The borrower under a mortgage is an intended third-party beneficiary of a fire and windstorm policy between the mortgage company and the insurer because the policy recognizes the class of persons of "borrowers," provides for coverage in excess of the mortgage company's interest and for loss of personal property, provides for payment directly to the borrower, and gives the borrower certain rights related to contesting a loss appraisal.
The opinion of the court was delivered by: Meyer, Justice.
Took no part, Anderson, G. Barry, J.
Heard, considered, and decided by the court en banc.
The issue in this case is whether appellant Dennis Hickman (Hickman) is a third-party beneficiary of an insurance contract under the "intent to benefit" test. Hickman had a mortgage on his home with respondent Guaranty Residential Lending, Inc. (Guaranty).*fn1 When Hickman failed to provide proof of insurance as required under the mortgage agreement, Guaranty purchased a fire and windstorm insurance policy from General Insurance Company of America, an affiliate of SAFECO Insurance Company of America (SAFECO).*fn2 In June 2002, Hickman's home suffered storm damage; he sought and was denied insurance coverage under the fire and windstorm insurance policy issued by SAFECO. Hickman brought suit against SAFECO and Guaranty. The district court granted summary judgment for SAFECO.*fn3 The court of appeals affirmed the district court's grant of summary judgment concluding that Hickman was not a third-party beneficiary because he "was not the named insured or listed as an insured under the policy, and payment was made directly to [Guaranty]." Hickman v. SAFECO Ins. Co. of Am., No. A03-2042, 2004 WL 1828870, at *5 (Minn. App. Aug. 17, 2004). Hickman petitioned this court for review of the decision of the court of appeals. We granted review only on the issue of whether Hickman was a third-party beneficiary of the insurance contract under the "intent to benefit" test. We reverse the court of appeals.
In December 1986, Hickman and his wife purchased their home in Watertown, Minnesota. To finance the purchase, Hickman and his wife obtained a first mortgage in the amount of $58,100 from Rothschild Financial Corporation and a second mortgage from the Minnesota Housing Finance Agency. The first mortgage was subsequently assigned to Temple-Inland Mortgage Corporation and then to respondent Guaranty.
Beginning in 1999 or before, Hickman failed to provide proof of insurance as required under the mortgage agreement. Temple-Inland, who then held the mortgage, obtained insurance on the home from SAFECO. The provisions of the insurance contract between Guaranty and SAFECO provide in relevant part:
We will provide the insurance described in this policy in return for the premium and compliance by you and the "borrower" with all applicable provisions of this policy.
Throughout the policy, "you" and "your" refer to the Named Insured Mortgagee shown in the Declarations.
"Borrower" means the mortgagor or mortgagors of an "insured location" indebted under a mortgage held or serviced by you. As used in this policy, "borrower" applies to the "insured ...