A mammoth sinkhole opened up in the visitors’ parking lot at Hospital of the Sea in Naples, Italy on January 8, consuming three cars and forcing the temporary closure of a nearby residence for recovering COVID-19 patients. Though the sinkhole measured a whopping 66 feet deep and 21,527 square feet across, no injuries were reported and six patients were relocated safely. Electricity and water services were disrupted for several days while the hospital continued operating on backup power.
Sinkholes can occur naturally or be induced by human activities such as construction.1 Local authorities said the parking lot implosion in Naples may have been caused by an infiltration of water underground following recent heavy rains.
“When there is a lot of rainwater or groundwater, limestone can deteriorate and cause a collapse,” said Brandon Hunter, Underwriting Manager, Commercial Insurance, Burns & Wilcox, Indianapolis, Indiana. “A hollow can form underground and the surface suddenly gives way.”
Unfortunately, those affected by a sinkhole may lack the appropriate insurance coverage to help mitigate costs to repair the damages, said Roy Geilen, Underwriter, Personal Insurance, Burns & Wilcox, Tampa, Florida. “For example, basic Homeowners & Dwelling Insurance policies do not cover earth movement,” he said. “The coverage is very specific to geographic locations.”
Sinkhole risks often underestimated
Land subsidence and collapse, or sinkholes, are estimated to cause an average of at least $300 million2 in damages in the U.S. each year — a figure that does not account for the many unreported sinkholes, according to the United States Geological Survey.3 Although sinkholes are more prevalent in certain states, like Florida,4 they can and do occur almost anywhere. There are areas of Canada more sinkhole prone than others, including Nova Scotia.5
“Awareness of sinkholes is much lower in areas where they occur infrequently; nevertheless, they can truly happen anywhere,” said Allison Sinha, Senior Underwriter, Property & Casualty, Burns & Wilcox, Toronto, Ontario.
The damage from sinkholes is sudden and can be quite dramatic. Incidents like those that occurred this month should serve as a reminder to all of us to check our policies and protections.
On January 7 in High Springs, Florida, a man and woman drove into a 40-foot sinkhole on private property; the sinkhole had been barricaded and marked after two ATV riders fell into it in September.6 Although the man and woman were able to escape the vehicle, the woman was unable to climb out of the sinkhole and remained stuck for 11 hours before she was rescued by emergency responders. In Denver, Colorado a water line break caused a 15-foot sinkhole that nearly consumed a car on January 16 and left neighbors concerned over the possibility of future road collapses.7
The destruction caused by recent sinkholes serves as a reminder for home and business owners to seek out warning signs on their property and review their existing insurance policies. “The damage from sinkholes is sudden and can be quite dramatic,” Hunter said. “Incidents like those that occurred this month should serve as a reminder to all of us to check our policies and protections.”
Commercial properties often protected for naturally-occurring sinkholes
Commercial Property Insurance policies in the U.S. generally include sinkhole collapse as a covered peril, Hunter explained. However, sinkhole damage is often excluded if the sinkhole was a man-made cause, such as mining or tunneling. “Sinkholes that occur naturally, like those caused by limestone degraded by groundwater, are typically covered on a Commercial Property Insurance policy,” he said.
After a sinkhole collapse, Commercial Property Insurance policy coverage can help property owners pay repair costs. Since businesses often need to shut down for repairs, owners may opt to invest in business interruption coverage as an enhancement to their Commercial Property Insurance policies. “Business interruption coverage can help pick up expenses that occur after a sinkhole’s immediate impact, like disrupted utility service, repair downtime, backup generators or, in cases like the one that occurred in the Naples hospital parking lot, relocating patients or residents,” Hunter pointed out. “There could be many additional expenses aside from repairs.”
Many standard insurance markets include business interruption coverage as part of Commercial Property Insurance; however, Hunter noted, such coverage is not a given and may need to be specifically requested.
One of the most notable sinkhole incidents in recent memory occurred on February 12, 2014, when a giant sinkhole opened up at the National Corvette Museum in Bowling Green, Kentucky. Eight rare sports cars8 were lost in the sinkhole, which cost $3.2 million9 in repairs alone. In Canada, a June 8, 2016 sinkhole collapse on one of Ottawa’s busiest downtown streets led to millions of dollars in claims from businesses affected by the disaster.10
If a third party is injured on business property due to a sinkhole collapse, the company’s Commercial General Liability (CGL) Insurance may help with related costs, depending on the circumstances and whether the business is found to have mismanaged the situation. “CGL Insurance policy coverage would likely, at a minimum, provide assistance with defense costs in the event of a lawsuit,” Hunter explained.
Mine Subsidence Insurance, earthquake coverage may be needed
Due to Commercial Property Insurance exclusions for sinkholes caused by human activity, some business owners may benefit from Mine Subsidence Insurance, which covers losses arising from the collapse of an underground coal mine, including sinkholes associated with abandoned mines. Some states, including Pennsylvania11 and Kentucky,12 have their own mine subsidence funds to allow insurance companies to add coverage to personal and commercial policies.
“There are many areas around the country where mining was prevalent and documentation of where long-ago operations are located is scant or nonexistent,” Hunter said.
Business owners operating in multiple states, especially if they lack familiarity with each region’s sinkhole risks, should rely on an experienced insurance broker or agent for advice. “Insurance specialists know the nuances in different policies and can walk business owners through the intricate details,” Hunter said. “There is tremendous added value in knowledge of the landscape and prevalent exposures in different regions.”
A basic Homeowners & Dwelling Insurance policy will contain an earth movement exclusion for landslides, sinkholes and anything where the earth below the house shifts or moves without any other proximate cause.
Insurance coverage for earth movement or earthquakes is also important to discuss with an expert broker or agent. “These kinds of events can cause catastrophic losses that are not covered on a Commercial Property Insurance policy,” Hunter said. “In areas with known fault lines, it is definitely an important coverage consideration.”
In Canada, meanwhile, Commercial Property Insurance policies specifically exclude sinkholes, Sinha explained. “Sinkhole coverage could be included under a separate earthquake policy; however, the sinkhole would have to be caused by an earthquake for it to be covered,” she said. “Earthquake coverage is common in Canada, particularly in earthquake zones in British Columbia and Quebec.”
Homeowners face limited options for sinkhole insurance
While homeowners in Canada have the option to add earthquake coverage to their Homeowners & Dwelling Insurance, they do not have the option to purchase sinkhole-specific coverage.
After a Nova Scotia family’s home was destroyed by a sinkhole on September 3, 2017, the owners were shocked to learn their insurance would not cover the loss. Almost two years after it happened, they were still paying the mortgage on the house long after it had been demolished.13
Twenty-three Fraser, Michigan homeowners were temporarily displaced and three homeowners were permanently displaced on Christmas Eve in 2016 by a football field-sized sinkhole that caused $75 million in damages and was later attributed to errors by three contractors.14 “There is no standard, national program in the U.S. to add coverage for sinkholes to Homeowners & Dwelling Insurance policies,” Geilen said. Instead, such coverage is offered on a state-by-state basis and many states offer no sinkhole coverage at all.
“A basic Homeowners & Dwelling Insurance policy will contain an earth movement exclusion for landslides, sinkholes and anything where the earth below the house shifts or moves without any other proximate cause,” Geilen explained.
In Florida, where more sinkholes occur than in any other state in the U.S., a sinkhole epidemic about 10 years ago led the state to mandate the inclusion of “catastrophic ground cover collapse” coverage on all Homeowners & Dwelling Insurance policies.15 A few other states have instituted similar provisions, Geilen said.
Too many home and business owners mistakenly presume that costs to repair sinkhole damage are included in their insurance policy coverages when they are not—they should discuss with their insurance specialist what coverage they have and what additional coverage options are available.
“Florida’s droughts in 2007 created a situation where sinkholes were popping up almost every other day and swallowing up houses. It was a significant problem,” he said. “The mandated coverage means that if a home in Florida is consumed by a sinkhole or condemned by civil authorities, the homeowner’s Homeowners & Dwelling Insurance policy includes coverage for the damages.”
Additional insurance is available in Florida to cover less severe sinkhole damage, including cosmetic issues in a home or small structural issues, like a door that will not shut because the house has become unlevel. Homeowners with this coverage pay an added premium and the first 10 percent of the repair costs in the event of a loss. An insurer may decline to offer additional coverage if sinkhole activity is present on the property or nearby.
“Coverage is subject to underwriter approval; in areas that are sinkhole-prone, it is not uncommon for insurers to decline to offer it,” Geilen said.
Obtaining Homeowners & Dwelling Insurance after a sinkhole has been repaired can also be challenging, Geilen said.
Staying alert to the signs of a sinkhole, such as cracking pavement or circular depressions in the ground, can help to alleviate or protect against a future loss, Sinha added. Anyone concerned with the risk of a sinkhole loss should discuss coverage options with their insurance broker or agent. “Too many home and business owners mistakenly presume that costs to repair sinkhole damage are included in their insurance policy coverages when they are not—they should discuss with their insurance specialist what coverage they have and what additional coverage options are available,” she said. “Their insurance broker or agent is the best resource to help them identify and mitigate their risks from sinkholes.”
1 U.S. Geological Survey. “Sinkholes.” U.S. Department of the Interior. 2 Weary, David J. “The cost of karst subsidence and sinkhole collapse in the United States compared with other natural hazards.” University of South Florida, October 5-6, 2015. 3 U.S. Geological Survey. “National Preparedness Month 2020: Landslides and Sinkholes.” U.S. Department of the Interior, September 29, 2020. 4 Bodenner, Chris. “The Science Behind Florida’s Sinkhole Epidemic.” Smithsonian Magazine, May 24, 2018. 5 Julian, Jack. “N.S. areas prone to sinkholes highlighted in interactive online map.” CBC News, February 28, 2020. 6 Mavrakis, Emily. “ATV riders rescued from High Springs sinkhole.” Gainseville Sun, September 13, 2020. 7 Dickey, Sloan. “Neighbors on east Denver street speak out about numerous sinkholes.” ABC 7 Denver. KMGH, January 16, 2021. 8 Preston, Benjamin. “Sinkhole Beneath National Corvette Museum Devours 8 Cars.” New York Times, February 12, 2014. 9 Holmes, Jake. “Repairing National Corvette Museum Sinkhole to Cost $3.2 Million.” MotorTrend, October 17, 2014. 10 Willing, Jon. “Sinkhole haunts city and RTG as businesses claim six-figure losses in lawsuits.” Ottawa Citizen, July 3, 2018. 11 Pennsylvania Department of Environmental Protection. “Mine Subsidence Insurance.” State of Pennsylvania. 12 Kentucky Department of Insurance. “Mine Subsidence Fund.” State of Kentucky. 13 Kirmse, Nick. “'A hellish journey': N.S. family stuck paying mortgage on home swallowed by sinkhole.” CTV News, March 30, 2019. 14 Cunningham, Darren. “Macomb County announces $12.5 million in Fraser sinkhole case that displaced homeowners.” ABC 7 Detroit. WXYZ, September 29, 2020. 15 Chief Financial Officer of Florida. “Sinkholes and Catastrophic Ground Cover Collapse.” Florida Department of Financial Services, April 2017.