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New Florida law takes aim at sinkhole fraud

Amy Higgins

A new Florida law affects how property insurance claims are handled when it come to sinkholes. Supporters hope the law, which tightens up regulations for insurance payouts, will make it difficult for false claims to drain more money from the system.

Mysterious history

Over the years, a significant, unexplained increase in sinkhole claims has happened in the Sunshine State. The Florida Office of Insurance Regulation found that sinkhole costs jumped from $209 million in 2006 to $406 million in 2009.

Some insurers speculate fraudulent claims were to blame for this increase. According to the Florida Insurance Council, some policyholders often would file sinkhole claims because of minor cracking in walls and foundations — and then use their claim settlements to pay other bills instead of fixing their homes. Dishonest public adjusters may have contributed to the problem by encouraging exaggerated claims and then taking a cut of the insurance payout, according to the American Consumer Institute Center for Citizen Research.

Basics of the new law

The law seeks to cut down on sinkhole fraud and abuse of the system by:

  • Defining the “structural damage” that insurers are required to cover. Previous laws required insurers to cover structural damage, but did not define it precisely. This let policyholders file claims for minor damages that may or may not have been sinkhole-related.
  • Creating time limits for filing claims. Policyholders now are limited to two years to file claims for suspected sinkhole damage. That leaves policyholders “more than enough time to assess damage and file claims,” according to the American Insurance Association. This part of the law is intended to prevent a policyholder perhaps encouraged by an unscrupulous adjuster from filing a claim for a crack in the wall that appeared many years ago.
  • Making homeowners pay for testing. It can be difficult and expensive to prove that damage was caused by a sinkhole. Therefore, insurers often paid claims rather than spend the time and money to perform conclusive tests. The new law requires homeowners to notify an insurer within 60 days after a claim denial if they want a test performed. That homeowner then must pay half of testing costs, up to $2,500, under the law. If the test uncovers a sinkhole, the insurer must refund those costs.

Pros and cons

Opponents are concerned that the law favors insurers rather than consumers. In a July 2011 letter to the state’s Office of Insurance Regulation, Florida state Sen. Mike Fasano called the law “the single most consumer unfriendly piece of legislation which was signed into law this decade.”

Supporters, however, argue that questionable claims have been bleeding the industry dry and eventually would have caused premiums to spiral out of control. The law, according to the American Insurance Association, will “help to promote a competitive and vibrant insurance market.”

Deciphering the damage

With so many changes in sinkhole insurance coverage, it’s important to know the signs of sinkhole damage and to inform your insurance provider as soon as possible. According to, common signs include:

  • Cracks in interior joint areas, windows or doors.
  • Cracks in the building’s exterior.
  • Difficulty in closing windows and doors.
  • Depressions in your yard, the street or other yards nearby.
  • Deep cracks and separation of paved concrete walks and drives.
  • Circular patches of wilting plants.
  • Sediment in your water.

Observation of an actual cavity beginning to open.

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