What Is Encompassed by These Endorsements?

Summary: Loss resulting from mine subsidence and sinkhole collapse are excluded causes of loss on most homeowners forms. Coverage can be purchased for this exposure when allowed (or mandated) by law or when an insurer elects to include coverage. For example, the American Association of Insurance Services (AAIS) Form HO 0003 includes coverage for loss to personal property caused by sinkhole collapse. This article discusses coverage for loss caused by mine subsidence and sinkhole collapse and the Insurance Services Office (ISO) endorsements used to provide coverage.

Topics covered: Introduction Mine subsidence overview Indiana endorsement HO 23 83 Illinois endorsements HO 23 88 and HO 23 98 Kentucky endorsements HO 23 84 and HO 23 87 West Virginia endorsement HO 23 31 08 95 Sinkhole collapse

Generic endorsement Florida coverage Tennessee endorsement HO 25 99

Sinkhole collapse: court findings

Recent developments

Introduction

Sinkholes are caused by the erosion of rocks underlying the soil that have been eroded by water. Areas rich in limestone are known for sinkholes, as limestone erodes easily in water. This erosion causes large caverns underground which then make it possible for the earth overhead, called overburden, to collapse into the hole. Sinkholes can be any size, ranging from less than 100 feet to covering several miles.

Subsidence, on the other hand, tends to occur when the surface settles or sinks due to subsurface movement of earth materials. The removal of material from mining operations is a common cause of subsidence.

The Insurance Services Office (ISO) 1991 homeowners forms excluded coverage for “earth movement, meaning…mine subsidence; earth sinking, rising or shifting.” Therefore, loss caused by these occurrences was excluded unless coverage was specifically endorsed onto the policy. But with the Homeowners 2000 program, the exclusion was changed to exclude loss resulting from “b. Landslide, mudslide or mudflow; c. Subsidence or sinkhole. The ISO 2011 homeowners forms contain the same exclusion. In order to make the point that subsidence encompasses subsidence resulting from a mine's cave-in, the mandatory special provisions for many states amend the definition of earth movement. See, for example, HO 01 01 09 00 Special Provisions – Alabama, which states that earth movement means “earthquake, including land shock waves or tremors before, during or after a volcanic eruption; landslide; mine subsidence; mudflow; earth sinking, rising or shifting.”

Four states—Illinois, Indiana, Kentucky, and West Virginia—offer coverage for loss caused by mine subsidence through use of special endorsements to standard ISO homeowners forms. Indiana, Kentucky, and West Virginia specifically limit coverage to damage arising out of coal mine subsidence. Illinois includes coverage for loss or damage caused by subsidence of coal, clay, limestone, or fluorspar mines, but adds that this list is not inclusive.

Some states offer coverage for loss resulting from mine subsidence directly through the state itself, such as Pennsylvania's Coal and Clay Mine Subsidence Insurance Fund, whose Web site is www.pamsi.org. Pennsylvania offers coverage for both residential and nonresidential risks up to $500,000.

Ohio offers coverage up to the homeowners limit or $300,000, whichever is greater, for homes in thirty-seven eligible counties through the Ohio Mine Subsidence Insurance Underwriting Association (administered by the Ohio Fair Plan). See www.ohiominesubsidence.com.

Colorado provides protection through a fund only for residences built prior to February 22, 1989, which have been identified as being in a subsidence prone area. This is technically not an insurance program. The homeowner must pay for an inspection to enroll and pay an annual fee for four years. After that, no fee is required from the original participant. See www.mining.state.co.us.

Coverage for loss caused by sinkhole collapse may be purchased where allowed. Florida has mandated (Fla. Stat. §627.706) that homeowners forms include coverage for loss caused by sinkhole collapse (discussed later in this article). Some other states must offer it. For example, Tennessee law states, “Every insurer offering homeowner property insurance in this state shall make available coverage for insurable sinkhole losses on any dwelling, including contents of personal property contained in the dwelling, to the extent provided in the policy to which the sinkhole coverage attaches.” (TCA §56-7-130)

The AAIS homeowners HO 0003 01 06 covers sinkhole collapse damage to personal property.

Mine Subsidence Overview

Exactly what is, and is not, covered is sometimes a matter of discussion. In the states that offer mine subsidence coverage by endorsement, mine subsidence is defined in the form. And, although dealing with the same sort of occurrence—the ground on which a residence (or other structure) stands giving way—the method of settling these losses varies.

All of the endorsements provide coverage for direct physical loss to structures caused by mine subsidence. This does not include other loss arising out of the loss to the dwelling, such as for personal property, additional living expense, or loss in value. Unlike the endorsement for sinkhole collapse, which amends the excluded peril of earth movement, adding coverage for mine subsidence does not. These endorsements simply offer a means to recover for loss to the dwelling (or a related structure) itself.

In Burnett. v. Cincinnati Ins. Co., 690 N.E.2d 747 (Ind. App. Ct. 1998), the insureds had a homeowners policy endorsed with mine subsidence coverage. Their home sustained such severe damage that $75,000—the maximum amount of coverage available— was reached. The insureds argued that the entire loss should be covered, and they should receive additional coverage under other provisions of the policy, such as for personal property. The court said that the insurer's failure to explicitly exclude coverage for personal property or loss of use in the mine subsidence endorsement did not mean the insureds by default gained coverage. Rather, the court found for the insurer, stating that the insureds had presented no evidence or argument that personal property and additional living expense should be covered.

The definition of mine subsidence differs among the states offering the coverage. In Illinois, mine subsidence means “lateral or vertical ground movement caused by a failure initiated at the mine level of man-made underground mines, including but not limited to coal mines, clay mines, limestone mines and fluorspar mines, that directly damages residences, including unscheduled other structures or scheduled other structures.” Unlike mineral-rich Illinois, Indiana, Kentucky, and West Virginia limit the coverage to subsidence of coal mines. In Indiana 's endorsement, mine subsidence means “the collapse of inactive underground coal mines, abandoned before August 3, 1977, resulting in damage to a 'structure'.” Mine subsidence in Kentucky means “the collapse of underground coal mines resulting in direct damage to a 'structure'.” The West Virginia endorsement is similar to the Illinois endorsement in that the loss must be caused by “lateral or vertical movement, including collapse which results therefrom.” The definition of structure will be discussed in the appropriate state discussions.

What mine subsidence is not is equally clear in these endorsements. The Illinois endorsement specifies that mine subsidence is not lateral or vertical ground movement caused by (a) earthquake, landslide, volcanic eruption; or (b) soil conditions, soil erosion, soil freezing or thawing, improperly compacted soil, construction defects, roots of trees or shrubs; or (c) collapse of storm or sewer drains or rapid transit tunnels. Both Kentucky's and Indiana's endorsements exclude loss caused by earthquake or earth movement, landslide or volcanic eruption; or collapse of storm or sewer drains. Additionally, Kentucky excludes loss caused by water seepage.

Although the amount of coverage purchased may vary, ultimately the limit of liability for all the mine subsidence forms is governed by amounts available in the state mine subsidence funds to reimburse the insurer. For example, in Illinois, coverage may be purchased for an aggregate amount in any one occurrence of not more than the coverage A dwelling limit of liability or $750,000 ($350,000 for commercial property), whichever is less. However, the loss settlement provision states that the limit of liability in any one mine subsidence occurrence will not be more than the amount available in the Illinois Mine Subsidence Residential Insurance Sub-fund to reimburse the insurer.

One of the most interesting aspects of this coverage is the treatment of land following a loss. Kentucky's and Indiana 's endorsements emphasize that the endorsement does not provide insurance for the cost of filling land. Possibly this treatment arose from the realization that coal mines, with series upon series of tunnels, can extend deep into the ground, and that the cost of filling would be prohibitive.

Indiana Endorsement, HO 23 83 09 01

The endorsement used in Indiana to provide coverage is HO 23 83, Mine Subsidence Coverage – Indiana. The insured may request this coverage prior to policy issuance or renewal. The insurer need not offer the coverage unless so requested. The dwelling to be insured must be located in an eligible county (consult state exception rules) and not unrepaired following an earlier mine subsidence incident.

The endorsement provides coverage for structures but not for land, crops, or other plants. A structure is defined as a “dwelling, building or fixture permanently affixed to real property.” Dwellings, fixtures, or buildings owned by a public or government entity cannot be covered by this endorsement.

A covered loss is settled at the smallest of $200,000 for each structure; the limit of liability applicable under the endorsement; the actual cash value at the time of the loss; or the amount available in the Mine Subsidence Insurance Fund available to reimburse the insurer. There is a deductible of 2 percent of the limit of liability applying to a covered structure, but in no case less than $250 or more than $500. No other deductible in the policy applies to a loss covered by the endorsement.

The earth movement exclusion does not apply to loss caused by mine subsidence.

The AAIS endorsement for mine subsidence in Indiana is CL 0332 01 01. It is similar to the ISO endorsement, but specifically states that the insurer will pay the cost to remove the debris of structures following loss caused by mine subsidence.

Illinois Endorsements, HO 23 88 06 12 and HO 23 98 06 12

Illinois endorsement HO 23 88, Mine Subsidence Residence and Other Structures – Illinois, is designed to cover the residence at the location described in the declarations. A residence can include a one to four family dwelling, and unscheduled driveways, sidewalks, basements, footings, foundations, septic systems, and underground pipes directly servicing the dwelling. Living units are not included within the definition. These are insured on HO 23 98, discussed later. If the Permitted Incidental Occupancies – Residence Premises endorsement, HO 04 42 10 00, is attached to the policy, the definition also includes any building or structure on the residence premises from which the permitted business is conducted. This endorsement specifically states that personal property, land, lawns, plants, shrubs, trees, crops, parking lots, and agricultural field drainage tiles are not covered.

Loss settlement is limited to no more than the coverage A amount, $750,000, or the amount of insurance available in the Illinois Mine Subsidence Residential Insurance Sub-fund, whichever is least. This is an aggregate amount for any one occurrence. The insured can schedule structures other than the residence building, in which case the scheduled amount applies to that structure only.

Endorsement HO 23 98, Mine Subsidence – Living Units Only – Illinois, is designed to cover living units such as condominium or cooperative apartment units. Living units are defined as “that physical portion designated for separate ownership or occupancy for residential purposes, of a building or group of buildings, permanently affixed to realty in Illinois , having elements which are owned or used in common, including a condominium unit, a cooperative unit or any other similar unit.” The endorsement covers direct physical loss to improvements, alterations, or additions, and reimbursement of additional living expenses reasonably and necessarily incurred by the insured. The form also covers loss assessment within the total limit of insurance.

Loss settlement is limited to the least of the total amount of insurance provided in the policy for additions and alterations and reimbursement for additional living expenses, $15,000, or the amount available in the Illinois Mine Subsidence Residential Insurance Sub-fund to reimburse the insurer.

Kentucky Endorsements, HO 23 84 12 10 and HO 23 87 12 10

Coverage for coal mine subsidence must be offered on all real property in all qualified locations. (For a list of qualified locations, consult the state exception rules.) When all structures insured under a given homeowners form are to be covered for loss resulting from coal mine subsidence, endorsement HO 23 84, Mine Subsidence Coverage Endorsement – Kentucky, is to be used. The limit of liability applying to the dwelling is scheduled, and 10 percent of that amount may be applied to cover loss to other structures covered under coverage B. The maximum amount reinsured by the Kentucky Coal Mine Subsidence Fund is $300,000, in accordance with loss settlement provisions that state that no more than the least of $300,000; the limit of liability shown in the schedule; or the amount available in the Mine Subsidence Insurance Fund to reimburse the insurer will be paid. In the Kentucky endorsement, a structure means “a dwelling, building or fixture permanently affixed to realty, but does not include land, trees, plants or crops.” Payment for debris removal is included in the limit shown on the schedule. If a covered loss occurs, up to $25,000 is available for additional living expense.

When specific structures are to be covered, endorsement HO 23 87, Mine Subsidence Coverage Endorsement – Kentucky, is used. This endorsement requires scheduling the structure(s), with an applicable limit of insurance. In event of a covered loss, the insurer pays no more than $300,000 for any structure, the scheduled limit of liability, or the amount available in the Mine Subsidence Insurance Fund to reimburse the insurer. Additional living expense up to $25,000 is also available.

Each endorsement contains a special deductible of 2 percent of the limit of liability shown in the endorsement's schedule, but no less than $250 nor more than $500.

As is the case with the other endorsements, neither of these provides coverage for land, trees, plants, or crops

.

West Virginia Endorsements, HO 23 31 12 08 and HO 23 32 12 08

In West Virginia, coverage for loss caused by coal mine subsidence must be provided unless waived by the insured except in fifteen counties where coverage must be provided only upon the insured's request. Coverage may be purchased for dwelling structures, in which case endorsement HO 32 31, Coal Mine Subsidence Coverage Part – West Virginia (Dwelling Structures), is to be used, or for non-dwelling structures, in which case endorsement HO 23 32, Coal Mine Subsidence Coverage Part – West Virginia (Non-Dwelling Structures), is used.

Endorsement HO 23 31 defines structure as “any insured dwelling building, or fixture permanently affixed to realty in West Virginia, including cost of excavations, grading, or filling; basements, footings, foundations, septic systems; and underground pipes directly servicing the structure.” Driveways, sidewalks, parking lots, land, trees, plants, crops, or agricultural field drainage tile are not covered. Up to 10 percent of the mine subsidence insurance applicable to the dwelling may be applied to buildings on the premises used exclusively for private purposes. A maximum of $75,000 is available. A deductible of $250 applies. The West Virginia valued policy law does not apply to this insurance.

Endorsement HO 23 32 provides coverage for direct loss to a non-dwelling structure caused by coal mine subsidence. A structure is any insured building or fixture permanently affixed to realty located in West Virginia. Similarly to HO 23 31, the coverage applies to the cost of excavations, grading or filling; basements, footings, foundations, septic systems; and underground pipes directly servicing the structure. Property not covered is the same as that in HO 23 31. The maximum amount available is $75,000. A $250 deductible applies.

Sinkhole Collapse

The Sinkhole Collapse endorsement is HO 04 99 10 00, but Oregon uses endorsement HO 04 99 02 00. The following discussion examines the coverages provided by the current editions of the ISO endorsements and reviews some judicial thinking on the issues surrounding sinkhole collapse.

Generic Endorsement HO 04 99 10 00

A generic endorsement can be used in all states. It defines “sinkhole collapse” as “actual physical damage arising out of or caused by sudden settlement or collapse of the earth supporting such property. The settlement or collapse must result from subterranean voids created by the action of water on limestone or similar rock formations.” The definition of “sinkhole” makes it clear that only sinkholes caused by erosion are covered and that mining and other actions are not. The earth movement exclusion does not apply to loss caused by sinkhole collapse.

Oregon uses a different edition of this form, the HO 04 99 02 00. The wording is the same except that it includes a subheading that includes restrictions or abridgments.

Florida Coverage

As previously noted, coverage for loss resulting from sinkhole collapse is available under endorsement HO 04 99, where permitted. This endorsement may be attached to all homeowners forms except HO 00 04 05 11 and HO 00 06 05 11. Attaching the Sinkhole Collapse endorsement to a homeowners policy amends the earth movement exclusion so that it does not apply to sinkhole collapse.

The Special Provisions – Florida endorsement, HO 01 09 10 12, adds the peril of sinkhole collapse as a covered cause of loss for personal property. Sinkhole collapse is called “catastrophic ground cover collapse” in the endorsement and means “geological activity that results in all of the following: the abrupt collapse of the ground cover; a depression in the ground cover clearly visible to the naked eye; structural damage of the principal building structure insured under the policy, including the foundation; and the principal building being condemned and ordered to be vacated by the governmental agency authorized by law to issue such an order for that building or structure.” So, suspicions of a possible sinkhole will not trigger coverage; the dwelling must actually sustain damage as outlined for coverage to apply.

On the Sinkhole Loss Coverage – Florida endorsement, HO 23 94 10 12, sinkhole loss means structural damage to the principal building or foundation arising out of or caused by sinkhole activity. In turn, sinkhole activity means “settlement or systematic weakening of the earth supporting the covered building. The settlement or systematic weakening must result from contemporaneous movement or raveling of soils, sediments or rock material into subterranean voids created by the effect of water on limestone or similar rock formations.” Raveling of soil is when water transports soil particles downward into cavities in the underlying layers.

In addition to coverage for buildings insured under coverage A or B, the insurer will pay the costs incurred to stabilize the land and building and repair the foundation in accordance with the recommendations of a professional engineer who has verified the presence of the sinkhole loss in compliance with Florida sinkhole testing standards. The loss settlement provisions state that the insurer will pay no more than the actual cash value of the damaged property until the insured enters into a contract for the performance of building stabilization or foundation repairs. Once the contract has been entered into, the insurer will pay the amount necessary to begin and perform the repairs as work progresses and as expenses are incurred. If repairs have begun and a professional engineer (who must have been selected or approved by the insurer) determines that the cost of repairs exceeds policy limits, the insurer must either complete the repairs or pay the limits without a reduction for the repair expenses already incurred. The endorsement replaces the appraisal provision with respect to this coverage by a neutral evaluation provision.

Tennessee Coverage HO 25 99 07 15

The Tennessee endorsement was developed in 2014 to provide coverage for sinkholes. The endorsement adds a number of definitions to the policy and provides coverage for direct physical loss to property caused by a “sinkhole loss” as defined. The first is “covered structure”, which is any structure and personal property to the extent covered under the policy. “Primary structural member” is a structural element designed to support and stabilize the vertical or lateral loads of the structure; load bearing walls, for example. An assembly of primary structural members becomes a “primary structural system”.

“Sinkhole activity” is defined here the same way it is in the Florida endorsement; settlement or weakening of the earth supporting a covered structure, which results from contemporaneous movement or raveling of soil, sediments or rock materials into voids created by erosion on limestone or similar formations. A “sinkhole loss” is the damage that results when the ground under the dwelling collapses into a sinkhole. “structural damage” is foundation displacement which results in floor displacement in excess of acceptable building standards, and damage to primary structural members is as it sounds, damage to such load bearing walls or supports that results in their failing to meet the strength and performance requirements set forth in building codes. Structural damage also results in the occupancy being prohibited by a government agency because the dwelling is now unsafe. The earth movement exclusion does not apply.

Sinkhole Collapse: Court Findings

In two instances courts have upheld the definition of sinkhole collapse (settlement or collapse resulting from subterranean voids created by the action of water on limestone or similar rock formations) as being clear and unambiguous. In Dupps v. Travelers Ins. Co., 80 F.3d 312 (8th Cir. 1996), the insureds' Arkansas home was situated in front of a thirty-foot high bluff. Near the top of the bluff was a cave. The roof of the cave partially collapsed, sending boulders onto the insureds' property and damaging their home. Although the insureds' homeowners policy included coverage for sinkhole collapse, the appellate court did not agree with the Dupps' contention that the cave roof's collapse must have been a consequence of sinkhole collapse. Indeed, stated the court, the policy clearly excluded loss caused directly or indirectly by earth movement (other than sinkhole collapse), such as landslide. The judge quoted the Random House Dictionary, Second Edition for the meaning of “landslide”: “the downward falling or sliding of a mass of soil, detritus, or rock on or from a steep slope” and found there was no coverage.

In Cincinnati Ins. Co. v. Wiltshire, 472 So. 2d 1276 (Fla. App. Ct. 1985), the court found for the insurer. Cone-shaped holes developed under the paved parking area adjacent to the insureds' home, and portions of the area finally collapsed into the holes. Although the insureds' homeowners policy included sinkhole collapse coverage, expert witnesses for both the appellant and appellee testified that the cause of the cone-shaped holes was sand displacement, and thus the holes were not sinkholes in the geological sense. Sinkholes are formed by the carbon dioxide in water dissolving calcium carbonate in limestone; the limestone is dissolved and land above it collapses. The holes on the Wiltshire property did not meet this description, and therefore coverage was precluded.

But a more recent case, Betz v. Erie Ins. Exchange, 957 A.2d 1244 (Pa. Super. 2008) determined that the definition was ambiguous. The insureds had purchased sinkhole collapse coverage, which contained the common definition. The court noted that the endorsement mentioned limestone or similar rock formations, but did not describe in what manner rock formations other than limestone had to be similar to limestone. Additionally, the endorsement did not name any type of rock other than limestone, and an insured could not be expected to investigate the geology underlying his property and educate himself on the mechanics of sinkholes when deciding whether to purchase the endorsement. The court therefore found for the insured.

One case addressed the meaning of sudden contained in the definition. In Zimmer v. Aetna Ins. Co., 383 So. 2d 992 (Fla. App. Ct. 1980), the court found that the purpose of the legislation was carried out through use of the word sudden, extending coverage both to those sinkholes instantaneously appearing, and those gradually appearing. The court looked to the definition of sudden in Black's Law Dictionary (5th Edition): “happening without previous notice or with very brief notice; coming or occurring unexpectedly; unforeseen; unprepared for.”

Unlike the mine subsidence endorsements, coverage is provided up to the policy's limit of liability. As the judge in the Zimmer case noted, perhaps facetiously, “sinkhole losses did not prove to be burdensome to the insurance industry. An order of the Insurance Commissioner dated April 26, 1973, recited that during the first three years of the plan for equitable apportionment of losses between insurers, there had not been a single loss. The order concluded that the administrative costs of the plan were disproportionately excessive in relation to losses incurred or anticipated.”

It is interesting to note that the ISO commercial property causes of loss forms CP 10 10 10 12, CP 10 20 10 12, and CP 10 30 10 12 include coverage for direct physical loss to property resulting from sinkhole collapse. (But see the Florida Changes endorsement, CP 01 25; sinkhole loss as defined in Florida law is not provided by the unendorsed forms.) In York Ins. Co. v. Williams Seafood of Albany, Inc., 544 S.E.2d 156 ( Ga. 2001) the insured's restaurant collapsed into a sinkhole caused by a flood. Flood is an excluded peril on the commercial property forms, as it is on the homeowners forms. However, because of the placement of the covered peril of sinkhole collapse in the form, as an additional coverage (section D) with its own set of exclusions, the court held that the exclusions and limitations (sections B. and C.) that applied to section A were not applicable. Therefore, the sinkhole coverage was not limited by the exclusion for damage by flood.

Recent Developments

The Florida senate has approved a bill that enables carriers to sell standalone sinkhole policies for damages that are not quite a catastrophic loss. It would allow individuals to buy coverage separately from their homeowners insurance. However, the bill lacks specifications on rate-setting authority, making it one of the few personal lines products that the insurance department did not have to approve. The department has concerns that the required $7.5 million capital requirement is too low.

Meanwhile, the Missouri Department of Insurance has announced a decrease in premiums for sinkhole coverage. The decrease is significant; whereas previously coverage for $200,000 would have cost $2,010 annually, that same coverage will now be $313. This coverage is through the FAIR plan.