I would start with asking the insurance company for a written explanation as to why they will not release the funds. Depending on their answer you may need to talk with an attorney.
DISCLAIMER: David J. McCormick is licensed to practice law in the State of Wisconsin and this answer is being provided for informational purposes only because the laws of your jurisdiction may differ. This answer based on general legal principles and is not intended for the purpose of providing specific legal advice or opinions. Under no circumstances does this answer constitute the establishment of an attorney-client relationship.
The loan documents will govern the rights and obligations with regards to the insurance proceeds. Often these proceeds go to the secured creditor, who is then required to use the proceeds to make repairs unless such action is not economically feasible. If the documents support your position that your bank is required to release the funds to the contractor, you could start by making a written demand to them requesting that the funds be released. If they funds are not then released, you may want to pursue legal action. In any event, you should consult with an attorney on this matter.
The above is general legal analysis. It is not "legal advice" but analysis, and different lawyers may analyze this matter differently, especially if there are additional facts not reflected in the question. The above response does not create an attorney/client relationship. I am not your attorney until retained by a written retainer agreement signed by both of us. See also avvo.com terms and conditions item 9, incorporated as if it was reprinted here
Often times the bank wants to see the work estimates and proposals and releases the funds in partial payments, as the work proceeds. If you have been denied the claim, you'll have a denial letter that you should request. Also, the contractor should know how this works as well. And, because there is a reverse mortgage and Wells Fargo is entitled to ask for the property back, unless you pay off the reverse mortgage within a specified time of your mom's death (you need to read the mortgage documents), Wells might not want to do anything to the house until it is in its possession. You need to speak to the bank.
This communication is not intended to create an attorney/client relationship. It is always recommended you consult an attorney in person to discuss your case. Leonore M. Greller, Esq. is a Supreme Court Certified Civil Circuit and Family Mediator and a Qualified Residential Mortgage Foreclosure Mediator and Arbitrator.