are still there. None of the owners used the money to make repairs.
The house "can fall in the ground for all I care,'' said retiree John Backer, who invested his $260,000 payout. "I made my money already."
According to an investigation by the Tampa Bay Times, Backer is among hundreds of Floridians — especially those in the "sinkhole alley" of Hernando, Pasco, Hillsborough and Pinellas counties — who have paid off mortgages, put in pools, replaced roofs or otherwise used money from sinkhole claims to do something besides fix sinkhole damage.
The result: Homes from Brandon to Port Richey to Weeki Wachee sit unrepaired, decimating property values and draining millions of dollars in tax revenue from local governments already hard hit by the recession.
Since 2005, the Florida Legislature has repeatedly tried to find ways to ensure that legitimate sinkhole damage is covered and repaired while cutting down on the number of questionable claims. The latest attempt came in May with major changes to state law that require homeowners to repair damage and that make it less attractive to sue their insurance companies.
But despite all of the tinkering in Tallahassee, what lawmakers call "Hurricane Sinkhole'' still roars unabated.
• The number of residential sinkhole claims filed with Citizens Property Insurance Corp., which insures more Florida homeowners than any other company, has nearly tripled in the past five years, from 1,482 claims in 2007 to 4,024 last year. The average claim now costs Citizens nearly $90,000. In 2010, the last year for which figures are available, the state-run company said it took in $32 million in premiums but incurred $245 million in sinkhole losses.
Soaring losses mean higher premiums for all of Citizens' nearly 1.5 million policyholders, not just those in sinkhole-prone areas. Even homeowners who have policies with private insurers would be liable for a 6 percent surcharge.
• Citizens has contributed to its losses by opting in some cases to handle the sinkhole repairs itself.
Homeowners complain that contractors hired by Citizens do shoddy work, leading to lawsuits and settlements that can run into six figures. Citizens shelled out more than $350,000 in repairs, legal fees and settlement costs on a Hernando County house with a market value of just $39,500.
• Aggressive marketing by lawyers, contractors and public insurance adjusters drives up costs by encouraging homeowners with even minor cracks to file claims and, in many cases, sue.
The payoffs can be great — the public adjuster, who works for the homeowner, typically gets 10 percent of any insurance settlement while the lawyers walk away with up to 40 percent.
• Collusion among unscrupulous engineers and contractors costs insurers hundreds of thousands of dollars.
A contractor who worked closely with a well-known Brooksville sinkhole repair company faces felony charges of insurance fraud in what State Farm Insurance says was a conspiracy to inflate the cost of grout used to fill sinkholes under dozens of houses in the Tampa Bay area.
• Critics say Florida's new sinkhole law is so flawed that there will be more, not fewer lawsuits against insurance companies.
And because the law exempts homeowners who sue and settle from the requirement to make repairs, houses with unrepaired sinkhole damage will continue to be a drag on property values and tax collections.
Stampede of claims
No one denies that Florida is prone to sinkholes.
Heavy rains, massive pumping of groundwater and other factors can speed sinkhole formation, but Florida's Swiss-cheese geology and sandy soil have remained the same for eons. Thus no natural events explain the explosion in sinkhole claims in the past five years.
And nowhere has that explosion been greater than in Hernando County.
In a 2002 study by the insurance industry, Hernando wasn't even listed among the seven Florida counties with the highest number of sinkhole claims. A decade later, Hernando leads the state.
"The incidence of claims is generally driven by the awareness of sinkholes or some type of scare tactics or advertising to homeowners saying, 'You've got coverage now, you may not have coverage later so if you have a claim file it now,' " said George Sinn, a geotechnical engineer who works for both insurers and homeowners. "So you get people who are used to living with typical small hairline cracks filing claims.''
In 2005, Citizens received 113 sinkhole claims from Hernando. In the year just ended, there were 1,920 — more than twice as many as runner-up Pasco.
As the number of claims has soared, the value of Hernando homes and businesses has plunged. With nearly 3,000 owners since 2005 requesting an adjustment in values because of sinkhole activity, Hernando County Property Appraiser Alvin Mazourek pegs losses to the county's market value at a staggering $283 million.
"Sinkholes do exist and the impact of such can be quite devastating, not to mention dangerous,'' Mazourek wrote to a state lawmaker before the 2011 legislative session.
"But unfortunately . . . it seems that while the general public is now very quick to have the problem diagnosed, the desire to remedy the problem is not being met with the same urgency and more often than not, goes completely unrepaired.''
Mazourek wasn't exaggerating.
Under state law, any insurance company that pays a sinkhole claim is supposed to file a notice with the clerk of court. The Tampa Bay Times looked at 593 notices Citizens filed in Hernando in 2008, 2009 and 2010, the years for which the notices clearly stated that a claim had been paid. (The forms changed in 2011.)
Of the 593 homes for which Citizens made payouts, county building records show no evidence that 282 were ever repaired — nearly half of the total.
Island of cement
The experiences of two Hernando County families insured by Citizens help explain why there are so many unrepaired houses and big insurance payouts.
Ronald Kotecki knew little about sinkholes when he and his wife moved from California to Spring Hill in 2004. Then water seeped into a back bedroom from a crack in the slab foundation.
Kotecki asked the foreman of a construction crew working nearby to take a look. Instead, the foreman sent over a public adjuster, a licensed insurance adjuster who works on behalf of the homeowner instead of the insurance company..
"He's there five minutes and said, 'You got a sinkhole,' " Kotecki recalled. "He said, 'It's not going to cost you anything.' ''
When Citizens denied their claim, the Koteckis sued. They settled for around $217,000, the limit of their policy, with the lawyer taking a third, the adjuster 10 percent and the Koteckis the rest. They considered making repairs until the adjuster pointed out that there are companies that buy unrepaired sinkhole homes.
So instead of stabilizing the sinkhole and fixing the cracks, estimated to cost $300,000, they paid off their mortgage and other debts and sold the house for $190,000.
Six years and two owners later, that house remains unrepaired.
The Koteckis moved to another home in Spring Hill that also developed sinkhole-related problems. This time Citizens invoked its right under the Koteckis' policy to make the repairs itself. It hired a contractor to stabilize the hole with grout at a cost of about $150,000, Kotecki said.
Citizens also wanted to be in charge of cosmetic repairs, which included painting, replacing a tile floor and installing pavers in the driveway and pool areas.
"That started taking forever," said Kotecki, a retired magazine sales representative. "People weren't showing up. When you've got a heart condition you don't want all that stress."
The Koteckis sued Citizens again, eventually settling for $117,000. After the lawyer and public adjuster took their cuts, the Koteckis were left with enough to make some but not all of the cosmetic repairs. New cracks already are appearing.
Still, "I feel a lot more comfortable when sitting on $150,000 of cement and grout,'' Kotecki says. "You're pretty much on an island of cement."
Citizens' odd logic
Judith and James Pierce are sitting on a lot of cement, too. But they're not happy.
There are two main ways to fix sinkhole problems — stabilizing the hole with tons of grout, a cement-based material, or securing the house with steel pins or piers drilled deep into the ground. Engineers often recommend both methods to reduce the odds of the house developing future problems.
So the Pierces called a lawyer when Citizens, invoking its right to repair, chose to do grouting only, followed by cosmetic repairs.
"The lawyers said, 'Let them do whatever they want and don't say anything because they'll screw up and then we can sue them,' " Judith Pierce, 53, recalled. "It's a big game."
Sure enough, there were problems. Newly installed pavers raised the floor level in the sun room so much the sliding doors to the pool didn't work. A hot tub was left sitting outside so long that rats chewed through the wiring. Painting was sloppy.
The Pierces sued Citizens. They settled for $133,000, of which they got $71,000 after the lawyers and a public adjuster took their shares. A judge awarded the lawyers an additional $123,000.
Judith Pierce tallies what Citizens spent: At least $110,000 for grouting and inferior repairs followed by the settlement and extra attorney's fees. A total of $366,000 for a house that the Pierces had on the market for three months and got one offer: $20,000.
Citizens won't comment on matters involving individual policyholders. The company said it stopped its "election to repair'' program in 2010 although it still considers handling repairs itself on a case-by-case basis.
The Times analysis of Citizens' paid claims in Hernando County found that 124 of the 593 policyholders who got payouts subsequently sued Citizens — one out of every five.
And of those who sued, 40 percent have never made repairs.
"Some of my colleagues have suggested that the largest expansion of gambling in the state of Florida has been with Citizens," says Sen. Garrett Richter, a Naples Republican and chairman of the committee that pushed for Senate Bill 408 with its radical changes to sinkhole insurance in 2011.
The new law is supposed to reduce the number of claims and lawsuits in several ways:
• If an insurer denies a claim without testing for a sinkhole, the homeowner must pay up to $2,500 for testing if he wants to appeal. (The insurer refunds the money if a sinkhole loss is found.) Before, the homeowner could demand testing and not have to pay for it.
• Insurers don't have to pay for below-ground stabilization until the homeowner contracts to have the work done according to recommendations in the insurer's engineering report.
• Benefits are restricted to "structural damage" of the principal building (typically the house), and the definition of damage is now based on Florida construction and engineering codes.
"Structural damage really wasn't defined very tightly in the statutes at all,'' said James Knudson, a Senate attorney who helped draft the bill.
While some insurers said the damage had to be severe enough to affect a home's structural integrity, attorneys for homeowners argued that it simply meant the structure was damaged. "You can see a huge difference between those two things,'' Knudson said.
Critics say the new law hurts policyholders.
"Once that bill got in the hands of lobbyists, it created a lot of push to do anything that would discourage valid claims," said Ted Corless, a Tampa lawyer who once represented State Farm and now represents homeowners. "It's one giant mashed potato."
Corless predicts the changes will lead to more litigation, not less. If so, the number of unrepaired houses could climb. Homeowners who settle a lawsuit with their insurers are exempt from a requirement that they use the money to stabilize the sinkhole.
"If you reach a settlement, then you're outside of the sinkhole statute" and don't have to make repairs, Knudson acknowledged.
The full impact of changes in the law won't be known until all current policies are up for renewal. Insurers can now require an inspection at the homeowner's expense before writing sinkhole coverage.
"We got one house approved (by Citizens) and it was an older home, but it was in pristine condition," said Karen Lund, an agent with Whiting Insurance in Spring Hill. "We have two others in review, but in talking to other agents, they've gotten more declines than approvals."
The likely result? Homeowners will complain and Florida lawmakers will continue to tinker. And that could scare even more homeowners into thinking they need to get in a claim before the law changes yet again.
A cheaper way
That's what happened with Amy and Freddy Blackburn.
When it became a "tug of war" to open the French doors at their Spring Hill home, the couple suspected a sinkhole. Fearing the Legislature might let insurers drop sinkhole coverage, Amy Blackburn, the owner of record, filed a claim with Citizens. She sued after Citizens said it intended to have the hole filled with $150,000 worth of grout.
"We didn't want grout," Freddy Blackburn said. "You start putting grout in the ground, what's that grout going to do to the environment?"
Citizens settled, and the Blackburns used the money to install steel piers for about $45,000. They wonder why Citizens didn't consider that much cheaper fix.
"Even if you spent $4,000 or $6,000 on another opinion, you're still $94,000 ahead," Freddy Blackburn said. "That concerns me they didn't try to find another option. That's why they have to raise rates. Can you imagine getting $3,000 on a policy in premiums and then paying out $150,000 on sinkhole claims?"
Times researcher Carolyn Edds contributed to this report. Susan Taylor Martin can be reached at firstname.lastname@example.org. Dan DeWitt can be reached at email@example.com or (352) 754-6116.