Subsidence insurance is a type of property insurance that pays out if the land underneath a building subsides, or collapses. When houses are built above or near an abandoned mine, the mine support structure may collapse, destroying houses on top of the mine. Subsidence insurance is useful in other areas where the ground is unstable, even if there is no history of mining in the area.
Some states require property insurance companies to offer subsidence insurance. The state may link the subsidence insurance requirement to the amount of mining in a county. For example, companies that offer Illinois homeowners' insurance policies must offer subsidence coverage if mines cover 1 percent of the county's area unless the homeowner specifically waives this coverage. West Virginia also requires homeowners' insurance companies to offer subsidence coverage in many locations.
Water drainage is another cause of subsidence. A state may require companies to sell subsidence insurance if state residents have drained a water reservoir underneath a housing tract. The risk of subsidence because of water drainage is most common in desert states that experience frequent water shortages, such as California, Arizona, Nevada, and Texas.
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If a homeowner can trace the subsidence to a specific company or government agency's actions, the homeowner may be able to sue this organization for damages. According to the University of Arizona, establishing liability for subsidence is difficult because often many miners have operated in a county in the past, or many water companies extracted water from an area. Mining may not cause the ground above the mine to immediately collapse and the mine that caused the damage may have closed decades ago.
Subsidence insurance can cover both minor structural damage or a total loss. According to the University of Arizona, subsidence can cause small cracks in the foundation, walls, and windows of a building, which the homeowner may not even notice until the subsidence causes additional damage. It's difficult for the homeowner to prove to the insurance company that subsidence caused this damage, instead of other perils such as windstorms or normal wear and tear on the house.
Subsidence insurance is not the same as earthquake insurance. Earthquake insurance specifically covers earthquakes, and it is more widely available because the insurance company can easily confirm that an earthquake knocked a house down. It is also easier for an insurance company's actuaries to calculate the probability of an earthquake occurring along a nearby fault line than it is to calculate if a mine or reservoir, which may not appear on any maps, will collapse.