Many states have enacted construction trust fund statutes to protect payments for lower-tier project participants. Despite Florida not having a trust fund statute, there are some similar trust obligations and requirements that are applied to insurance proceeds on private projects.

Many states have enacted construction trust fund statutes to protect payments for lower-tier project participants. Despite Florida not having a trust fund statute, there are two Florida statutes that impose liability on contractors or subs that receive funds intended to pay those who provided labor or materials to the project

Construction trust fund statutes

Generally speaking, trust fund statutes impose a fiduciary duty upon general contractors. Whenever an owner releases funds to the general contractor, the money earned by the subs are “held in trust.” This creates liability on behalf of the GC for the benefit of the subs and suppliers that they have hired. Accordingly, those funds should only be used to the benefit of those parties.

For further reading on construction trust fund statutes:

Although Florida has no specific trust fund statute on their books, the statutes do enforce liability on parties who misuse construction project funds. The first actually does impose trust fund obligations for insurance proceeds. While the second relevant statute makes it a felony to intentionally misuse project funds meant to pay subs and suppliers. Let’s take a look at both of these.

Florida insurance proceeds statute

The statute in question is Fl. Stat. §713.32. This statute places specific liability on the party receiving the insurance proceeds. This applies when an improvement is damaged or destroyed by fire or any other casualty, but covered by property damage insurance. Certain obligations are placed on the person who receives the proceeds (typically the owner), as per the insurance policy contract.

Proceeds are to be held in trust

The named insured is considered a trustee of the insurance proceeds. Meaning that the person receiving payments are required to hold those funds in trust for any party holding mechanics liens related to the damaged improvement.

Being a trustee imposes a fiduciary duty, which means they must act in the best interests of the beneficiary (i.e. the lien holders). They are legally prohibited from diverting or using the funds for any other purpose than to the benefit of the lien holders. Any violation of this duty can lead to personal liability for the unpaid amounts. This obligation runs for a period of one year from the date of receipt of the proceeds.

Distribution of proceeds

Once the funds have been received, liability for the payments shifts from the insurance company to the policyholder. Upon receipt, the first thing to do is deduct the premiums paid for coverage. Once the named insured has been compensated for the insurance coverage, the remainder of the proceeds are then held in trust and paid in the agreed upon priority and conditions that were set forth in the initial contract.


There is one exception carved out in the statute. The requirements of this statute don’t apply to holders of liens that were perfected before the recording of a notice of commencement. If these parties are the policyholder of the insurance coverage, then this liabilities and responsibilities of this statute are not imposed on them.

Misapplication of money received for property improvements

Florida statute §713.345 is a criminal statute that imposes liability on those who misuse construction project funds. Unlike trust fund statutes and the insurance proceeds statute above, this doesn’t impose any fiduciary relationship between the parties and is not a civil cause of action. This is solely a criminal action for misappropriation of construction funds. This statute provides that:

“any person who receives payments for the improvement of real property must apply such portion of any payments to the payment of all amounts then due and owing for services and labor performed.”

The statute continues to state that any person who knowingly and intentionally fails to comply is guilty of misapplication of construction funds.

Conviction under the statute

To be convicted under this statute, there are two relevant elements that need to be present. The party must (1) act knowingly and intentionally, and (2) there must be a “wrongful application of funds.”

Knowingly & intentionally

Acting knowingly and intentionally will be presumed in certain situations. First, there must be a valid lien recorded against the property. Next, the person who contracted (hired) the claimant must have received enough funds to pay for the labor or materials provided by the claimant. Lastly, they failed to pay the claimant for a period of at least 45 days from receipt of the funds.

If any of these aren’t present, then there must be sufficient evidence to prove that they acted intentionally.

Wrongful application of funds

As the court stated in Weber v. State, the construction funds must be wrongfully misapplied. Meaning there needs to be some improper or corrupt use of the funds. The mere act of nonpayment doesn’t establish the wrongful application. There must be a conversion to the party’s own use or the use of someone else. If failure to pay was determinative, then projects where the budget was understimated, or when construction companies become insolvent would also make them guilty under this crime. 

Criminal penalties

Anyone who intentionally or knowingly fails to comply with this statutory requirements can be guilty of misapplication of construction funds. The penalties for violating this act depends on the amount of money that was misapplied or used for any other purpose than paying subs and suppliers on the project. Here is a breakdown of the potential penalties under this statute:

If the amount of funds misapplied has an aggregate value of $100,000 or more, will be found guilty of a 1st-degree felony. A 1st-degree felony in Florida is punishable by up to 30 years in state prison and could be fined as much as $10,000.

For misappropriated funds that are less than $100,000, but greater than $1,000, the violation will be deemed as a 2nd-degree felony. This type of felony could result in up to 15 years in prison and $10,000 in fines.

Lastly, if the amount of funds misappropriated are less than $1,000, this is still considered a felony, but a 3rd-degree felony. This is punishable for up to 5 years in prison and a maximum fine of $5,000.

Keep in mind, that Florida has a “three-strikes rule.” Meaning that if convicted of a third felony that person could be facing the maximum penalty for the crime. Felony charges can not only get your contractor’s license revoked, but could also lead to an extended stay in state prison.

Bottom line

Florida clearly doesn’t have a construction trust fund statute like some other states. However, this insurance proceeds statute does impose similar trust obligations; only it is restricted to insurance payments. Also, there is criminal liability for anyone on a construction project that misappropriated funds that are intended to pay subs and suppliers. This is an important aspect of Florida construction law to keep in mind.

For lower tier project participants and lien holders, this affects your rights to payment. From an owner or named insured perspective, this imposes personal liability on the distribution of funds. As for general contractors and subs that have their own subs or suppliers, they should be aware of the potential felony charges associated with the misuse of project funds.

Additional Resources

Does Florida Have a Construction Trust Fund Statute?
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Does Florida Have a Construction Trust Fund Statute?
Many states have enacted construction trust fund statutes to protect payments for lower-tier project participants. Despite Florida not having a trust fund statute, there are some similar trust obligations and requirements that are applied to insurance proceeds on private projects.
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