Much to come from me on this, but I did want to get some important components of the new bill our before too much time passed, and because Governor Scott signed the law that came from Senate Bill 408.
General Changes: The primary legislative focus in the new enactments related to reducing the total number of sinkhole claims and in reducing the number of times sinkhole investigations must be conducted. The statute changes the law so that insurance companies only have to conduct a sinkhole investigation is there is "structural" damage to the buildings. While the previous version of the sinkhole statutes included a short definition of what constituted a "sinkhole loss," the new statute has five different categories for structural damage.
The procedure to be used for sinkhole claims will now take two steps. First, upon receipt of a claim, the insurance company will retain a structural engineer to determine if there is "structural damage," as provided under the statute (this is the five-category definition for what it takes to be a "structural" loss. If there is no structural damage, no sinkhole investigation is required. If there is structural damage, the insurance company must conduct a sinkhole investigation to determine if there is a relationship between the sinkhole activity and the structural damage to the property.
Impressions: The legislative activity to get the "structural damage" component of the statute was ferocious and well financed by the insurance lobby. However, when the Senate Bill got to the House, the policyholder lobby was ready for them, and most of the Senate Bill was gutted. It is very confusing to most attorneys who have read it. I will say it took us a couple of days to digest it at the office and to find the seams. We believe these changes will certainly get rid of many of the garbage claims (sorry, but we don't have such files), but should not hurt the meritorious ones.
The primary purpose for introducing the "structural damage" language in the law was to reduce the total number of "hairline crack" cases where insured has nominal damage. Insurers complained about having to cash how the hair line crack cases because homes had confirmed sinkhole activity but no real damage. You can expect the insurance companies to bungle through the structural damage issues. This will be primarily because the insurers lack access to a sufficient number of professionals to evaluate the homes for structural damage, which will force them to rely upon improperly trained claims professionals. Note, too, that the new law does not indicate the minimum training requirements for people making the decisions regarding whether it is, in fact, structural damage.
II. Specific Changes to the Bill
A. Retroactivity to Law. Expect insurance companies to seek to apply many of the new changes retroactively to existing or future claims. However, because the claims are based upon the terms of the policy and not the statute, most of the new laws will not apply to claims until the new policies are up for renewal.
B. Timing Requirements. The new law requires insureds to commence the repairs to their home within 90 days of receipt of their reports confirming sinkhole activity. This is unfair to most consumers because there is no notice requirement for the insurer to alert the insured to this timing requirement. There is a list of actions that will stay the time period but, again, no notice required for the insured of these actions.
C. Optional Coverage. The biggest issue up for grabs was whether insurers were obligated to even provide sinkhole coverage at all. When Senate Bill 408 was debated in the House, the first thing to go was the optional coverage provision, in large part because every indication was that it would put too much pressure on Citizens Property Insurance Corporation to pick up all of the dropped policies. Additionally, there were rumblings from Governor Scott's office that we would veto the optional coverage. Thus, optional coverage for insurers was removed from the bill.