7.4 Sinkhole Investigation, Neutral Evaluation and Stabilization Repairs

Professional Geological Testing & Investigation Protocols (F.S. § 627.707)

When an insured files a property damage claim alleging sinkhole damage, the adjuster cannot simply accept or deny the claim based on a visual surface inspection. Florida law establishes strict technical investigation protocols:

The Statutory Investigation Mandate

• If an insurer inspects a reported loss and cannot confirm that sinkhole activity was absent, the insurer must engage a licensed professional geotechnical engineer or a licensed professional geologist to conduct formal subterranean testing.
• Geotechnical Testing Methods: The investigation typically includes:
  • Standard Penetration Testing (SPT): Soil borings drilled deep into subterranean layers to measure soil density and resistance.
  • Electrical Resistivity Imaging (ERI): Non-invasive surface electrical conductivity testing to map subsurface limestone anomalies and void spaces.
  • Ground-Penetrating Radar (GPR): High-frequency radio wave imaging to detect shallow subterranean cavities.
  • Hand Augers & Floor Level Surveys: High-precision optical measurements tracking differential slab settlement.

Professional Certification of Findings

The engineer or geologist must issue a formal written engineering report stating whether sinkhole activity caused the structural damage within a reasonable degree of professional probability. If the expert confirms sinkhole activity, the report must include comprehensive repair and foundation stabilization recommendations.

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The DFS Neutral Evaluation Program (F.S. § 627.7074)

To curb expensive, protracted litigation between policyholders and insurance companies over sinkhole claims, the Florida Legislature enacted Florida Statute § 627.7074, creating the Neutral Evaluation Program administered by the Florida Department of Financial Services (DFS).

How Neutral Evaluation Works

• Eligibility: Either the insurer or the policyholder may request neutral evaluation following a sinkhole claim denial or a dispute regarding the scope or method of structural repairs.
• Selection of Evaluator: The DFS maintains a registry of certified, independent neutral evaluators who are licensed professional engineers or geologists with proven sinkhole investigation expertise and no financial affiliation with either party.
• Automatic Stay of Litigation: Once neutral evaluation is invoked, any pending lawsuit between the parties is automatically stayed (frozen) until the neutral evaluation process concludes.
• Informal, Non-Binding Process: The neutral evaluator reviews all investigative reports, conducts an on-site physical inspection of the insured premises, and issues a formal written evaluation. While the finding is non-binding, the neutral evaluator's written report is admissible as evidence in any subsequent civil litigation.
• Cost of Neutral Evaluation: The insurer is statutorily required to pay the entire cost of the neutral evaluation; the policyholder pays nothing.

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Statutory Repair & Stabilization Contract Mandates

Prior to statutory reforms, Florida experienced widespread insurance fraud where property owners collected substantial six-figure cash payouts for alleged sinkhole claims, failed to perform subsurface repairs, and sold the damaged homes to unsuspecting buyers.

To permanently eliminate this moral hazard, the Legislature enacted strict statutory payment restrictions under Florida Statute § 627.707(5):

Direct Payment & Repair Covenants

1. No Direct Cash Buyouts for Subsurface Work: The insurer is statutorily prohibited from making a direct cash payment to the insured for subsurface stabilization or foundation grouting until the insured enters into a legally binding contract.
2. Binding Repair Contract Requirement: The policyholder must enter into a formal contract with a licensed professional stabilization contractor to perform the subterranean grouting and foundation repairs specified in the insurer's engineering report.
3. 90-Day Execution Window: The policyholder must execute this repair contract within 90 days after the insurer confirms coverage and provides the stabilization plan.
4. Progress Payments: The insurer must pay the stabilization contractor directly according to the terms of the contract, or issue joint checks to the insured and the contractor as repair milestones are completed and verified by the monitoring geotechnical engineer.
5. Above-Ground Cosmetic Repairs: The insurer may withhold payment for above-ground cosmetic repairs (drywall patching, tile replacement, painting) until the subsurface ground stabilization and foundation underpinning work is fully completed and certified by the supervising engineer.

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Statutory Sinkhole Claim Deadlines and Reports

Florida layers sinkhole-specific deadlines on top of the ordinary property claim rules, and an adjuster who misses them can forfeit a defense.

Filing Deadline for a Sinkhole Claim

Under F.S. § 627.706(5), a claim for a sinkhole loss — including a supplemental claim or a reopened claim — is barred unless notice is given to the insurer within 2 years after the policyholder knew or reasonably should have known about the sinkhole loss. Note the divergence from the general property rule in F.S. § 627.70132: the sinkhole clock runs from discovery, not from the date of loss, and it runs for two years rather than one.

The Insurer's Investigation Duties

When an insured reports a sinkhole loss, the insurer must meet its statutory obligations under F.S. § 627.70131 for inspecting and evaluating the claim before it may deny. If, after that inspection, the insurer cannot identify a valid reason to deny the claim, it must engage a professional engineer or professional geologist to conduct testing under F.S. § 627.7072 sufficient to determine the cause of distress and whether sinkhole activity is present.

• § 627.7072 — Testing standards. The professional engineer and professional geologist must perform such tests as are sufficient, in their professional opinion, to determine the presence or absence of sinkhole loss or another cause of damage within reasonable professional probability, and to allow the engineer to recommend the necessary building stabilization and foundation repair.
• § 627.7073 — The report and certification. A sinkhole loss is verified only if the engineer or geologist certifies in writing that structural damage has been identified within reasonable professional probability, that sinkhole activity caused it within reasonable professional probability, that the analyses were of sufficient scope, plus a description of the tests and recommended stabilization and foundation repair methods. Those findings, opinions and recommendations are presumed correct, which shapes both litigation posture and neutral evaluation.
• Recording the report. An insurer that has paid a sinkhole claim must file a copy of the report and certification with the county clerk of court, along with the legal description, the owner's name, any neutral evaluator's report, any certification that stabilization is complete, and the amount paid. The insurer bears the recording cost. Recording does not create a lien or encumbrance, but it does put the sinkhole history into the public record for future buyers and underwriters.
• Denials. If the report finds no sinkhole activity, the insurer may deny and must send the report with the denial.

Cost Allocation for Testing (F.S. § 627.707(4) and (6))

If sinkhole coverage is available and the insurer denies the claim without performing testing, the policyholder may demand testing. The demand must be in writing within 60 days after the policyholder receives the denial. The policyholder pays 50% of the actual cost of the analyses and services, or $2,500, whichever is less, and the insurer must reimburse that amount if its engineer or geologist certifies a sinkhole loss.

The rule runs the other way too. If the certification finds no sinkhole loss and the policyholder submitted the claim without good-faith grounds, the policyholder must reimburse the insurer 50% of the actual testing cost, capped at $2,500 per claim — but only if the policyholder requested the analysis and the insurer warned the policyholder of that reimbursement obligation in writing before ordering it.

Payment Sequencing on a Confirmed Sinkhole Loss

The statutory payment order under F.S. § 627.707(5) protects the structural repair:

1. The insurer may limit its total payment to the actual cash value of the sinkhole loss — the amount excluding the cost of building stabilization and foundation repair — until the policyholder enters into a contract for those repairs.
2. Once the contract is executed, the insurer pays the stabilization and foundation contractor directly in accordance with the repair schedule, and the work must begin within a reasonable period after the contract is signed.
3. The policyholder may not accept a cash payment in lieu of subsurface repairs on a confirmed sinkhole claim, which is the reform that ended the practice of pocketing the money and selling the house.