15.32 Pending Disbursement Clause

15.32.1

Owner Policy

Procedural Rule P-8 requires the inclusion in Schedule B of a "Liability" paragraph in any Owner Policy issued which includes the cost of immediately contemplated improvements. The paragraph reads as follows:

a. Owner Policy

(1) When an Owner Policy is issued in an amount to include the cost of immediately contemplated improvements, the Policy must contain the following exception in Schedule B:

"Any and all liens arising by reason of unpaid bills or claims for work performed or materials furnished in connection with improvements placed, or to be placed, upon the subject land. However, the Company does insure the Insured against loss, if any, sustained by the Insured under this Policy if such liens have been filed with the County Clerk of _________ County, Texas, prior to the date hereof."

AND THE FOLLOWING "LIABILITY" PARAGRAPH:

"Liability hereunder at the date hereof is limited to $__________. Liability shall increase as contemplated improvements are made, so that any loss payable hereunder shall be limited to said sum plus the amount actually expended by the Insured in improvements at the time the loss occurs. Any expenditures made for improvements, subsequent to the date of this policy, will be deemed made as of the date of this policy. In no event shall the liability of the Company hereunder exceed the face amount of this policy. Nothing contained in this paragraph shall be construed as limiting any exception or any printed provision of this policy."

If the premium for the Owner Policy is paid in installments [see Rate Rule 12-2(b) or (c)], then additional language must be added:

In the event the premium for the Owner Policy is paid in installments pursuant to Rate Rule R-2(b) or (c), the following shall be added to the "Liability" paragraph:

"Notwithstanding the foregoing, liability hereunder shall only increase as down-date endorsements are issued pursuant to expenditures made for improvements and as the corresponding fractional premium for the policy and the full premium for the down-date endorsement are paid."

 

 

Procedural Rule P-8 requires the inclusion in Schedule B of a "Liability "paragraph in any Owner Policy issued which includes the cost of immediately contemplated improvements. The paragraph reads as follows:

a. Owner Policy

(1) When an Owner Policy is issued in an amount to include the cost of immediately contemplated improvements, the Policy must contain the following exception in Schedule B:

"Any and all liens arising by reason of unpaid bills or claims for work performed or materials furnished in connection with improvements placed, or to be placed, upon the subject land. However, the Company does insure the Insured against loss, if any, sustained by the Insured under this Policy if such liens have been filed with the County Clerk of _________ County, Texas, prior to the date hereof."

AND THE FOLLOWING "LIABILITY" PARAGRAPH:

"Liability hereunder at the date hereof is limited to $__________. Liability shall increase as contemplated improvements are made, so that any loss payable hereunder shall be limited to said sum plus the amount actually expended by the Insured in improvements at the time the loss occurs. Any expenditures made for improvements, subsequent to the date of this policy, will be deemed made as of the date of this policy. In no event shall the liability of the Company hereunder exceed the face amount of this policy. Nothing contained in this paragraph shall be construed as limiting any exception or any printed provision of this policy."

If the premium for the Owner Policy is paid in installments [see Rate Rule 12-2(b) or (c)], then additional language must be added:

"In the event the premium for the Owner Policy is paid in installments pursuant to Rate Rule R-2(b) or (c), the following shall be added to the "Liability" paragraph:

"Notwithstanding the foregoing, liability hereunder shall only increase as down-date endorsements are issued pursuant to expenditures made for improvements and as the corresponding fractional premium for the policy and the full premium for the down-date endorsement are paid."

15.32.2

Mortgagee Policy

Likewise, in a Mortgagee Policy, where the mortgage is given to include cost of improvements, a "Pending Disbursement" paragraph must be added:

"AND THE FOLLOWING 'PENDING DISBURSEMENT PARAGRAPH:

Pending disbursement of the full proceeds of the loan secured by the lien instrument set forth under Schedule A hereof, this policy insures only to the extent of the amount actually disbursed, but increases as each disbursement is made in good faith and without knowledge of any defects in, or objections to, the title up to the face amount of the policy. Nothing contained in this paragraph shall be construed as limiting any exception under Schedule B, or any printed provision of this policy."

And, if the premium for the Mortgagee Policy is paid in installments [see Rate Rule R-2(a)], the same language required in the Owner Policy is added.

In a situation where a Mortgagee Policy is issued subsequent to the issuance of an Interim Construction Binder, and the improvements are not complete, the Mortgagee Policy must also include the Pending Disbursement clause set out above [P-8.b.(3)].

15.32.3

Deletion of P-8 Exceptions

Upon completion of the improvements, the owner's acceptance and satisfactory evidence that all bills are paid, the pending disbursement clause (as well as the promulgated, mandatory mechanic's lien exception) can be deleted from both or either policy(ies) by using the T-3 endorsement form with the language promulgated in Section II of the Endorsement Instructions at pages 55 and 56.

 


15.32.4

Satisfactory Evidence

Although you are not permitted to give mechanic's lien coverage during the construction period, substantial liability can arise from mechanic's liens filed subsequent to the deletion of the mechanic's lien exception and the pending disbursement clause. Satisfactory proof may include some or all of the following:

  • physical inspection;
  • building code final inspection;
  • occupancy approval;
  • full lien waivers by contractor and all subcontractors;
  • verbal confirmation of payment by contractor and subcontractors.
Recent bulletins will guide you in obtaining the required satisfactory proof.In this regard please review Sec. 12.12 for a discussion of 2012 changes to retainage and obtaining of lien waivers.  Essentially, beginning January 1, 2012 new construction contracts subject to retainage  cannot have the P-8 exceptions removed for 40 days (up from 30 days).

15.32.5

Loan Policy - Construction - Texas

PDCX17 TX STGC
Loan Policy - Construction - Texas

Pending disbursement of the full proceeds of the loan secured by the lien instrument set forth under Schedule A hereof, this policy insures only to the extent of the amount actually disbursed, but increases as each disbursement is made in good faith and without knowledge of any defects in, or objections to, the title up to the face amount of the policy. Nothing contained in this paragraph shall be construed as limiting any exception under Schedule B, or any printed provision of this policy.

Comment: This pending disbursement clause requires underwriter approval. This clause is authorized for use solely in Texas. Before or during construction, you may not delete the promulgated general mechanic's liens exception from a Loan Policy. When a Mortgagee Policy is issued prior to completion of improvements made under a mortgage given in whole, or in part, for the cost of improvements, the policy must also contain the following exception under Schedule B, prior to the above-referenced pending disbursement clause:

Any and all liens arising by reason of unpaid bills or claims for work performed or materials furnished in connection with improvements placed, or to be placed, upon the subject land. However, the Company does insure the Insured against loss, if any, sustained by the Insured under this Policy if such liens have been filed with the County Clerk of __________County, Texas, prior to the date hereof.