SB 742 Will Allow Insurers To Convert Pasco and Hernando Policyholders’ Sinkhole Coverage for Ground Cover Collapse Alternative

SB 742 relating to Sinkhole Losses passed the Florida House of Representatives unanimously on April 29, 2009 during third reading.  With the House version, HB 351, having been substituted for SB 742 during second reading on the previous day, the bills became identical.  SB 742 is now ready to be presented to Florida Governor Charlie Crist for approval. 

SB 742, which becomes law on January 1, 2010 if signed by the Governor, would allow insurers to non-renew policies in Pasco and Hernando counties and offer renewals that exclude sinkhole coverage to those policyholders, but include “catastrophic ground cover collapse.”  The bill also would require insurers to consider local ordinances relating to sinkhole mitigation when setting insurance rates.  These ordinances will be subject to a Florida Building Commission review over a four-year period.

This bill creates section 627.7063, F.S., which mandates the creation of a building code grading schedule that evaluates the effectiveness of sinkhole loss prevention ordinances in reducing the number of sinkholes and the severity of sinkhole losses.

Note:  “Catastrophic ground cover collapse” coverage was created during Special Session 2007-A as an alternative to sinkhole insurance, which had become increasingly costly in areas of the state with high exposure to sinkholes and related claims.  Catastrophic ground cover collapse coverage does not provide reimbursement for losses due to the mere settling or cracking of a foundation, structure or building.  It is defined as a geological activity that:

• Results in the abrupt collapse of the ground cover that is clearly visible to the naked eye;
• Results in structural damage to the building and its foundation; and
• Results in the insured structure being condemned and ordered to be vacated by the appropriate governmental agency.

 

Analysis of SB 742 by Section

 

Section 1

• Amends section 627.706, F.S. to authorize an insurer offering sinkhole coverage before or after a certain date to non-renew the policies of policyholders maintaining sinkhole coverage in Pasco and Hernando counties at the option of the insurer, and to provide an offer of coverage to such policyholders that includes catastrophic ground cover collapse and excludes sinkhole coverage.
• States that insurers that act in accordance with the above provision are subject to several requirements, including:
  • Notifying policyholders that the non-renewal is for purposes of removing sinkhole coverage, and that the policyholder is still being offered a policy that provides coverage for catastrophic ground cover collapse;
  • Providing policyholders with an actuarially-reasonable premium credit or discount for the removal of sinkhole coverage and provision of only catastrophic ground cover collapse;
  • Subject to the provisions of this subsection and the insurer’s approved underwriting or insurability guidelines, the insurer must provide each policyholder with the opportunity to purchase an endorsement to his or her policy that provides sinkhole coverage, and may require an inspection of the property before issuance of a sinkhole coverage endorsement; and
  • Stating that section 624.4305 does not apply to non-renewal notices issued pursuant to this subsection.

 

Section 2

• Creates section 627.7063, F.S., mandating the creation of a building code effectiveness grading schedule that evaluates the effectiveness of sinkhole loss prevention ordinances in reducing the number of sinkholes and the severity of sinkhole losses.
• Requires the Florida Financial Services Commission (“Commission”) to adopt a building code effectiveness grading schedule by rule, which shall:
  
  • Be based on the effectiveness of code enforcement in each county and scientific, modeling, and engineering methodologies; and
  • Evaluate ordinances no earlier than four years after the ordinance takes effect in order to allow for the gathering of data regarding the frequency and severity of sinkhole damage to structures that are required to be compliant with the sinkhole prevention ordinance in question.
• Also requires the Commission to adopt rules mandating insurance premium discounts or surcharges on personal residential property insurance based on a property’s compliance with an ordinance and the grade assigned to the applicable sinkhole loss prevention ordinance.

 

Section 3 

• The effective date of SB 742 is January 1, 2010.

 

Should you have any questions or comments, please contact Colodny Fass.

 

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