Data processing: financial – business practice – management – or co – Automated electrical financial or business practice or... – Insurance
Reexamination Certificate
2000-03-03
2001-05-22
Millin, Vincent (Department: 2164)
Data processing: financial, business practice, management, or co
Automated electrical financial or business practice or...
Insurance
C705S035000, C705S03600T, C705S037000, C705S038000, C705S039000
Reexamination Certificate
active
06236973
ABSTRACT:
TECHNICAL FIELD
The present invention relates to insuring construction loans made by lending institutions. More particularly, the present invention relates to apparatus and methods for initiating, reporting, and verifying insurance coverage on portfolios of construction loan collateral for lending institutions and insurance carriers.
BACKGROUND OF THE INVENTION
Lending institutions provide construction loans by which contractors fund the purchase of building materials and labor for erecting buildings. Buildings being constructed pass through various phases, from clearing land, foundation, framing, interior construction, installation of fixtures, painting and flooring, and completion activities. Each phase reflects an increasing amount of capital investment necessary to fund the building materials and labor for construction using the building materials. The funds required for the building materials and labor are drawn by the contractor from the loan approved in advance by the lending institution for the particular construction project. Often, contractors have a number of on-going construction projects; for example, a number of individual residential houses being constructed at one or more subdivisions. Each project is subject to a separate construction loan.
The lending institution is concerned with repayment of the construction loan. Typically, construction loans are repaid at a closing when the purchaser accepts the constructed property and makes payment for the purchase and sale of the constructed property. For most purchasers, the construction loan made by the lending institution is paid from proceeds derived by the purchaser from a purchase money loan from a lending institution. The purchase money loan is then subject to the repayment terms of the loan. During construction, however, the contractor opening the construction loan is responsible for repayment of funds advanced from the lending institution to the contractor. As discussed above, the construction activities by the contractor reflect increased financial exposure by the lending institution to a partially-constructed building. To assure repayment of the advanced funds in the event of failure to complete the construction project, lending institutions require the contractor have adequate insurance for destruction or loss incurred to the partially constructed building during the course of constructing the project for which the lending institution is advancing funds. The lending institution also periodically inspects the property to assure that the funds being advanced to the contractor are being used to provide the building materials and labor for the construction of the building.
Generally, construction projects are protected under an insurance policy known as a builders' risk insurance policy. This insurance policy is written by an insurance carrier for each of the particular individual projects. The insurance policy is made in the name of either the contractor, the owner, or both of these parties, and provides that the lending institution funding the construction is listed as the as the mortgagee or loss payee. In the event of a documented loss such as destruction of the partially constructed building during the course of construction, the proceeds of the insurance policy are paid to the lending institution. Each project accordingly is subject to not only a separate construction loan from a lending institution, but also to a separate insurance policy from an insurance carrier.
While the described construction loan insurance program has been long used for construction project, there are drawbacks to this. This method of protection involves many individual short term policies. Also, there is a lack of uniform insurance coverage related to the value of the construction and the value of the advanced funds. This method of protection has a high level of dependency on the contractor and/or owner/borrower to initiate and maintain coverage when the lending institution is the party with the most capital at risk. Such insurance mechanism, while widely practiced, is not only inefficient, but exposes the banking system to undue risk.
Accordingly, there is a need in the art for an improved construction loan insurance apparatus and method directed to minimizing the deficiencies in the present collateral loan insurance programs. It is to such that the present invention is directed.
SUMMARY OF THE PRESENT INVENTION
The present meets the need in the art by providing an apparatus for initiating, maintaining, and reporting collateral loan insurance for construction loans made by a lending institution to at least one construction contractor, comprising a central electronic complex that maintains a database of collateral insurance provided by an insurance carrier under a single builder's risk policy for a plurality of construction loans originated by a lending institution for projects constructed by one or more builders. The insurance carrier communicates with the electronic complex to provide insurance rate information and to obtain reports about collateral insurance for the construction loans. The lending institution communicates with the electronic complex to initiate, maintain, and report on collateral insurance for construction loans provided by the lending institution to the builders under the single builder's risk policy. The apparatus provides a report generator for reporting to the insurance carrier and to the lending institution information about the collateral insurance and the building projects covered by the single policy.
In another aspect, the present invention provides a method of centralized initiation, maintenance, and reporting of collateral insurance for a construction loan portfolio held by a lending institution, comprising the steps of (a) calculating an insurance rate for a construction loan provided by a lending institution to a builder using rate information provided by a insurance carrier; (b) initiating insurance coverage under a single builder's risk policy provided by the insurance carrier to the lending institution by adding to a central coverage database identifying indicia related to the construction loan and builder; (c) providing premium payments for the insurance coverage from the lending institution to the insurance carrier on behalf of the builder holding the construction loan with the lending institution; and (d) confirming insurance coverage by the insurance carrier to the lending institution for the construction loan to the builder under the single policy provided by the insurance carrier to the lending institution.
Objects, advantages and features of the present invention will become apparent from a reading of the following detailed description of the invention and claims in view of the appended drawings.
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Baker, Donelson Bearman & Caldwell
Kanof Pedro
Millin Vincent
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