Fla. Insurance and Banking Committee Considering Sinkhole Relief Act

SB 286, the Sinkhole Relief Act, which authorizes the Florida Department of Financial Services to act as a mediator in sinkhole disputes, was submitted April 5 to the Senate Insurance and Banking Committee by Sen. Mike Fasano.

The Florida Association of Insurance Agents highlighted the provisions of the bill during its recent Legislative Fly-In in Tallahassee, Fla. and recommended that its members support its passage.

FAIA’s position paper said that sinkhole damage claims are escalating and carriers are increasingly unable to write policies in sinkhole-prone areas. The more policies carriers cannot write, the more that go to Citizens Property Insurance Corporation, Florida’s insurer of last resort.

Statistics show that Citizens’ policies in force for the sinkhole-prone Tampa Bay area, Hernando, Hillsborough, Pasco and Pinellas counties, increased by 13,751 percent in three years—from 1,012 policies on Dec. 31, 2001, to 140,171 policies on Dec. 31, 2004. Almost 80 percent of Citizens 30,000 new monthly applications are attributable to sinkhole problems. The average sinkhole claim is around $34,000, or about four times that of other perils. The cost, just to verify that a sinkhole caused the loss averages $12,000. And, the testing often determines there was no sinkhole to begin with. Then, fueled by an aggressive trial bar, the policyholder will often contest the denial, which triggers even more tests and more expense to the system.

According to FAIA, HB 217 and SB 286 address all of these problems in a comprehensive and fair manner by allowing insurers to make payments directly to the person selected by the policyholder to perform the repairs, thus lessening the chance that the damage will be hidden and passed on to a subsequent buyer.

Also, testing is simplified and strengthened, and the test results are conclusive unless contrary conclusions are proven by clear and convincing evidence. This, alone, should help reduce the number of frivolous lawsuits.

Finally, FAIA says, a less formal dispute resolution process, using DFS-certified “neutral evaluators,” is established as an alternative to litigation. While the process is not mandatory and the results are not binding, if the policyholder declines to participate or declines to resolve the matter in accordance with the recommendations of the neutral evaluator, in any subsequent action, the insurer shall not be liable under 627.428 F.S. or other provisions of the Insurance Code for attorney’s fees or for extra-contractual damages related to the sinkhole claim.

Overall, FAIA estimates this new approach will keep about 24,000 new policies from going to Citizens each month and bring some needed competition back to the sinkhole-prone areas.

Topics Florida