Sinkhole policies may change

Published January 20, 2007

TALLAHASSEE - While insurers bemoan their troubles with Florida lawmakers this week, they stand to win at least one fight.

The Florida House and Senate are on the verge of dramatically changing state law on sinkhole insurance. This could cut rates in half for homeowners in hard-hit Pasco and Hernando counties, where 80 percent of all Citizens Property Insurance Corp. sinkhole claims are filed.

But homeowners would shoulder more risk.

After tweaking the process the last two years, the House and Senate are going a new route. They would make sinkhole coverage, which has been standard in most policies, an optional purchase.

Instead, only a catastrophic collapse that leave homes unlivable would be basic coverage in bills the House and Senate are finishing during the special session.

That leaves people like Bill Pardy of New Jersey facing a difficult choice. Pardy plans to move to a three-bedroom home in Spring Hill to retire with his wife by this spring. But the annual insurance premium has been estimated as high as $5,000, five times what he expected. To stay retired, he might have to drop sinkhole coverage, even though he would like as much protection as possible.

"If we are faced with a need to pay $3,200 a month in mortgage, taxes and insurance, how do you retire?" asked Pardy, 53. "I don't have a choice."

Rate cuts likely

Outside west-central Florida, sinkholes have been an afterthought in Florida's insurance rate crisis.

But dropping sinkhole coverage could slice premiums up to 45 to 58 percent in Hernando and Pasco respectively, according to a proposal by state-run Citizens Property Insurance. Other areas, such as Hillsborough and northern Pinellas counties, would see smaller cuts.

If customers opt to buy sinkhole coverage, however, they would pay more than they do now through Citizens.

Lawyers Alan Marshall and Ken Thomas of Trinity handle sinkhole cases and said they are urging people to file any new claims before lawmakers approve a final bill Monday. At least, they said, homeowners should file claims before their policies renew with new standards in place.

Marshall and Thomas said legislators are using a backdoor approach to do away with sinkhole coverage. The bills also do not require that consumers be well informed, they said.

The House also is seeking some tougher standards than the Senate, including limiting coverage to house collapses that happen in seven days or less.

Marshall and Thomas ask what happens to people who have damaged foundations or walls that do not collapse? Or a collapse in eight days?

"Good question," said G. Gregory King, a State Farm vice president.

The answer: Customers pay.

But King and other State Farm officials counter that insurers have been forced to pay claims even if sinkholes are not proved to be at fault because court fights are too expensive and often unsuccessful.

"Most of the claims we're paying over there are not legitimate sinkholes," said State Farm lobbyist Mark Delegal.

Few homes collapse

Insurers have doubled and tripled premiums in the past five years, blaming the high rate of claims. The thin layers limestone and soil raise the sinkhole risks, according to geologists.

But few if any sinkholes in the northern Tampa Bay areas have destroyed homes. Instead, foundation settled, walls cracked and claims hit $75,000 or more for grouting or underpinning.

The worst by far is Pasco, where Citizens is the largest insurer with a third of the market. In 2002, the insurer had a total of nine sinkhole claims. In 2004, claims hit a high of 809.

Of Citizens' 747 sinkhole claims in 2006, 465 - 62 percent - came from Pasco. Another 132 came from Hernando.

Last year, Citizens paid $38.5-million in sinkhole claims, and $34.8-million was paid in Pasco and Hernando.

State Sen. Mike Fasano, R-New Port Richey, and Rep. John Legg, R-Port Richey, say private insurers like State Farm Florida would be more interested in writing homeowner policies in Pasco and Hernando if they can reduce those payouts.

Delegal and King said renewed interest in sinkhole-troubled areas is not certain, though. A lot depends on how higher profile changes to Florida's insurance law turn out during the ongoing special session. Pasco, as a coastal county, still has storm risks.

"You have a double whammy in your neck of the woods," Delegal said.

David DeCamp can be reached 727 869-6232 or ddecamp@sptimes.com

Fast Facts:

Claims, rates on the rise

The high number of sinkhole claims and payouts for losses have driven up rates in west-central Florida where most claims are filed with Citizens Property Insurance Corp. Here are the losses and claims for 2006:

Source: Citizens Property Insurance Corp.


Claims Payouts
Pasco 465 $25,507,599
Hernando 132 $9,280,441
Pinellas 59 $1,827,663
Hillsborough 53 $1,791,966
Citrus 2 $0
Florida 747 $38,428,276