How can you protect your property?
The most important thing to keep in mind is the structure of your insurance and risk management plan. Standard landlord and multi-family structural insurance policies do not normally cover sinkhole risk. If you look in your policy, you’ll almost invariably find sudden earth movements to be excluded. Because the sinkhole risk is not relatively uniform from location to location, you must normally purchase sinkhole coverage separately, just as you do with flood, earthquake and windstorm insurance. If you aren’t covered, and your property is damaged thanks to a sinkhole, you’ll be out of luck.
Some states, including Florida and Tennessee, require that property insurers offer it, but you may have to opt-in. In Florida, which has a lot of multi-family dwellings and over 19,000 identified sinkholes, insurance companies must make it available for an additional premium.
Residential property insurance companies can issue sinkhole policies with deductibles of 1 to 10 percent of the value of the property. In Florida, these policies define sinkholes as “catastrophic ground cover collapse,” meaning “geological activity that results in all of the following:
1. The abrupt collapse of the ground cover;
2. A depression in the ground cover clearly visible to the naked eye;
3. Structural damage to the covered building, including the foundation; and
4. The insured structure being condemned and ordered to be vacated by the government agency authorized by law to do so.
As with flood insurance, you should assess structural building insurance and contents coverage separately, especially if you’re leasing furnished apartments. This was a big concern for the Summer Bay Resort, of course, since it’s a vacation destination and therefore the owners had a substantial investment in furnishings in each room.
Your tenants should secure their own renters insurance policy if they want their belongings covered in the event of a sinkhole destroying their personal property. (Note: those occupying structures damaged by sinkholes should not assume they’ll be able to recover their property. Tenants in some situations never were able to recover their personal belongings).