SB326INTRODUCED
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SB326
CN9HWQJ-1
By Senator Melson
RFD: Agriculture, Conservation, and Forestry
First Read: 16-Apr-24
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5 CN9HWQJ-1 04/16/2024 SLU (L)bm 2024-687
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First Read: 16-Apr-24
SYNOPSIS:
Under existing law, Alabama homeowners insurance
providers are not prohibited from offering coverage for
sinkhole loss but are not required to do so. A
"sinkhole" is the collapse of ground cover most often
caused when certain types of underground bedrock is
dissolved by underground water.
This bill would require all homeowners insurance
providers authorized to write homeowners policies in
the state to cover catastrophic ground cover collapse
in all homeowners insurance policies and to offer
coverage for sinkhole loss at the policyholder's option
for an additional premium, subject to certain
restrictions and deductibles imposed by the insurance
provider.
This bill would establish a procedure for
investigating a claim for sinkhole loss coverage in
order to determine the cause and extent of damage to
the property.
This bill would provide the rights and
obligations of the insurance provider, the homeowner,
and the professional service providers engaged in the
investigation process related to providing notices,
filing reports, and paying claims based on the
investigative conclusions.
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investigative conclusions.
A BILL
TO BE ENTITLED
AN ACT
Relating to sinkhole loss insurance coverage; to
require that all homeowners insurance policies cover loss
caused by catastrophic ground cover collapse and to offer
optional coverage for loss due to sinkhole damage; to
establish the procedure for investigating a claim for damage;
and to provide certain rights and obligations of the parties
to a claim based on the outcome of the investigation.
BE IT ENACTED BY THE LEGISLATURE OF ALABAMA:
Section 1. For purposes of this act, the following
terms have the following meanings:
(1) CATASTROPHIC GROUND COVER COLLAPSE. Geological
activity that results in all of the following:
a. The abrupt collapse of the ground cover.
b. A depression in the ground cover clearly visible to
the naked eye.
c. Structural damage to the covered building, including
the foundation.
d. The insured structure being condemned and ordered to
be vacated by the governmental agency authorized by law to
issue such an order for that structure. Contents coverage
applies if there is a loss resulting from a catastrophic
ground cover collapse. Damage consisting merely of the
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ground cover collapse. Damage consisting merely of the
settling or cracking of a foundation, structure, or building
does not constitute a loss resulting from a catastrophic
ground cover collapse.
(2) COVERED BUILDING. A building covered by homeowners
insurance that includes coverage for loss resulting from
sinkholes or from catastrophic ground cover collapse.
(3) LICENSED PROFESSIONAL GEOLOGIST. The same meaning
as defined in Section 34-41-3, Code of Alabama 1975. A
licensed professional geologist must also have experience and
expertise in the identification of sinkhole activity as well
as other potential geologic causes of structural damage.
(4) PERSONAL LINES RESIDENTIAL PROPERTY INSURANCE.
Includes condominium insurance, dwelling fire policies that
provide dwelling or contents coverage, renters or tenants
insurance, and mobile home or manufactured home insurance. The
term excludes creditor placed property insurance and
condominium association or homeowner association property
insurance.
(5) PRIMARY STRUCTURAL MEMBER. A structural element
designed to provide support and stability for the vertical or
lateral loads of the overall structure.
(6) PRIMARY STRUCTURAL SYSTEM. An assemblage of primary
structural members.
(7) PROFESSIONAL ENGINEER. The same meaning as defined
in Section 34-11-1, Code of Alabama 1975. A professional
engineer must also have experience and expertise in the
identification of sinkhole activity or other potential causes
of structural damage.
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of structural damage.
(8) SINKHOLE. A landform created by subsidence of soil,
sediment, or rock as underlying strata are dissolved by
groundwater and formed by collapse into subterranean voids
created by dissolution of limestone or dolostone or by
subsidence as these strata are dissolved.
(9) SINKHOLE ACTIVITY. Settlement or systematic
weakening of the earth supporting a covered building only if
the settlement or systematic weakening results from
contemporaneous movement or raveling of soils, sediments, or
rock materials into subterranean voids created by the effect
of water on a limestone or a similar rock formation.
(10) SINKHOLE LOSS. Structural damage to a covered
building, including the foundation, caused by sinkhole
activity, as well as damage to or loss of contents of a
covered building and additional living expenses.
(11) STRUCTURAL DAMAGE. A covered building, regardless
of the date of its construction, which has experienced the
following:
a. Interior floor displacement or deflection in excess
of acceptable variances as defined by applicable local
ordinance, which results in settlement-related damage to the
interior such that the interior building structure or members
become unfit for service or represents a safety hazard as
defined by applicable local ordinance.
b. Foundation displacement or deflection in excess of
acceptable variances as defined by applicable local ordinance,
which results in settlement-related damage to the primary
structural members or primary structural systems that prevents
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structural members or primary structural systems that prevents
those members or systems from supporting the loads and forces
they were designed to support to the extent that stresses in
those primary structural members or primary structural systems
exceed one and one-third of the nominal strength allowed under
the applicable local ordinance pertaining to new residential
buildings of similar structure, purpose, or location.
c. Damage that results in listing, leaning, or buckling
of the exterior load-bearing walls or other vertical primary
structural members to such an extent that a plumb line passing
through the center of gravity does not fall inside the middle
one-third of the base as defined by applicable local
ordinance.
d. Damage that results in the building, or any portion
of the building containing primary structural members or
primary structural systems, being significantly likely to
imminently collapse because of the movement or instability of
the ground within the influence zone of the supporting ground
within the sheer plane necessary for the purpose of supporting
the building as defined by applicable local ordinance.
e. Damage occurring on or after October 1, 2024, that
qualifies as substantial structural damage as defined by
applicable local ordinance.
Section 2. (a)(1) Every insurer authorized under a
certificate of authority for property insurance and writing
homeowners and other personal lines residential property
insurance policies in the State of Alabama must provide
coverage for a catastrophic ground cover collapse in every
homeowners insurance policy.
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homeowners insurance policy.
(2) The insurer may limit catastrophic ground cover
collapse to the principal building, as defined in the
applicable policy.
(b)(1) The insurer shall make available, for an
appropriate additional premium, coverage for sinkhole losses
on any structure, including the contents of personal property
contained therein, to the extent provided in the form to which
the coverage attaches.
(2) The insurer may restrict sinkhole loss coverage to
the principal building as defined in the applicable policy and
require an inspection of the property before issuance of
sinkhole loss coverage.
(3) A policy for residential property insurance may
include a deductible amount applicable to sinkhole losses
equal to one percent, two percent, five percent, or 10 percent
of the policy dwelling limits, with appropriate premium
discounts offered with each deductible amount.
(4) An insurer offering a policy that excludes coverage
for sinkhole losses must inform policyholders in bold type of
not less than 14 points as follows: "YOUR POLICY PROVIDES
COVERAGE FOR A CATASTROPHIC GROUND COVER COLLAPSE THAT RESULTS
IN THE PROPERTY BEING CONDEMNED AND UNINHABITABLE. OTHERWISE,
YOUR POLICY DOES NOT PROVIDE COVERAGE FOR SINKHOLE LOSSES. YOU
MAY PURCHASE ADDITIONAL COVERAGE FOR SINKHOLE LOSSES FOR AN
ADDITIONAL PREMIUM."
(5) An insurer offering sinkhole coverage to
policyholders before or after the adoption of this act may
nonrenew the policies of policyholders maintaining sinkhole
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nonrenew the policies of policyholders maintaining sinkhole
coverage at the option of the insurer, and provide an offer of
coverage that includes catastrophic ground cover collapse and
excludes sinkhole coverage. Insurers acting in accordance with
this subdivision must satisfy all of the following
requirements:
a. Notify policyholders that a nonrenewal is for
purposes of removing sinkhole coverage, and that the
policyholder is being offered a policy that provides coverage
for catastrophic ground cover collapse.
b. Provide policyholders with an actuarially reasonable
premium credit or discount for the removal of sinkhole
coverage and provision of only catastrophic ground cover
collapse.
c. Subject to the provisions of this subsection and the
insurer's approved underwriting or insurability guidelines,
provide each policyholder with the opportunity to purchase an
endorsement to his or her policy providing sinkhole coverage
and may require an inspection of the property before issuance
of a sinkhole coverage endorsement.
(c) Any claim, including, but not limited to, initial,
supplemental, and reopened claims under an insurance policy
that provides sinkhole coverage is barred unless the insurer
was given notice of the claim in accordance with the terms of
the policy within two years after the policyholder knew or
reasonably should have known about the sinkhole loss.
Section 3. (a) Upon receipt of a claim for a sinkhole
loss to a covered building, an insurer must satisfy each of
the following requirements in investigating a claim:
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the following requirements in investigating a claim:
(1) Inspect the policyholder's premises to determine if
there is structural damage that may be the result of sinkhole
activity.
(2) If the insurer confirms that structural damage
exists but is unable to identify a valid cause of such damage
or discovers that the damage is consistent with sinkhole loss,
the insurer shall engage a professional engineer or a
professional geologist to conduct testing as provided in
Section 4 to determine the cause of the loss within a
reasonable professional probability and issue a report as
provided in Section 5 only if sinkhole loss is covered under
the policy. Except as provided in paragraph (b)(1)c. and
subsection (d), the fees and costs of the professional
engineer or professional geologist shall be paid by the
insurer.
(3) Following the initial inspection of the
policyholder's premises, the insurer shall provide written
notice to the policyholder disclosing all of the following
information:
a. What the insurer has determined to be the cause of
damage, if the insurer has made such a determination.
b. A statement of the circumstances under which the
insurer is required to engage a professional engineer or a
professional geologist to verify or eliminate sinkhole loss
and to engage a professional engineer to make recommendations
regarding land and building stabilization and foundation
repair.
c. A statement regarding the right of the policyholder
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c. A statement regarding the right of the policyholder
to request testing by a professional engineer or a
professional geologist, the circumstances under which the
policyholder may demand certain testing, and the circumstances
under which the policyholder may incur costs associated with
testing.
(b)(1) If the insurer determines that there is no
sinkhole loss, the insurer may deny the claim.
a. If coverage for sinkhole loss is available and the
insurer denies the claim without performing testing under
Section 4, the policyholder may demand testing by the insurer
under Section 4.
b. The policyholder's demand for testing must be
communicated to the insurer in writing within 60 days after
the policyholder's receipt of the insurer's denial of the
claim.
c. The policyholder shall pay 50 percent of the actual
costs of the analyses and services provided under Sections 4
and 5 or two thousand five hundred dollars ($2,500), whichever
is less.
d. The insurer shall reimburse the policyholder for the
costs if the insurer's engineer or geologist provides written
certification pursuant to Section 5 that there is sinkhole
loss.
(2)a. If a sinkhole loss is verified, the insurer shall
pay to stabilize the land and covered building and repair the
foundation in accordance with the recommendations of the
professional engineer engaged pursuant to subdivision (a)(2),
with notice to the policyholder, subject to the coverage and
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with notice to the policyholder, subject to the coverage and
terms of the policy. The insurer shall pay for other repairs
to the structure and contents in accordance with the terms of
the policy. If a covered building suffers a sinkhole loss or a
catastrophic ground cover collapse, the policyholder must
repair such damage or loss in accordance with the insurer's
professional engineer's recommended repairs. However, if the
insurer's professional engineer determines that the repair
cannot be completed within policy limits, the insurer must pay
to complete the repairs recommended by the insurer's
professional engineer or tender the policy limits to the
policyholder.
b. The insurer may limit its total claims payment to
the actual cash value of the sinkhole loss, which does not
include underpinning or grouting or any other repair technique
performed below the existing foundation of the building, until
the policyholder enters into a contract for the performance of
building stabilization or foundation repairs in accordance
with the recommendations set forth in the insurer's report
issued pursuant to Section 5.
c. In order to prevent additional damage to the
building or structure, the policyholder must enter into a
contract for the performance of building stabilization and
foundation repairs within 90 days after the insurance company
confirms coverage for the sinkhole loss and notifies the
policyholder of such confirmation.
d. After the policyholder enters into the contract for
the performance of building stabilization and foundation
repairs, the insurer shall pay the amounts necessary to begin
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repairs, the insurer shall pay the amounts necessary to begin
and perform such repairs as the work is performed and the
expenses are incurred. The insurer may not require the
policyholder to advance payment for such repairs. If repair
covered by a personal lines residential property insurance
policy has begun and the professional engineer selected or
approved by the insurer determines that the repair cannot be
completed within the policy limits, the insurer must complete
the professional engineer's recommended repair or tender the
policy limits to the policyholder without a reduction for the
repair expenses incurred.
e. The stabilization and all other repairs to the
structure and contents must be completed within 12 months
after entering into the contract for repairs described in
paragraph d. unless any of the following occur:
1. There is a mutual agreement between the insurer and
the policyholder.
2. The claim is in litigation.
3. The claim is under appraisal or mediation.
f. Upon the insurer's obtaining the written approval of
any lienholder, the insurer may make payment directly to the
persons selected by the policyholder to perform the land and
building stabilization and foundation repairs. The decision by
the insurer to make payment to such persons does not hold the
insurer liable for the work performed.
(c) The policyholder may not accept a rebate from any
person performing the repairs specified in this section. If a
policyholder receives a rebate, coverage is void and the
policyholder must refund the amount of the rebate to the
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policyholder must refund the amount of the rebate to the
insurer. Any person performing the repairs specified in this
section who offers a rebate commits a Class D felony. As used
in this subsection, the term "rebate" means a remuneration,
payment, gift, discount, or transfer of any item of value to
the policyholder by or on behalf of a person performing the
repairs specified in this section as an incentive or
inducement to obtain repairs performed by that person.
(d) If the insurer obtains written certification
pursuant to Section 5 that there is no sinkhole loss or that
the cause of the damage was not sinkhole activity, and if the
policyholder has submitted the sinkhole claim without good
faith grounds for submitting the claim, the policyholder shall
reimburse the insurer for 50 percent of the actual costs of
the analyses and services provided under Sections 4 and 5;
however, a policyholder is not required to reimburse an
insurer more than two thousand five hundred dollars ($2,500)
with respect to any claim. A policyholder is required to pay
reimbursement under this subsection only if the policyholder
requested the analyses and services pursuant to Sections 4 and
5, and the insurer, before ordering the analyses pursuant to
Section 4, informs the policyholder in writing of the
policyholder's potential liability for reimbursement and gives
the policyholder the opportunity to withdraw the claim.
(e) An insurer may not nonrenew any policy of property
insurance on the basis of filing of claims for sinkhole loss
if the total of such payments does not equal or exceed the
policy limits of coverage for the policy in effect on the date
of loss, for property damage to the covered building as set
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of loss, for property damage to the covered building as set
forth on the declarations page, or if the policyholder
repaired the structure in accordance with the engineering
recommendations made pursuant to subdivision (a)(2) upon which
any payment or policy proceeds were based. If the insurer pays
such limits, the insurer may nonrenew the policy.
(f) The insurer may engage a professional structural
engineer to make recommendations as to the repair of a
structure.
Section 4. A professional engineer and professional
geologist shall perform such tests as sufficient, in their
professional opinion, to determine the presence or absence of
sinkhole loss or other cause of damage within reasonable
professional probability and for the professional engineer to
make recommendations regarding necessary building
stabilization and foundation repair.
Section 5. (a)(1) Upon completion of testing pursuant
to Section 4, the professional engineer or professional
geologist shall issue a report and certification to the
insurer and the policyholder as provided in this section.
(2) Sinkhole loss is verified if, based upon tests
performed pursuant to Section 4, a professional engineer or a
professional geologist issues a written report and
certification providing answers to all of the following:
a. That structural damage to the covered building has
been identified within a reasonable professional probability.
b. That the cause of the structural damage is sinkhole
activity within a reasonable professional probability.
c. That the analyses conducted were of sufficient scope
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c. That the analyses conducted were of sufficient scope
to identify sinkhole activity as the cause of damage within a
reasonable professional probability.
d. A description of the tests performed.
e. A recommendation by the professional engineer of
methods for stabilizing the land and building and for making
repairs to the foundation.
(3) If there is no structural damage or if sinkhole
activity is eliminated as the cause of such damage to the
covered building, the professional engineer or professional
geologist shall issue a written report and certification to
the policyholder and the insurer stating any of the following:
a. That there is no structural damage or the cause of
such damage is not sinkhole activity within a reasonable
professional probability.
b. That the analyses and tests conducted were of
sufficient scope to eliminate sinkhole activity as the cause
of the structural damage within a reasonable professional
probability.
c. The cause of the structural damage within a
reasonable professional probability.
d. A description of the tests performed.
(4) The respective findings, opinions, and
recommendations of the insurer's professional engineer or
professional geologist as to the cause of damage to the
property and the findings, opinions, and recommendations of
the insurer's professional engineer as to land and building
stabilization and foundation repair set forth in this section
shall be presumed correct.
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shall be presumed correct.
(b)(1) An insurer that has paid a claim for a sinkhole
loss shall file a copy of the report and certification,
prepared pursuant to subsection (a), including the legal
description of the real property and the name of the property
owner, which indicates that sinkhole activity caused the
damage claimed, a copy of the certification indicating that
stabilization has been completed, if applicable, and the
amount of the payment, with the county clerk of court, who
shall record the report and certification. The insurer shall
bear the cost of filing and recording one or more reports and
certifications. There shall be no cause of action or liability
against an insurer for compliance with this section.
(2) The recording of the report and certification does
not constitute or create any of the following:
a. A lien, encumbrance, or restriction on the title to
the real property or constitute a defect in the title to the
real property.
b. Any cause of action or liability against any grantor
of the real property for breach of any warranty of good title
or warranty against encumbrances.
c. Any cause of action or liability against any title
insurer that insures the title to the real property.
(3) As a precondition to accepting payment for a
sinkhole loss, the policyholder must file with the judge of
probate for the county where the property is located, a copy
of any sinkhole report regarding the insured property which
was prepared on behalf or at the request of the policyholder.
The policyholder shall bear the cost of filing and recording
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The policyholder shall bear the cost of filing and recording
the sinkhole report. The recording of the report does not
constitute or create any of the following:
a. A lien, encumbrance, or restriction on the title to
the real property or constitute a defect in the title to the
real property.
b. Any cause of action or liability against any grantor
of the real property for breach of any warranty of good title
or warranty against encumbrances.
c. Any cause of action or liability against a title
insurer that insures the title to the real property.
(c)(1) Upon completion of any building stabilization or
foundation repairs for a verified sinkhole loss, the
professional engineer responsible for monitoring the repairs
shall issue a report to the property owner which specifies
what repairs have been performed and certifies within a
reasonable degree of professional probability that such
repairs have been properly performed.
(2) The professional engineer issuing the report shall
file a copy of the report and certification, which includes a
legal description of the real property and the name of the
property owner, with the judge of probate for the county where
the property is located, who shall record the report and
certification. This subsection does not create liability for
an insurer based on any representation or certification by a
professional engineer related to the stabilization or
foundation repairs for the verified sinkhole loss.
(d) The seller of real property upon which a sinkhole
claim has been made by the seller and paid by the insurer must
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claim has been made by the seller and paid by the insurer must
disclose to the buyer of such property, before the closing,
that a claim has been paid and whether or not the full amount
of the proceeds was used to repair the sinkhole damage.
Section 6. This act shall become effective on October
1, 2024.
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