Recovery workers recently removed the last of eight vintage Corvettes out of the ground following the collapse in February this year of a room at the National Corvette Museum into a vast sinkhole. Texas Brine Co. is seeking insurance coverage for damage allegedly associated with a sinkhole in Assumption Parish, LA that required the evacuation of residents there. We wrote about coverage for damage caused by sinkholes in March 2013. The risk is obviously real, recurring, and worth another look.
Sinkholes are weird. What could be weirder — and in some cases more weirdly tragic — than the descriptions that have occasionally made news when the ground suddenly and without warning swallows up a building and sometimes the people within it? Imagine looking through a window into your back yard, as a woman in Winter Park, FL did not long ago, and seeing a sycamore tree getting sucked into the ground by its roots. Or watching a buddy simply vanish while standing on a fairway waiting to take his approach shot onto the green, as three golfers in Waterloo, IL did last year on the Annbriar Golf Course, when a fifteen-foot-deep sinkhole collapsed directly beneath their friend’s feet (he suffered a dislocated shoulder, but was, luckily, otherwise unharmed). When we drive, run, walk, cycle or just stand on solid ground, we fully expect it to support us — to remain, well, solid.
The photographs of the hole on the inside of the National Corvette Museum in Bowling Green, KY show a round opening some 40 feet across that looks as if someone had smashed through the floor with an enormous frying pan. A glimpse the pictures afford of several cars all askew in the depths of the hole make them look like matchbox toys. A few undamaged cars, a great round pillar, and other structures on the periphery of the hole appear to be supported by a thin layer of tile and sub-flooring with nothing but air underneath. The collapse occurred in the early morning hours when, fortunately, the museum was closed and unoccupied. In the past week, the last of the eight Corvettes, collectively valued at more than $1 million, was pulled from the cavity created by the sinkhole.
When we drive, run, walk, cycle or just stand on solid ground, we fully expect it to support us — to remain, well, solid.
In another case concerning a sinkhole, this one involving insurance coverage, Texas Brine Co. is in a dispute with its carriers over damages resulting from a sinkhole in Assumption Parish, LA that inspired the Office of Homeland Security to evacuate potentially affected residents.
Most standard-form first-party property insurance policies, the kind that insure against loss or damage to one’s own property, have an exclusion for “collapse of building.” Policy language varies but, typically, the exclusion eliminates from coverage any loss caused by “an abrupt falling down or caving in of a building or any part of a building with the result being that the building or part of a building cannot be occupied for its intended purpose.” This exclusion contains a short list of exceptions, which have the effect of bringing the excepted loss back into coverage.
Collapse of a building will be covered in most policies if it was caused by a “specified cause of loss.” That phrase, itself, has a special definition. It means “fire; lightning; explosion; windstorm or hail; smoke; aircraft or vehicles; riot or civil commotion; vandalism; leakage from fire extinguishing equipment; sinkhole collapse; volcanic action; falling objects; weight of snow, ice or sleet; water damage.” There is a specific standard definition for “sinkhole collapse,” as well. It provides:
Sinkhole collapse means the sudden sinking or collapse of land into underground empty spaces created by the action of water on limestone or dolomite. This cause of loss does not include:
- The cost of filling sinkholes; or
- Sinking or collapse of land into man-made underground cavities.
There is a clear intent by insurers to cover damage or loss caused by sinkholes.
In Florida, where the sinkhole peril is especially serious, the legislature passed a law in 1981 requiring insurers to make optional sinkhole coverage available in property policies. The statute contained a separate definition of “loss” as “structural damage to a building.”
The typical first-party property policy contains another exclusion for loss caused by “Earth Movement.” This means earthquake, volcano, landslide, mine subsidence and: “Earth sinking (other than sinkhole collapse), rising or shifting including soil conditions which cause settling, cracking or other disarrangement of foundations or other parts of realty.” Sinkhole collapse is thus usually an exception to the “earth movement” exclusion, as well. There is, in short, a clear intent by insurers to cover damage or loss caused by sinkholes.
The danger to policyholders that so much recent press coverage of sinkholes poses is that the insurance industry could decide to exclude this coverage in the future. There is a well-worn path the industry could follow that has already been trod in connection with pollution coverage; asbestos coverage; lead paint coverage; coverage for liability under the Telephone Consumer Protection Act; and most recently with respect to coverage for liabilities arising from cyber attacks. In the mid-western states, where the sinkhole risk is widespread and serious, the only real protection against any move to exclude sinkhole coverage may be for state legislatures to follow the lead of Florida and to enact a law requiring the availability of such coverage. And since that wheel has already been invented, it shouldn’t be hard to draft the legislation. Getting it past the powerful insurance lobby, of course, could be a different story.