Good question and the answer is … maybe … but probably not. Unfortunately, in the mid-2000s, the insurance industry had a crisis on its hands that caused some companies to leave Florida, or worse, go bankrupt. There were some lawyers and public adjusters who began to “test” the language in the insurance that stated that the sinkhole was “the settlement and crack formation that can be caused by a sinkhole”. Many homes in Florida have cracks or damage to homes. Our homes are usually built on clay and / or sand … but it can be a sinkhole.
The sinkhole problem
Therefore, when the economy crashed, some lawyers would actually tell clients that they could get out of debt by filing a loophole with their companies. Bulletin boards in Pasco and Hernando began to appear with the text “Are you thinking of filing for bankruptcy? Call us.” Another said, “Do you have settling or cracking? Could be a sinkhole. Call us.” results tested negative for sinkholes, but since lawyers and public adjusters would receive a percentage of a “claim payment”, they would make money even if their client’s claim was denied.
The real estate market’s answer
To stop the bleeding, most companies no longer covered the “sinkhole” but instead provided coverage for “catastrophic ground collapse” which is a visible sinkhole that makes the home doomed and uninhabitable. Other companies switched to 10% sinkhole deductible. This means that the insured must bear the construction costs himself.
Sinkhole vs catastrophic ground collapse
Today, some companies will offer drainage coverage with 10% deductible, but they will require an “acceptable” drainage inspection. This inspection costs a homeowner around $ 150 and the inspector is simply looking for cracks in the interior and exterior of the home (including driveways and sidewalks). From what I understand, 80% of the checks do not go through. A few insurance companies only offer drainage holes for new construction. But it is an additional premium and a very high deductible. Overall, the industry has not fully recovered. Coverage for catastrophic land collapse is available on most homeowners’ insurance policies and would cover what most would consider a sinkhole claim. However, if a sinkhole opens near a client’s home, and it is not determined to make the home “uninhabitable”, the client may be stuck without coverage based on the definition of catastrophic ground collapse coverage.
As a side note, the industry has a new crisis known as the “Assignment of Benefits”. When the well dries up, some people find other loopholes to try to profit from the insurance companies. This means higher premiums for everyone. Yesterday’s sinkhole fraud is today’s roof and water fraud.