For the second straight week, the Florida Banking and Insurance Committee failed to reach a final vote on its comprehensive property insurance bill. The delay comes as committee members remain bogged down over how to address sinkhole claims; specifically, how to define what constitutes sinkhole damage and whether the state or insurers have the power to set the underwriting criteria for such claims.
After making a serious push toward property reform last year only to see it vetoed by then Governor Charlie Crist, the insurance industry is back before lawmakers seeking another shot at implementing a laundry-list of changes to help prop-up the beleaguered market. At the top of the list is addressing sinkhole claims that have become endemic in many areas in the state. In an Office of Insurance Regulation report issued late last year, regulators stated that the number of sinkhole claims has risen in the state from roughly 6,700 in 2006 to over 24,000 in 2010. The price tag: a cool $1.4 billion.
Lawmakers are taking a two-prong approach to the sinkhole issue. First, they are trying to implement changes that would place greater controls over how sinkhole claims are handled, such as putting a two-year statute of limitation on sinkhole claims and allowing insurers to use sinkhole policyholder deductibles to be used to cover the cost of investigating sinkhole claims. They also want to increase the requirements on engineers and geologists and public adjusters who handle sinkhole claims.
Secondly, lawmakers are trying to close the door on new claims by removing the mandate that insurers offer residential homeowners sinkhole coverage and remove commercial property from the sinkhole law altogether.
But at the center of the debate is defining just what constitutes a sinkhole loss. Under current law, a sinkhole loss is defined as “structural damage to the building, including the foundation, caused by sinkhole activity.” The law, however, does not define “structural damage,” which has resulted in widespread litigation that insurers argue has resulted in many claims being paid for sinkhole damage that was the result of poor maintenance or the natural aging of a structure.
Under the proposed bill, a building would be declared to have structural damage if it suffers damage from changes to its foundation that is outside of what is acceptable under an applicable building code and the damage prevents structural components such as load bearing walls or floor or ceiling joists from supporting the weight and load-bearing forces they were designed for.
Just how contentious this issue has become for lawmakers was seen when Senator Mike Fasano (R-New Port Richey) offered an amendment, which sought to set a standard for some types of sinkhole damage. Under the amendment, “cosmetic damage consisting of hairline to one-sixteenth inch cracks to nonstructural building components is not covered unless accompanied by structural damage.”
Fasano, who represents two of the three hardest hit counties in the state, said the amendment was an effort to bring great clarity to the issue. Otherwise, he said, policyholders would be at the mercy of insurers. “If we allow insurers to define structural damage the way they want, we all know what will happen,” he said. “They will sell something but the policyholder will be buying nothing.” Under questioning, Fasano admitted the sixteenth inch standard was arbitrary, but suggested that some engineering standard could be found.
Senator J.D. Alexander (R-Gainesville) took exception to the amendment, saying it would just perpetuate the sinkhole problem. “We have mandated this coverage and watched as it has depleted insurers,” he said. “At some point you have to say enough is enough. The vast majority of these claims could be fixed with some chalking or other less expensive way.” Alexander went on to charge that the amendment was being pushed by attorneys looking to put a loophole in the bill.
Fasano, however, immediately pushed back, saying, “I don’t need someone to lecture me on the problems of sinkholes. I would suggest the bill before you has been written by the insurance companies.”
Lawmakers rejected the amendment, but it is a harbinger of what is likely going to be a long struggle as lawmakers look to resolve the issue by the end of the legislative session in May.
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