I worried about giving this blog post the title, “Understanding Florida’s SB 408,” simply because there is so much about SB 408 that remains difficult to understand. Homeowners are not the only ones scratching their heads. Even the experts find it difficult to wade through the language of SB 408. Let’s back up for a moment, however. You may be asking, “What is SB 408 and why should I care?” SB 408 is — in simple terms — a property insurance reform that was signed into law by governor Rick Scott, in May 2011. If you have a home that may have sinkhole damage, SB 408 provisions may apply to you.
To illustrate how murky SB 408 can get, here is a story… When a Florida homeowner suspected that he had sinkhole damage, he contacted his insurance company. The insurance company sent out an engineer to do a structural evaluation of the home. Let’s stop here for now.
Under SB 408, a home must have “structural damage” for the insurance company to cover the loss; for example, structural damage may include a shifting foundation or buckling walls. To reduce the number of claims, the definition of structural damage is much more limited under SB 408, and the language used to define damage is vague and confusing.
Going back to the story… In the case of the Florida homeowner, the engineer’s first determination was that there were no signs of structural damage in the house. Instead of stopping there, the engineer, for unknown reasons, decided that further testing was required. Geotechnical tests confirmed that there was sinkhole activity on the property. The engineering company made their final recommendation for repairing the damage. The estimated costs of repair, through the use of compaction grouting, was approximately $120,000.
Upon review of the engineering report, the insurance company denied the homeowner’s claim for repairs. Why? Because, according to the initial findings, there was no “structural damage” to the home. Once the claim was denied, the homeowner had the right to request a “Neutral Evaluation,” which he did. The engineer involved in the neutral evaluation confirmed that there was sinkhole activity and added chemical grouting to the repair recommendation.
The homeowner at this point, had two engineers who recommended about $150,000 in sinkhole repairs; however, the insurance company continued to deny the claim because the home “did not meet the structural damage requirement.”
I am not sure what happened next, but I can guess that litigation followed. This situation put the homeowner in an untenable position. He now has confirmed sinkhole activity on his property. By law, he cannot sell his home without disclosing that information to potential buyers. Furthermore, without insurance, he cannot afford the repairs or get insurance coverage elsewhere. Unfortunately, he is not alone and there will be homeowners who will simply walk away from their homes leaving the mortgagor holding the bag.
Ultimately, the law that was designed to protect insurance carriers from fraud and from a minority of homeowners who cash out and leave unrepaired homes, now punishes a vast majority of homeowners who have no intention of defrauding anyone. A provision in SB 408 drops the mandate for insurance companies to provide sinkhole coverage altogether if there are preexisting signs of sinkhole damage. If you live in sinkhole alley, do not be surprised if you are unable to find sinkhole coverage for your home.
Here are a few other provisions associated with SB 408:
- Claims must be made within two years from the time that the homeowner initially found damage.
- The definition of what is a sinkhole has been revised in an effort to reduce fraud.
- Homeowners must pay 50% of testing costs or a $2500 deductible if they want further testing.
- Damage to driveways, sidewalks, patios, and decks are no longer covered even if the damage is associated with sinkhole activity.
Finally, here’s the kicker… Suppose you have sinkhole coverage and sinkhole activity is found on your property, you will still be required to pay a 10% deductible based on your Coverage A Homeowner’s Insurance. For example, suppose you have a $300,000 policy on your home, you will have to pay $30,000 deductible before repairs begin. The “type” of sinkhole is irrelevant — your house could be falling into a cover collapse sinkhole or shifting due to a subsidence sinkhole. In addition, it doesn’t matter if the repair costs are $50,000, $70,000 or $150,000, you will still pay 10% of your Coverage A homeowner’s insurance. Do you have $30,000 in your bank account in the event you have sinkhole damage on your property?
The days may be gone when unscrupulous homeowners take the insurance payout and run off on their Caribbean cruises. Even without the payouts, many homeowners will still walk away, leaving the banks, their neighborhoods, and taxpayers to pay the devastating consequences. Think of what happens to the value of your home if you have an unrepaired sinkhole property next door.
If you are ready to take out a few tissues to dry your tears of exasperation — know this — your best defense is knowledge. The more you know about sinkholes, the more confident you will be in finding the right professionals who will help restore your home or property. At Helicon, we are always ready to answer any questions you may have.