A study conducted by scientists at the University of Miami has revealed that almost three dozen high-rise condos and luxury hotels along the beach in South Florida are sinking, and insurance companies are on high alert. To be exact, thirty-five buildings, including both luxury hotels and condominiums, have sunk between one to three inches in the past seven years. The majority of the affected buildings are located in Miami Beach, Sunny Isles, Bal Harbour, and Surfside. The study’s lead author, Farzaneh Aziz Zanjani, said that the discovery of the extent of subsidence hotspots along the South Florida coastline was unexpected, and very troubling.
About half of the 35 sinking buildings are less than a decade old. The University of Miami study revealed that Miami’s subsurface is composed of limestone interspersed with layers of sand. Much of the observed subsidence—where the ground sinks or settles—stems from the shifting of grains in the sandy layers, a process triggered by the weight of the high-rise buildings and the vibrations caused during foundation construction. In addition, the researchers surmise that the ongoing subsidence may also be influenced by daily tidal flows and the cracking of limestone beneath the surface. While builders make efforts to minimize construction vibrations, these factors contribute to a gradual, continuous sinking of the land over time.
There are also other factors, beyond the weight of the new construction, which causes the settlement, including groundwater flow from pumping for underground construction and daily tidal flows. The subsidence is probably a combination of several mechanisms, all of which could or should have been known by the owners and contractors who constructed the buildings.
The report continues to explain that “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 are created, sand from above begins to travel down to fill the voids, a process that can eventually lead to movement in the sands close to or at the ground surface.
Incidents such as the sinking buildings and the 2021 condo collapse in Surfside, Florida have resulted in the Florida Legislature passing Section 627.706, making sinkhole coverage mandatory. Florida law now requires that insurance companies provide catastrophic ground collapse coverage that insures in the event a sinkhole abruptly forms as a visible hole at land surface under an insured structure and damages it based upon specific criteria defined by Florida Statute 627.706. That statute provides that “Every insurer authorized to transact property insurance in this state must provide coverage for a catastrophic ground cover collapse.”
The new legislation and mandated coverage has contributed to skyrocketing property insurance premiums in Florida. Other causes of the out-of-control insurance premiums include a growing epidemic of ground cover collapse and sinkholes in south Florida, as well as additional regulatory and consumer protection measures passed in 2022. These new requirements mandate milestone inspections for Co-Op and condominium buildings that are three stories taller or higher once they turn 25 or 30 years old, depending on how close a structure is to the coastline. The new legislation also mandates that all associations must conduct structural integrity reserve studies every ten years and fully fund those studies. As a result, insurance rates have risen more than 100% over the last three years. Lenders are compounding the problem by refusing to issue mortgages for any structure which does not have the appropriate insurance.
Take the massive sinkhole incident from 2017 in Land O’Lakes, Florida, as an example of how suddenly such devastation can occur. According to reports, the sinkhole started on July 14, 2017 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. 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 grew to 235 feet in diameter and 50 feet in depth. Two homes were destroyed, and five others were tagged as unsafe and had to be evacuated.
Groundcover collapse, when coupled with reports that sinkhole activity had previously been identified at some of the properties affected, gives rise to a number of coverage issues and questions, and some potential subrogation opportunities. When a carrier pays for for a sinkhole claim, is it also 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 by sinkhole activity, this coverage is often provided as an exception to the exclusion for the earth movement. It generally excludes coverage for losses resulting from earthquakes, landslides, mudslides, and sinkholes, and the exclusion applies to both direct and indirect damages.
Florida’s new laws require policies to include coverage for “Catastrophic Ground Cover Collapse.” This coverage may be triggered only when all of the following occur:
- The abrupt collapse of the ground cover;
- A depression in the ground cover clearly visible to the naked eye;
- “Structural damage” to the dwelling, including the foundation; and
- The dwelling is condemned and ordered to be vacated by the governmental agency authorized to issue such an order for that structure.
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 state’s 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’s statutes also 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 and civil damages.
Subrogated carriers might also be able to sue a neighboring property owner who failed to properly fix a sinkhole when he or she was on notice that the sinkhole should have been “repaired.” 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. 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.
If you are willing to make the investment into uncovering and pursuing subrogation potential in the face of Acts of God that result in claim disasters, it is very possible to turn tragedy into triumph.
John Kimbrough is a partner at MWL and is in charge of the firm’s Jacksonville, Florida branch office. For questions about property subrogation in Florida, please contact John at jkimbrough@mwl-law.com.
