Construction Liens – Proceeds of Insurance
If insured property is subject to construction liens (or potential liens), how are the insurance proceeds to be distributed?
After deducting the amount of premiums paid by the policy holder, the insurance proceeds become trust funds which are to be paid by the recipient (typically the owner or contractor) to the persons who furnished the labor and/or materials to improve the property. Florida Statutes Section 713.32 provides that the recipient of the proceeds is liable for liens or demands for payment provided to the same extent and in the same manner, order of priority, and conditions as the real property or payments under a direct contract would have been, if the improvement had not been damaged, destroyed, or removed. The statute provides that the insurer may pay the proceeds to the insured named in the policy and thereupon any liability of the insurer ceases. The named insured who receives the proceeds is deemed a trustee of the proceeds, and the proceeds are deemed trust funds for a period of 1 year from the date of receipt of the proceeds. This section does not apply to that part of the proceeds of any policy of insurance payable to a person, including a mortgagee, who holds a lien perfected before the recording of the notice of commencement or recommencement.