Defining Occurrence – When Policy Definitions Do Not Apply To All Coverages
September 24, 2020
The recent catastrophic ground cover collapse in Land O’Lakes attributed to a sinkhole highlights the unique aspects of Florida geology and the impact it can have on the risks faced by building owners and their insurers. In central and western Florida, the land generally consists of a layer of limestone topped by layers of clays and sands. The limestone is a vestige of the shells and skeletons of marine life deposited during prehistoric periods when that layer was at the bottom of shallow seas. Over time, limestone was formed and covered by layers of silts and sands. The limestone is slowly dissolved by groundwater and constitutes part of the aquifer.
As cavities in the limestone form, sands immediately above the limestone can begin to ravel downward into them, a process that can eventually lead to movement in the sands close to or at the ground surface. As cavities in the limestone grow, portions can become susceptible to collapse, allowing the sandy overburden to sink along with anything that has been built upon it. In the case of the sinkhole in Land O’Lakes, the collapsing material was significant, impacting several nearby residential lots.
The risk posed by sinkhole conditions prompted the Florida Legislature to enact legislation making sinkhole coverage mandatory. Claims under the new coverage proliferated with often little evidence other than minor cracks in buildings equally consistent with the normal settlement. To address the ever-increasing claims, the Florida legislature amended the statute that required such coverage by distinguishing it from catastrophic ground cover collapse (which occurred in Land O’Lakes). Further refinements were made in 2011 where, for the first time, objective standards were adopted for the “structural damage” required for a claim under sinkhole coverage. The elements that are required for coverage under the mandatory catastrophic ground cover collapse were also defined.
According to reports, the recent Land O’Lakes sinkhole started on July 14, 2017 (Friday) as a depression in the surface of the ground that opened up behind the home located at 21825 Ocean Pines Drive. The first call to authorities was received at 7:21 a.m., and Fire Rescue crews arrived on the scene at 7:36 a.m. The sinkhole stopped growing around 5 p.m. Friday. By Tuesday (July 18), no new activity had been observed and local officials concluded the sinkhole had stabilized. The next day, however, the sinkhole widened another ten feet, prompting officials to warn additional residents that they may need to evacuate. The sinkhole is now 235 feet in diameter and 50 feet deep. Two homes were destroyed, and five others have been tagged as unsafe and remain evacuated as of Monday morning. Fortunately, no injuries have been reported.
The catastrophic ground cover collapse in Land O’Lakes, coupled with reports that sinkhole activity had previously been identified at one of the properties, give rise to a number of questions.
The first question is whether an insurer that paid for a sinkhole loss on a property is obligated to pay for a second loss if the property owner failed to properly “fix” the sinkhole after the first claim. Where the policy provides coverage for damage to the home caused sinkhole activity, such coverage is often provided as an exception to the exclusion for the earth movement. Where sinkhole activity causes structural damage to a home (a “sinkhole loss”), coverage includes the cost to stabilize the land and the building and repair the foundation. An insured’s failure to address sinkhole conditions that result in subsequent damage from unaddressed conditions detected in the first loss could constitute neglect that should bar the subsequent claim.
Apart from sinkhole activity, Florida law requires homeowner’s policies to include coverage for “Catastrophic Ground Cover Collapse,” such as the loss in Land O’Lakes. This coverage is triggered only where there is all of the following:
The question in a subsequent claim will be whether the sinkhole activity left unaddressed by the insured in the first claim is the same condition that resulted in a subsequent catastrophic ground cover collapse. That will be a factual question for experts.
The coverage analysis is the same whether the insurer at the time of the second loss is a new insurer or has issued a renewal policy. Sinkhole coverage provided by the policy for the cost to stabilize the land and the building, and repair the foundation, is triggered by structural damage to the insured building. As a practical matter, a properly repaired sinkhole may pose less risk than a property that has never been examined for sinkhole activity. Once an insurer elects to provide sinkhole coverage for a property, the question will be whether damage to the insured building occurred during its policy period and whether the insured’s neglect to address conditions detected in the previous claim caused the subsequent loss.
Florida Statue § 627.706 requires the insured to make available, for an appropriate additional premium, coverage for sinkhole losses on any structure and the personal property inside it. The insurer can require an inspection of the property before issuing a policy and if it elects to insure the property, restrict catastrophic ground cover collapse and sinkhole loss coverage to the principal building, as defined in the applicable policy. Despite having extended such coverage, an insurer may disclaim coverage where the insured concealed or misrepresented material facts relating to the “repaired” sinkhole in order to obtain the policy. However, if the material facts relating to the “repaired” sinkhole were disclosed, and the insurer elected to provide coverage, there would be no basis to disclaim coverage.
A subsequent purchaser can sue a seller for a failure to disclose a sinkhole that wasn’t fully repaired. The “Seller’s Property Disclosure – Residential” published by Florida Realtors advises: “Florida law requires a seller of a home to disclose to the buyer all known facts that materially affect the value of the property being sold and that are not readily observable or known by the buyer.” In support, the form references Johnson v. Davis, 480 So.2d 625 (Fla. 1985), where the Florida Supreme Court held a vendor’s false representation of material fact, made with knowledge of its falsity, that caused the purchasers to rely upon it to their detriment, was a false representation which required return of deposit payments to purchasers.
Florida Statutes expressly require a seller to disclose being paid on a prior claim for a sinkhole on the property. Section 627.7073(2)(c) directs a seller of real property, upon which a sinkhole claim has been made by the seller and paid by the insurer, to disclose to the buyer, before the closing, that a claim has been paid and whether or not the full amount of the proceeds was used to repair the sinkhole damage.
Failure to disclose sinkhole conditions in the sale of a home can also result in criminal penalties. In 2015, a Florida husband and wife were found guilty of wire fraud for selling their Springhill home without disclosing the existence of an unremediated sinkhole on the property. In 2010 Glenn and Kathryn Jasen accepted an insurance payment of $153,745 for sinkhole damage but spent only about $30,000 on repairs. In 2014, the Jasens sold the house to Thomas Jaje for $64,900, denying any sinkhole claims on the disclosure forms. For their failure to disclose, the Jasen’s were sentenced to five years of probation and six months of house arrest.
The recent catastrophic ground cover collapse in Land O’Lakes damaged a number of properties. This fact raises the question of whether a neighbor could sue, or whether the neighbor’s insurer could seek subrogation against a property owner who failed to properly fix a sinkhole when he or she was on notice that the sinkhole should have been “repaired.” There is no reason why not. Once the insured is aware of an unrepaired sinkhole on his or her property the sinkhole is no different than any other potentially dangerous condition that may implicate a duty of the property owner to take action. However, catastrophic ground cover collapse is relatively rare.
The issue in a suit by a neighbor or subrogation action will be whether the insured should have known that sinkhole activity that caused minor damage to the insured’s house would, years later, result in a catastrophic ground cover collapse that would extend beyond the insured’s property. There will also be a question of whether negligence will be attributed to an insured who implemented a “repair” based upon the advice of an “expert.” Where there is a subsequent catastrophic ground cover collapse, the question will be whether that collapse was the result of the same conditions that caused the previous loss or deeper or more widespread activity that was undetected by the experts who provided advice to the insured on the first loss.
The news reports on the Land O’Lakes sinkhole indicate that, after the first loss in 2012, one engineer advised the insured to grout the property, while another advised that the house could be stabilized using subsurface pins. After the second loss, another interesting question is whether the engineer who recommended pinning the house — rather than grouting the land — could face liability for the subsequent loss to the original homeowner and his or her neighbors.
An engineer is obligated to perform his or her duties according to a particular standard of care. Whether or not an engineer’s work product meets that standard of care in any particular case is ultimately a question for a jury to resolve. Whether the recommended “fix” was appropriate will depend on the results of the testing at the time of the initial loss. Pinning might be appropriate where testing has detected loose soils but no voids in the underlying limestone. On the other hand, a subsequent catastrophic ground cover collapse such as the one in Land O’Lakes prompts the question of whether the results of the inspection after the first loss implicated a wider duty for the engineer to homeowners other than to the owner of the property where the remediation work in question was to be performed.
The recent catastrophic ground cover collapse in Land O’ Lakes, has likely left more than one homeowner, engineer, and property insurer with a sinking feeling as they contemplate what was actually done to address a past sinkhole and protect insured property from further loss. Others no doubt will be thinking about what repairs should be made in future cases. Only time will tell whether past choices of repair were correct or whether homeowners and their neighbors will find their property slip-sliding away.