To report a sinkhole insurance issue, call the Florida Department of Financial Services consumer hotline at 1-800-342-2762.
PORT RICHEY - After geologists blamed a sinkhole for dozens of cracks lining the exterior of his 31-year-old home, Rick Canniff was relieved to learn his insurer, Liberty American, would pay for a fix-up.
But it was a case of "pay the money and run." Four days after confirming the sinkhole, Liberty mailed Canniff and his wife, Susan, a letter warning it was dropping coverage. Under Florida law, an insurance company cannot "non-renew" a policy because of sinkhole concerns after handling a sinkhole claim on the property unless it has paid out policy limits. The idea is to prevent an insurer from making a shoddy sinkhole repair and then ditching the property before another problem surfaces.
Liberty's letter didn't mention sinkholes. It read simply: "The company is reducing hurricane exposure in the state of Florida."
Canniff was flabbergasted. "I live in Fox Hollow ... not even in a flood zone," he said.
Like a small depression in the ground foreshadowing a cavernous problem below, Canniff's tale hints at a growing crisis in the state's homeowners' insurance market. Set aside the threat of hurricanes. Or mold. For the Tampa Bay area, in particular, sinkholes are the biggest concern of the moment. Consider:
Some insurance companies are avoiding entire neighborhoods or ZIP codes for fear of sinkholes, a practice state regulators are investigating as possible illegal "redlining." One insurance company, Nationwide, shipped agents a list of seven banned ZIP codes (though it says the list was never formally implemented). Another insurer, USAA, briefly required some homeowners to pay thousands for testing the soil outside their homes to qualify for insurance until the state warned it in a letter to back off.
Meanwhile, a string of insurance companies have gone to court to argue that they should pay only for structural repair to cracked dwellings, not the more expensive tab to fill in or stabilize soil underneath. If insurers win in the courts, homeowners could end up spending tens of thousands of dollars on fixes themselves.
Unable to find insurance the last two years, thousands of bay area homeowners have flooded into Citizens Property Insurance, the state-run insurer of last resort which was created to cover hurricane-prone property that couldn't find insurance on the open market. From a tiny fraction in 2002, the bay area now accounts for 20 percent of Citizens' policies which, by law, are set at higher-than-market rates. Not surprisingly, Citizens has simultaneously reported an explosion of sinkhole claims.
Among the newest Citizens Property policies is one covering Rick Canniff's Port Richey home.
After finding out his insurance policy was being dropped, Canniff went through the phone book calling insurance companies. He was told repeatedly that his ZIP code - 34668 in Port Richey - had been tagged by sinkhole-skittish insurers as the No. 1 ZIP code to avoid.
"The market is tight for a lot of reasons. But for specific areas, insurers are not writing because of concerns of sinkholes," said Marty Valentine, underwriting manager with USAA, quickly adding that his company is not among those refusing to do business in certain neighborhoods strictly because of sinkhole risk.
Often, insurance companies don't cite sinkhole concerns as the official reason for avoiding certain areas or not renewing policies, state regulators say. Instead, many cite a home's age, shoddy construction or a general cutback on risk.
Amid warnings Tom Gallagher, who oversees insurance issues as the state's chief financial officer, that any blanket rejection of an area based on sinkhole fears amounts to illegal redlining, several large insurance companies contacted for this story insist they don't have ZIP code bans.
But the idea is clearly out there.
Nationwide acknowledged as much in a recent Tampa court case. Among court papers obtained by the St. Petersburg Times was a notice that Nationwide sent to area agents in June 2002 citing seven ZIP codes in which its agents should not write new business because of a history of high sinkhole claims; six of the seven ZIP codes were in Pinellas and Pasco counties.
"We will not accept new policies in these zip codes for any customer, including existing customers should they purchase a new property in one of these areas," the notice read in outlining the banned codes: 34695, 34698, 34668, 33759, 34654, 33755 and 34471.
Nationwide spokesman Kevin Craiglow confirmed the 2002 policy was distributed to agents but said it was never formally implemented. He declined to say why not, citing litigation concerns, and also would not discuss how agents today are instructed to handle requests for insurance in sinkhole-prone areas.
Craiglow would say only that sinkhole risk is just one of many criteria Nationwide weighs in offering coverage.
Gallagher thinks some insurance companies have gone too far. This summer, he named a senior management analyst, David Fisher, to a new position as point-person on sinkhole issues. One of Fisher's top assignments: investigate how insurers are behaving.
"A lot of companies are taking the position that if there is sinkhole activity in the area, they don't want to insure the home," Fisher said. "Our position right now is, they can't do this. ... It's ridiculous."
Fisher's beef is that bans can be too broad: Does an insurer increase risk by covering a home located 100 feet from a sinkhole area? Within a block? What about in the same city or ZIP code?
Moreover, some experts believe the idea of a geographical ban is flawed anyway. "In general, sinkholes tend to be isolated events. Just because your neighbor has one doesn't mean you're going to have one," said Frank Rupert, district geologist with the Florida Geological Survey, which charts sinkhole reports statewide.
Coverage disputes
The struggle to find insurance is but one problem:
There's a growing number of disputes between insurance companies and their policy holders over whether property damage has been caused by a sinkhole, and therefore covered, or caused by something else.
And if an insurance company agrees a sinkhole is to blame, there is no consensus about how much the insurance company should pay or the appropriate repair. Should the land underneath a damaged house be filled in with compaction grouting, for instance, or should the building be supported by underpins and piers?
From Port Richey to Brandon, homeowners have filed lawsuits alleging their insurers are either shortchanging them on repairs or pressuring them to make repairs out of their own pocket with no assurance they will be reimbursed. Insurers have gone to court to argue that they should only have to pay for cosmetic fix-ups of houses and not the much more expensive tab for shoring up the ground underneath.
Frank Chillura, owner of an apartment complex in north Tampa, has been wrangling with Nationwide more than three years over sinkhole coverage. First, Chillura said, Nationwide would not acknowledge a sinkhole was responsible for cracks in the complex - even though it found a sinkhole in an adjacent parking lot. Nationwide relented after Chillura arranged for a second geologist to test the soil.
Then, the insurance company wanted Chillura to pay for repairs out of his own pocket and seek reimbursement. "They wanted me to be the Chillura Insurance Company," the irked building owner said. Finally, Nationwide wanted to pay only $63,000 for cosmetic repairs, while Chillura contended that damages would cost close to $1-million to fix. After Chillura sued, a jury awarded him close to the full amount he sought, about $880,000, a ruling Nationwide appealed.
"They're wearing us down," said Chillura, who also is a Temple Terrace City Council member. "This is how they play their game."
Nationwide won't talk specifically about the Chillura case. In general terms, though, Craiglow said the company typically will advance an unspecified portion for soil stabilization and then pay up to policy limits after the work has been completed.
The Chillura case is part of a pattern, according to Tampa lawyer Richard Wilson, who formerly represented insurance companies and now focuses on representing policy owners. He believes more insurance companies are backing away from their pledge to fully cover sinkhole damage.
"Ever since sinkhole coverage was instituted, there's been an understanding, an agreement that (soil) stabilization was covered. Everyone has understood that," Wilson said. "In spite of that, certain large companies are now taking the position that they don't owe for stabilization costs, which account for 90 percent of damages."
At least a half-dozen lawsuits have been filed on the issue in bay area courtrooms. So far, judges have largely sided with homeowners - with one notable exception. Hillsborough Circuit Judge Gregory Holder ruled last year that TIG Insurance Co. was not liable to pay for "subsurface repairs" in fixing the Tampa home of an insured couple, Jorge and Maria Miquel.
Even that ruling was only a partial victory for the insurance company, since Holder ruled that TIG was off the hook because the Miquels had not incurred any expenses for subsurface repairs.
A lesson on karst
To understand the bay area's predicament, Rupert of the Florida Geological Survey offers a lesson on Florida karst, the term used to describe the network of sinkholes, caves and underground springs.
Much of Florida's ground consists of a thin layer of clay and sand on top of limestone and caverns. Over time, acidic rain dissolves the limestone. Sinkholes open when sand-filled clay seeps into those crevices in the limestone.
Think of a "Swiss cheese of cavities in our limestone bed," Rupert said. "The odds of any of them opening in our lifetime is probably relatively slim."
A few things increase the odds. The thinner the limestone layer, as in parts of the bay area, the greater the likelihood of an opening.
Not long ago, it was a largely isolated problem - Dunedin and parts of Pasco County. But a spate of heavy development and the pattern of a long drought followed by heavy rains have exacerbated the number of sinkhole reports. A constant rising and sinking of the water table erodes the soil, leaving behind more caverns that can become sinkholes.
Insurers today are skittish about insuring large swaths of land in northern Pinellas County, western Pasco County, parts of southern Hillsborough County and much of Hernando County.
"If I was in the insurance business, the last thing I would do is sell a homeowner's policy that has sinkhole coverage in Pasco County. It would be a poor business decision," said Ron Delo, whose company, the Public Adjusters, represents homeowners on sinkhole claims.
Unfortunately, from an insurance company's perspective, homeowners' policies must include sinkhole coverage under state law. Dealing with that has been a constant struggle.
USAA, which sells insurance to members of the military, military retirees and their families, briefly experimented last year with requiring homeowners in areas near sinkholes to pay for soil tests on their property as a requirement for getting insurance. It pulled back after Florida regulators sent a terse letter warning that such tests, costing thousands of dollars, could not be required as a condition for insurance.
Now, if a USAA member buys a home in an area with a history of sinkhole claims, USAA dispatches a site inspector. The home must pass a physical inspection, which looks for telltale signs of cracks and mis-aligned doors or windows, before a policy is issued.
State Farm, the second-biggest insurer operating in Florida after Citizens, says it determines coverage on a case-by-case basis. It does, however, screen applicants by asking whether homes have had any past sinkhole damage.
State Farm spokesman Tom Hagerty said there are no geographical restrictions against selling policies strictly because of sinkhole exposure. Yet, the point is largely moot since State Farm, once the largest insurer in Florida, stopped writing policies in Hillsborough and Pinellas counties several years ago to cut back on its risk statewide.
"Insurability of dirt'
Finding affordable homeowners insurance along Florida's coast has been a challenge for a dozen years. The devastation caused by Hurricane Andrew in 1992 chased many insurers out of the state or forced others, like State Farm, to pull back.
Citizens Property Insurance was created in 2002 as the state's latest solution. It incorporated policies that were in the former Florida wind pool and former Joint Underwriting Association for residential properties. As a disincentive to being a crutch, its rates by law are set higher than prevailing insurance rates.
At first, Citizens covered almost solely hurricane-susceptible properties in south Florida. Only 2 percent of its policies were in the Tampa Bay area; now it's nearly 20 percent.
As the number of bay area policies increased, the number of sinkhole claims reported to Citizens grew exponentially. In 2002, Citizens recorded 12 new sinkhole claims. That jumped to 314 in 2003. In the first six months of 2004, there already have been 384 claims, including 81 claims in June alone.
"The numbers are on the rise," says Susanne Murphy of Citizens Property, adding that her agency was never intended to be the "insurer of last resort" for homes that could be at risk of sinkhole damage.
"It's going to get bigger and bigger and will probably rise to the issue of needing at least some legislative scrutiny," she added.
The scrutiny is already under way. Using a $300,000 state grant approved by the Florida Legislature last session, Florida State University professor Pat Maroney is studying the sinkhole crisis.
Maroney said he has a multifaceted mission. He's trying to come up with standards to properly diagnose whether a structure was damaged bu sinkhole activity. He's looking at the impact on Citizens Property. And, perhaps his hardest task, he's trying to determine why insurance companies deny claims and won't renew policies.
"We've asked (insurers) for a bunch of information," Maroney said. "The companies are a little hesitant to give out information."
The FSU professor said he realizes he's standing on politically sensitive ground and doesn't want to be swayed one way or another by the parties involved.
He can see both perspectives, including the insurance industry's argument that it should pay only for fixing damages to an insured building.
"The key here is the insurability of dirt," Maroney said. "The land itself is not insured. It's just the improvement, the structure.
"It's a very complicated issue; it's not an easy fix."
