I write today to explain why insurance companies include the name of contractors on insurance payment drafts, sometimes to the chagrin of policyholders. Unfortunately, in many instances, the homeowner and his/her contractor have come to a disagreement by the time the insurance company is ready to issue the final dwelling payment, usually an amount of recoverable depreciation to be paid upon completion of repairs. When the draft is issued, and provided to the insured, we sometimes receive a request to reissue the draft without the contractor because the contractor will not sign the check because of the dispute with the homeowner.


Should the insurance company list the name of the contractor on the draft? The statute is actually not crystal clear. Tennessee Code Annotated TCA 56-7-111 provides:


Property or casualty insurance — General contractor as a payee


When insured property losses in excess of one thousand dollars ($ 1,000) accrue to the owners of dwellings or other structures insured under policies of property or casualty insurance as defined in § 56-2-201, the insurance company shall name the general contractor, as defined in § 62-6-102, of any uncompleted construction or building contract as a payee on the draft to the owner covering payment for the loss. The insurance company shall name the general contractor as payee on such draft pursuant to this section regardless of whether the work which was performed or is yet to be performed is less than twenty-five thousand dollars ($ 25,000).


Some have tried to argue that this does not require the naming of a restoration contractor on the draft. They argue it only applies when there is building going on at the date and time of loss. I do not think such a construction of the statute in its entirety is correct. We have recently had the opportunity to look at the legislative history of this statute, and I think it supports the proposition that contractors working on repairs must be named if the statute otherwise applies. 


In 1974, the Tennessee House addressed the Bill, which had passed the Senate’s consent calendar without opposition. The House gave only brief consideration to the Bill also. But, what happened in that short period of time gives us a glimpse into the legislative intent behind the statute. During the introduction, Representative Bowman explained that this bill allowed general contractors to be placed as payee on a check so there is “no hold up with payment to the general contractor when he is repairing houses.” 


Then, in 1998, the statute was amended to include the language that appears in the last sentence of the statute “regardless of whether the work which was performed or is yet to be performed is less than twenty-five thousand dollars.” This amendment was brought by Senator Carter, who explained that the Vice Mayor of Jackson (who was a contractor) was repairing property damage as part of an insurance claim, which was valued at less than $25,000. The general contractor was not listed as a payee on the check from the insurance company, and the property owner for whom the repairs were made filed bankruptcy, and the contractor was never paid. His purpose in the amendment was to clarify that a contractor who performed work totaling any amount (even less than $25,000) was entitled to be named as a payee on a check from the insurance company. As the story of Jackson’s Vice Mayor indicates he was repairing a house that had incurred damage, the legislators clearly felt he deserved to have been paid for his work.  


Thus, while the statute is not crystal clear, this history is supportive of the primary interpretation given to the statute. I hope this clears things up for both sides of the argument.