Fact or Fraud: Who’s Right About the Surge in Sinkhole Claims?

The number of claims filed by Florida property owners claiming sinkhole damage nearly tripled between 2006 and 2010. According to the Florida Office of Insurance Regulation, in 2006, a total of 2,360 claims were filed. In 2010, property owners filed 6,694 claims. What’s behind this huge increase? Two groups think they have the answer, but who’s right?

While the OIR also reports that, on average, less than one percent of all sinkhole claims are fraudulent, some Florida legislators nonetheless believed most property owners were not using insurance money to pay for sinkhole damage repair work. And cracking down on fraud became a motivating factor for the legislature’s passage of a bill that revised Florida’s property insurance law.

On the other side of the argument are geologists who say a cycle of high draught followed by high rainfall – long known to cause limestone erosion that weakens ground surface strength – is behind the increase in sinkhole formation. And, the scientists say, more sinkholes simply mean more sinkhole damage claims. In fact, statistics from the Florida Department of Environmental Protection show 33 sinkholes were reported in 2006. In 2010, that number jumped to 171.

Most property insurance policies used to cover nearly any damage caused by sinkholes. The changes to Florida’s property insurance law now restrict property owners to sinkhole damage claims only for primary structures, not things like fences and detached sheds. But it could have been a lot worse. A controversial and much-debated provision would have allowed insurance companies to avoid offering sinkhole coverage to homeowners – that provision was removed from the final version of the bill signed into law by Gov. Rick Scott in May.

Sinkholes will always be a part of Florida’s landscape. The recent changes in the property insurance law may embolden insurance companies to refuse to pay for certain repairs caused by sinkholes. That’s why it’s important for Florida property owners to consult a lawyer who specializes in denial of sinkhole damage claims before accepting any insurer’s offer to settle a claim.