For those of you who have been following along over the last few months, you know that we have been discussing Citizens Insurance Company since they are the largest home insurance carrier in Florida. Continuing with the Citizens theme, let’s talk about sinkhole homes! More importantly, how to handle them from an insurance perspective so that you can help your client close.
While not as prevalent as it once was, sinkhole homes are still a common type of home being bought and sold here in Florida. While sinkholes are found in other parts of the country, the involvement of litigation seems to be much more prevalent here in Florida; thus, making insurance on this type of home a little tricker to handle. With that said, as you go down the path of trying to close the deal on a “sinkhole home”, there are some things to keep in mind.
Obviously, the most important thing to know is if a home has had a repaired sinkhole, or an unrepaired sinkhole. If the home has had a repaired sinkhole, this will give you one or two more options with regards to insurance carriers than an unrepaired sinkhole. If it is an unrepaired sinkhole, the options are going to be extremely limited.
When trying to insure a home with a REPAIRED sinkhole, it’s very important to obtain the repair documents if possible. When the seller is the person who filed the sinkhole claim, they should have all these documents on hand which usually fill up a three-ring binder or something similar. If the repair documents consist of only a few pages, chances are, they are incomplete. The documents should consist of at least the pre-engineering report, paid invoices, photos of both the inside and outside of the home, and a post engineering report. These are typically the minimum items that must be submitted to the insurance company when reviewing the home for eligibility. Depending on the carrier, the agent will then submit the documents with the application for underwriter review. This process usually takes between 7-10 business days, depending on the underwriter’s case load.
A secondary question we often get is: Can we get sinkhole coverage on the home going forward? While it’s impossible for me to give a definitive answer, in my experience the general response is IT IS VERY DIFFICULT. The Sinkhole coverage must be applied for at the expense of both the homeowner and the carrier- and it is up to an underwriting department to approve the homeowner for the coverage which is always at a 10% deductible. With that said, Catastrophic Ground Collapse Coverage is included in the majority of property policies and is what the homeowner needs in order to secure a loan.
Another issue that we run across sometimes with REPAIRED sinkhole homes is, the homeowner did the repairs themselves, and therefore does not have receipts. This is often the case if there was internal damage to bedrooms, etc. Again, the carriers are looking to see matching paid invoices from certified contractors that match the damage payouts and prove repairs have been satisfactorily made. Many times, this requires additional inspections from the homeowner in order to comply with underwriting guidelines.
UNREPAIRED sinkhole homes are a completely different animal, and I am only aware of one carrier that will offer coverage for them. The main reason this carrier will offer home insurance on an unrepaired sinkhole home is because they offer no type of ground settlement coverage at all. This is an important factor if the insured is going to have a loan on the home, as most lenders require the insured to at least have Catastrophic Ground Collapse Coverage on the home, to secure a loan. However, in the above scenario, there is no ground settlement coverage at all. It has also been my experience that the rate for insurance on an unrepaired sinkhole home is about 3- 4 times more than the insurance on a regular home.
A follow up question, that we often hear is “But, they determined that there was no sinkhole, and nothing was paid out”. While this may very well be the case, if the county permits show that a permit was pulled with regards to a sinkhole inspection, the insurance carriers view the home as a sinkhole home, regardless. From their standpoint, someone evidently thought that there was enough damage to warrant filing a sinkhole claim, and therefore pulled a permit for it. This is why the insurance company deems the home a sinkhole home.
What about getting SINKHOLE coverage on a “regular” home, as referenced above. Great question! Sinkhole coverage is something that always has to be applied for and approved by and underwriting department. Carriers require an inspection be done on the home by their third-party inspection company, and the cost of the inspection is split between the insured and the carrier. The inspection is then analyzed by the carrier to determine eligibility. Historically, we have found very few people that qualify for the endorsement, and the ones that do, usually don’t want to pay the additional premium for it. Again, sinkhole coverage has a 10% deductible so if a home is insured for $400,000; the homeowner would be required to pay the first $40,000 in repairs before the carrier pays anything.
With all that said, a good deal is still a good deal. If the price of the home reflects the prior damage, and the purchase of the home still makes sense even with the cost of the insurance, then the home is still a good bargain.
