What Is Sinkhole Insurance?

What Is Sinkhole Insurance?

Sinkhole Insurance is insurance covering some are all of the risks associated with sinkholes.  Before addressing sinkhole insurance coverage further, it is useful to define what a sinkhole is and to cover  some of the basics about the risks of sinkholes.

What Is A Sinkhole?

A sinkhole is a hole or depression in the ground caused by some form of subsidence or collapse of the earth’s surface layer.

What Causes A Sinkhole?

The collapse or subsidence of the surface layer can be caused by a number of factors, but is most often caused by the dissolution of supporting  rocks.   Sandstone, chalk, salt, gypsum, limestone, and dolostone are all susceptible to dissolution from ground water, or from surface water that finds its way to the supporting rock.

Sinkholes can also result from human activities.  Mining, drilling, altering of natural water flows and other human activities can sometimes cause or contribute to subsidence or collapse of the earth’s surface.

Sinkholes may or may not present themselves slowly.   Sometimes, they will begin with a slow sinking or a small hole presenting itself on the surface.  Other times, a large area of land will collapse suddenly and without warning.   Sinkholes vary in size and can be as much as 2,000 feet across and more than 100 feet deep.

Who Should Consider Sinkhole Insurance?

According to the U.S. Geological Survey, (see map below) as much as 35 to 40 percent of the United States surface layer may be susceptible to sinkholes.  Florida and Pennsylvania have the highest number of sinkholes, and both states require that insurers offer sinkhole coverage on admitted property policies.

map-of-us-sinkhole1

Sinkhole Map Courtesy Of United States Geological Survey

According to the Insurance Information Institute, most of the sinkhole damage occurs in Florida and Pennsylvania, but Alabama, Kentucky, Missouri, and Tennessee also have had significant losses.  Given that the risk extends to a much broader geographic area, and that the coverage is generally very affordable in areas with lower susceptibility, all property owners should probably consider the purchase of the coverage.

If you live in an area where there is any prior history of mining, there may be a higher risk of sinkholes.  There may also be a risk of mine subsidence.  Sinkhole and Mine subsidence are not the same.  Sinkhole insurance might not cover damages caused by mine subsidence.  Talk to your insurance agent if mine subsidence is a possible exposure in your area.

Sinkhole Insurance

Sinkhole Insurance is offered by most insurers.   In some states, some form of sinkhole coverage is mandatory for insurance that is offered on an admitted basis.  However, even in states like Florida, the mandated coverage may still not address all of the risks you face.  You should talk to your insurance agent about the exposure, and you will want to  review your policy to determine what insurance coverage you have.  At a minimum, you will want to review your policy’s coverage grant, exclusions, limits, and the policy conditions.

Coverage Grant

Your policy’s coverage grant will explain the types of property covered and the perils against which coverage is provided.   You might see that foundations, land, and paved surfaces are excluded.

Exclusions

Earth movement, subsidence, and collapse caused by earth movement or subsidence may be excluded by your policy.  Sinkholes may also be excluded.  Read the exclusions carefully to see if any of them take away coverage for sinkhole related risks.

Sinkhole Limits/Deductibles

Your policy might have sub-limits or higher deductibles that apply to sinkhole related perils.  It is not uncommon for a policy to have these restrictions.   If the restrictions present in your policy are unacceptable to you, ask your agent if other options are available.

Sinkhole Policy Conditions

Insureds must be aware of policy loss reporting conditions.  A policy may require  that a policyholder provide their insurer with notice of a loss “as soon as possible” or “as soon as practicable” after a loss or other insured event.  Other policies may require that notice of loss be given in 30 or 60 days. Failure comply with this policy provision may have consequences for a policyholder, and could potentially even bar a policyholder from making a claim.

Civil Authority

In some cases, the government may prevent you from accessing a premises based upon it being considered to be too dangerous.   A sinkhole on your block, for example, might cause a governmental authority to permanently or temporarily block access to your home or business, even though there is no present damage to your property.   If this happens, how will your insurance policy respond?   You may wish to discuss this with your insurance agent, as it is a complex topic.

Ingress/Egress

This exposure is similar to civil authority.   Imagine that the only road or bridge to your property is destroyed by a sinkhole.  It may now be incredibly difficult for you to use your property.  There may be no order from a civil authority prohibiting access to your premises, but it might still not be practical for you to use your property now.

Various forms of ingress/egress coverage are available in commercial property and homeowners policies.  Coverage varies greatly from policy to policy.   Again, this is a complex topic and you should discuss this exposure with your insurance agent.

Other Considerations

If you are a business owner, or are running a business out of your home, you may also want to talk to your insurance agent about business income coverage, extra expense coverage, contingent business income coverage.

Typically, this covers two types of business interruption. First, it protects against economic losses caused by a “direct” supplier’s inability to get its goods to the insured due to damage to, or destruction of, the supplier’s property by an insured peril. Second, it protects against economic losses caused by damage to or destruction of a customer’s property that prevents the customer from accepting the insured’s products. Accordingly, businesses located nowhere near a sinkhole may still suffer insured losses.

How Can I Detect a Sinkhole on My Property?

Sinkholes usually develop over a period of time.  While it is possible for them to occur suddenly and without warning, often times there are warning signs.  If you live in an area that is prone to sinkholes, you will want to be vigilant in looking for these signs:

  • A neighbor has or had a sinkhole;
  • Appearance of sediment in your drinking water;
  • Cracks developing in or around windows, doors, or support beams;
  • Cracks in the exterior brick;
  • Deep cracks in basements, foundations, walkways, driveways or the street near your property;
  • Pooling of water in areas of your lawn where water never used to pool;
  • Sinking of the lawn in your yard or in areas surrounding your home;
  • Water appears to be draining down into the ground at a particular spot on your property;
  • Windows and doors are sticking, not laying flush, or becoming difficult to open or close.

If you notice signs of a potential sinkhole issue, you should contact your insurance company.  They will send an adjuster or a specialist out to conduct an initial investigation.

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