How sinkholes form

Everyone knows, or at least should know, that Florida is prone to sinkholes and that sinkholes can have a very negative impact of property value. There are reasons why there is so much sinkhole activity in the state. This post will explain those reasons.

Most sinkholes occur in areas underlain by limestone, gypsum or salt. These three minerals are all easily dissolved by water, which in wet areas leads to underground cavity formation. When the roof of the cavity can no longer support the weight of the surface material above it the surface collapses into the cavity as a sinkhole. Since the hydraulic pressure of underground water also helps support whatever is above it, removal of large amounts of ground water can also lead to settling of the surface and sinkholes.

Salt and gypsum are dissolved in normal water and quite porous, so any wet climate will lead to sinkholes where these two materials are the base. Limestone is quite hard and made up of 80% to 90% calcium carbonate, usually formed by the compaction of marine life such as coral and shells. It is also prone to fissures which allow the easy passage of water. Organic material in water can form carbonic acid which dissolves the limestone.

Development activity can often lead to the collapse of otherwise stable underground cavities, thus forming sinkholes. Placing more weight on the surface above a cavity, such as settling ponds and large buildings, can cause collapse. The vibration caused by heavy highway or railroad traffic can weaken the roof of hidden cavities and lead to sinkhole formation. Removal of high volumes of ground water by farming irrigation or other commercial activities can also lead to cavity collapse or just general ground subsidence.

Any form of surface subsidence can cause major damage to any structure, roads or rails in the area. This damage can often be repaired, but repairs are usually quite expensive. The repairs generally involve mechanically jacking the structure back to its original position and then pumping the sinkhole full of concrete or other solid fill material to once again support the surface. Unless very well built, any affected structures are often either not salvageable or require extensive and expensive repairs.

Florida Property Insurance

For average home owners, and real estate investors in particular, Florida’s property insurance is not a pretty picture to look at. Years of reform promises, rate reduction promises and guaranteed coverage promises have amounted to nothing. A very powerful insurance lobby has been able to consistently bulldoze an ineffectual legislature and governors. Even when some meaningful rules changes have slipped through, the insurance industry has been able to get them overturned within a short time.

2010 is looking very much like more of the same all over again. Florida citizens are hurting badly from years of stiff premium increases caused by hurricane damage, some of the highest unemployment in the nation and astronomical numbers of foreclosures because of the inability to refinance Adjustable Rate Mortgages(ARM”s). What better time for Big Insurance to go on the offensive? The insurance industry is backing Bill 1447 this legislative session. This bill would limit the insurance payout for sinkhole damage claims to 25% of the total available coverage. A more expensive “catastrophic” policy would be needed to provide adequate coverage in sinkhole-prone areas(which covers a large part of Florida). Lack of catastrophic coverage could mean many more families and/or investors losing properties because they cannot needed afford repairs.

SB 2044 is also backed by the insurance companies. This bill would allow payment of “Actual Cost Value” for any damage claims rather than the currently required “Replacement Cost Value”. Instead of collecting repair funds from their insurance based on estimates of material and labor and then proceeding with the work, the proposed bill requires home owners to pay for the repairs out-of-pocket and then be reimbursed by their insurance only for the amount they can prove with receipts. So the insurance companies would not only get to keep the money longer but would also get to pocket any difference between ACV and RCV if the property owner found a bargain on material or labor.

Yet another proposed rules change would allow insurers to impose limited rate increases without review by state regulators. An attempt by some legislators to give the Consumer Insurance Advocate’s office greater power over insurance rate increases has already been shot down.

Let’s all hope the legislature finds some backbone and a little sympathy for the citizens they were elected to represent. Usually it seems our elected officials pay a lot more attention to the money the lobbyists can contribute to their re-election funds than to their obligations of office. It will be an interesting, and possibly expensive, year for home owners in Florida.