Neutral Evaluation Program for Sinkhole Claims in Florida

Neutral Evaluation Program for Sinkhole Claims in Florida

Fla. Stat. §627.7074 (effective October 1, 2006)

Alternative procedure for resolution of disputed sinkhole claims

Pursuant to Fla. Stat. §627.7074, when an insurer has provided its insured a report under Fla. Stat. 627.7073 ­concerning the existence or non-existence of a sinkhole, or when an insurer has completely denied a claim for a sinkhole loss on any grounds, the insurer must notify the insured within five (5) days thereafter of his or her right to participate in the Neutral Evaluation Program of the Department of Financial Services. This is designed to resolve disputes as to the scope of repairs required to remediate a sinkhole or the underlying existence of a sinkhole when an insurer denies coverage based upon the report of its engineer/geologist. In order for the insurer to first be compliant with Fla. Stat. 627.7073, the report provided to the insured must include the engineer’s or geologist's findings as to the presence or absence of sinkhole activity, a description of the type of tests the engineer/geologist used to eliminate or identify sinkhole activity, a statement of the cause of damage, and if sinkhole activity is present, the recommendations as to land and building stabilization and foundation repairs. When this has been done and the insured disputes the findings or recommendations in the report, this new statute provides a mechanism for resolving those disputes. Along with the notification of the availability of the program, the insurer must also provide to the insured the consumer information pamphlet prepared by the Department which describes the Neutral Evaluation Program and includes information and forms necessary for insured's to request the evaluation.

The evaluation is non-binding, but participation is mandatory if requested by either party. A request for this Neutral Evaluation may be filed with the Department by the insured or the insurer. Filing a request for Neutral Evaluation tolls the applicable time requirements for filing suit for a period of sixty (60) days following the conclusion of the Neutral Evaluation process or the time prescribed in Fla. Stat. 95.11 as the statute of limitations, whichever is later.

The insurer must pay the costs associated with the Neutral Evaluation process, regardless of who invokes it. The evaluation is conducted at a conference with the parties, much like a mediation. It is intended to be a more informal proceeding than a mediation, however. This informal process does not follow the formal rules of evidence and procedure. A party to a Neutral Evaluation is not required to personally attend if a designated representative of the party attends and has the authority to make a binding decision on behalf of the party.

Upon receipt of a request for Neutral Evaluation, the Department shall provide the parties a list of “neutral evaluators.” The parties then select the evaluator and promptly inform the Department. If the parties cannot agree on an evaluator within ten (10) business days, then the Department will appoint one. The conference may be held by telephone, if feasible and desirable. The Neutral Evaluation conference must be held within forty-five (45) days after the receipt of the request by the Department.

If the neutral evaluator first verifies the existence of a sinkhole and recommends stabilizing the land, any covered structures or buildings, and the foundation, along with any appropriate remediation for structural repairs, then if the estimated costs exceed the amount that the insurer has previously offered to pay the insured, the insurer is liable to the insured for up to $2,500 in attorney’s fees for an attorney’s participation in the neutral evaluation process on behalf of the insured, if one has been hired by the insured.

If the insurer timely agrees in writing to accept and comply with the recommendation of the evaluator, but the insured declines to resolve the matter, then the insurer cannot later be held liable for any extra-contractual damages related to a claim for sinkhole loss, but only as to the issues determined by the evaluation process. Also, the insurer is not liable for attorney’s fees under F.S. 627.428 unless the insured subsequently obtains a judgment that is more favorable than the recommendation of the evaluator.

This process does not affect extra-contractual damages unrelated to the issues determined in the evaluation. Essentially, this means damages outside of the scope and cost of repairs. Damages for claim delay issues or allegations of a failure to follow proper claim handling practices will not be barred by acceptance of the recommendations of the neutral evaluator. But for the underlying issues of the existence of a sinkhole and any necessary remediation costs, this will protect an insurer from any exposure to those damages in any subsequent litigation. Ideally, it may prevent the litigation from being filed in the first place.