may not be cited except as provided by
Minn. Stat. § 480A.08, subd. 3 (2002).
IN COURT OF APPEALS
SAFECO Insurance Company of America,
a foreign corporation,
Guaranty Residential Lending, Inc.,
a foreign corporation,
Affirmed in part and reversed and remanded in part
Wright County District Court
File No. CX03945
Patrick J. Neaton, Neaton, Puklich & Klassen, 601 Carlson Parkway, Suite 620, Minnetonka, MN 55305 (for appellant)
Marlene S. Garvis, Jardine, Logan & O’Brien, P.L.L.P., 8519 Eagle Point Boulevard, Suite 100, Lake Elmo, MN 55042 (for respondent SAFECO Insurance Company of America)
Kerry A. Trapp, Leonard, O’Brien, Spencer, Gale & Sayre, LTD., 55 East Fifth Street, Suite 800, St. Paul, MN 55101 (for respondent Guarantee Residential Lending, Inc.)
Considered and decided by Peterson, Presiding Judge; Anderson, Judge; and Parker, Judge.*
U N P U B L I S H E D O P I N I O N
Respondent Guaranty Residential Lending, Inc. (GRL), the holder of the mortgage on appellant Dennis Hickman’s home, purchased an insurance policy through respondent SAFECO Insurance Company of America and its affiliate General Insurance Company of America (SAFECO/GICA) to protect its interest in appellant’s home after appellant failed to comply with the mortgage requirement that he maintain insurance on the property. After appellant’s home was damaged by a storm, he sought and was denied coverage under the policy issued by SAFECO/GICA. Appellant brought suit against SAFECO/GICA and GRL. The district court granted summary judgment for SAFECO/GICA on the grounds that it had no insurance agreement and/or contractual relationship with appellant and that appellant was not a third-party beneficiary under the policy. The district court also dismissed the complaint. We affirm in part and reverse and remand in part.
Appellant and his wife obtained a $58,100 loan that was secured by a first mortgage to Rothschild Financial Corporation. They also obtained a loan that was secured by a second mortgage to the Minnesota Housing Finance Agency. Rothschild assigned the first mortgage to Temple-Inland Mortgage Corporation, which later became GRL. Both mortgages required appellant to maintain at his expense, through an insurance company of his choice, fire and hazard insurance on the property.
In 1999, appellant failed to obtain the insurance required under the mortgages, and in March 2000, GRL’s predecessor sent appellant a letter stating:
Your loan agreement requires that you have acceptable insurance in force.
In order to protect our mutual interest in the property, we have obtained coverage in accordance with the terms of your Loan Agreement/Mortgage . . . . The premium amount for this coverage that we have ordered will be charged to your escrow account. If you currently do not have an escrow account for insurance, one will be established on your behalf. The breakdown and amount of the new payment will be sent to you.
PLEASE NOTE THIS IS NOT A HOMEOWNERS POLICY. IT DOES NOT COVER FLOOD, RISING WATERS, EARTHQUAKE, THEFT OR LIABILITY. IT DOES NOT INCLUDE COVERAGE FOR BUILDING CODE UPGRADES. NO ATTEMPT WAS MADE TO DUPLICATE ANY INSURANCE YOU MAY HAVE HAD IN THE PAST. THE INSURANCE COVERAGE WE HAVE OBTAINED MAY BE MORE EXPENSIVE, MAY NOT BE ENOUGH TO COVER YOUR LOSS AND PROVIDE LESS COVERAGE THAN YOU COULD OBTAIN FROM AN AGENT OR COMPANY OF YOUR CHOICE.
. . . We encourage you to obtain an acceptable replacement policy from an agent or company of your choice.
The coverage section of the policy that GRL’s predecessor obtained states:
We will provide insurance to “insured locations” for the Coverages and Perils Insured Against applicable to the “class of property” insured for which a premium is stated.
1. COVERAGE APPLICABLE TO “RESIDENTIAL PROPERTY”
A. COVERAGE 1A – Dwelling
(1) the dwelling on the “insured location”;
(2) structures attached to the dwelling . . . .
The policy also provided coverage for “other structures on an ‘insured location’ separated from the dwelling by clear space” and “personal property, usual to the occupancy as a dwelling and owned or used by the ‘borrower’ or members of the ‘borrower’s’ family residing with the ‘borrower’ while it is on the ‘insured location.’”
Temple-Inland was the named insured on the policy until June 1, 2001, when GRL became the named insured. GRL and its predecessor renewed the policy annually. The policy provided $85,500 in coverage for the house, $8,550 for other structures, and $8,550 for personal property.
In June 2002, appellant’s home and a separate structure were damaged by a storm. GRL filed a claim with SAFECO/GICA, which hired Crawford and Company to investigate the damage. Crawford determined that appellant’s home was not a total loss and issued checks to GRL for $42,431.80 for damage to the house and $8,550 for damage to a separate structure. GRL held the insurance proceeds in escrow and did not apply them to satisfy the mortgage on appellant’s home.
A federal agency, FEMA, inspected appellant’s home and determined that it was a total loss. Appellant hired GDS Design and Build, Inc., to inspect the damage to his home. GDS determined that it would cost $114,048 to repair the home.
Appellant initiated this lawsuit seeking to recover the policy limit for damage to his home and seeking to compel GRL to apply the insurance proceeds to satisfy the mortgage on appellant’s home. After the lawsuit began and after receiving authorization from appellant and his wife, GRL applied the insurance proceeds to the mortgage balance and issued appellant a check for $7,339.08, the remaining balance of the insurance proceeds. The district court granted summary judgment for SAFECO/GICA and dismissed the complaint. This appeal followed.
On appeal from a summary judgment, this court must ask two questions: (1) whether there are any genuine issues of material fact in dispute; and (2) whether the district court erred in applying the law. State by Cooper v. French, 460 N.W.2d 2, 4 (Minn. 1990). This court views the facts in the light most favorable to the party against whom judgment was granted and accepts as true the facts presented by that party. Fabio v. Bellomo, 504 N.W.2d 758, 761 (Minn. 1993).
Appellant argues that his home was insured under the policy, giving him an “insurable interest” under the policy, and that “clearly [a]ppellant was insured.” SAFECO/GICA argues that this court should not address whether appellant had an insurable interest in the property because he did not raise that issue before the district court. See Thiele v. Stich, 425 N.W.2d 580, 582 (Minn. 1988) (generally this court considers only those issues that the record shows were presented to and decided by the district court). Because appellant argued in the district court that he was insured under the policy, we will address whether appellant had an insurable interest in the property in the context of whether appellant was insured under the policy.
Caselaw addressing whether a party has an insurable interest in property involves situations in which the property owner secured insurance for the property and later an event occurred that raised an issue as to whether the owner continued to have an insurable interest in the property. See, e.g., Crowell v. Delafield Farmers Mut. Fire Ins. Co., 463 N.W.2d 737, 738 (Minn. 1990) (right of first refusal gave farm owner insurable interest in property); Hane v. Hallock Farmers Mut. Ins. Co., 258 N.W.2d 779, 781 (Minn. 1977) (when vendee under contract for deed assigned his interest in property to third party, vendee no longer had insurable interest in property). But this caselaw does not indicate that having an insurable interest in property by itself gives the party with the insurable interest a right to sue to enforce an insurance policy obtained by a third party.
Generally, a stranger to a contract acquires no rights under the contract. N. Nat’l Bank v. N. Minn. Nat’l Bank, 244 Minn. 202, 208, 70 N.W.2d 118, 123 (1955). The record contains no evidence of any contractual relationship between SAFECO/GICA and appellant. GRL obtained the insurance policy and is the named insured, and appellant is not listed as an insured. The insurance policy is a general policy that insures multiple residential and commercial properties for which GRL was the mortgagee and for which GRL requested coverage because it did not have evidence of insurance protecting its interests in the properties. GRL obtained coverage for appellant’s property because he failed to comply with the mortgage requirement that he maintain insurance against loss by fire and other hazards. GRL notified appellant that the policy was not a homeowner’s policy and that its coverage could differ from any coverage appellant had previously had on the home and might provide less coverage than a policy appellant could obtain through an agent or company of his choice. GRL also encouraged appellant to purchase a replacement policy from an agent or company of his choice.
Appellant argues that the district court incorrectly believed that GRL owned the properties insured under the policy. But although the memorandum accompanying the summary-judgment order incorrectly refers to the properties as being owned by GRL, appellant does not explain how this error affects the outcome of this case. To prevail on appeal, a party must show both error and that error caused prejudice. Midway Ctr. Assocs. v. Midway Ctr., Inc., 306 Minn. 352, 356, 237 N.W.2d 76, 78 (1975).
Appellant also cites the fact that GRL used appellant’s escrow account to pay the insurance premium, but he cites no authority that indicates that that fact confers on him the right to sue to enforce the policy. See Twin City Sav. & Loan Ass’n v. Zimmerman, 411 N.W.2d 294, 295-97 (Minn. App. 1987) (deciding that a mortgagor who pays the premiums for mortgage-guaranty insurance in favor of the mortgagee is not a third-party beneficiary to the insurance contract between the mortgagee and the insurer).
The district court did not err in concluding as a matter of law that appellant was not a party to the insurance contract.
Ordinarily, non-parties or “strangers” to a contract acquire no rights under the contract. Wurm v. John Deere Leasing Co., 405 N.W.2d 484, 486 (Minn. App. 1987). An exception to this rule applies to a third-party beneficiary of a contract. Dufresne v. Am. Nat’l Bank & Trust Co., 374 N.W.2d 763, 766 (Minn. App. 1985). A beneficiary of a contract must meet the duty-owed test or the intent-to-benefit test in order to qualify as a third-party beneficiary under contract law. Cretex Cos., Inc. v. Const. Leaders, Inc., 342 N.W.2d 135, 138-39 (Minn. 1984). A beneficiary of a contract not meeting either of these tests is an incidental beneficiary and has no right to enforce the contract. Wurm, 405 N.W.2d at 486. Generally, the determination of a third-party beneficiary claim is a question of fact. Gold’n Plump Poultry, Inc. v. Simmons Eng’g Co., 805 F.2d 1312, 1318 (8th Cir. 1986).
The duty-owed test requires that the performance of the promise will satisfy an obligation of the promisee. Mears Park Holding Corp. v. Morse/Diesel, Inc., 427 N.W.2d 281, 285 (Minn. App. 1988).
Here, SAFECO/GICA is the promisor, and GRL is the promisee. See Chard Realty, Inc. v. City of Shakopee, 392 N.W.2d 716, 720-21 (Minn. App. 1986) (analyzing agreements between parties to determine whether duty-owed test or intent-to-benefit test was met), review denied (Minn. Nov. 19, 1986). Appellant argues that GRL owed appellant a duty to obtain insurance on appellant’s property because GRL collected and retained escrow money paid by appellant to pay the insurance premiums. But appellant’s payment to GRL of the money used to pay the insurance premiums is insufficient to make him a third-party beneficiary. See Zimmerman, 411 N.W.2d at 295-97 (deciding that a mortgagor who pays the premiums for mortgage-guaranty insurance in favor of the mortgagee is not a third-party beneficiary to the insurance contract between the mortgagee and the insurer).
GRL obtained insurance for appellant’s property only because appellant failed to maintain insurance as required under the mortgage agreement. GRL had no contractual obligation to maintain insurance to protect appellant’s property interest. Also, GRL encouraged appellant to purchase a replacement policy from an agent or company of his choice and notified appellant that the policy was not a homeowner’s policy and that it could differ from any coverage that appellant previously had on the home and might provide less coverage than a policy appellant could obtain through an agent or company of his choice.
Intent to benefit
To establish intent to benefit, the contract must express some intent by the parties to benefit the third party though contractual performance. Chard Realty, Inc., 392 N.W.2d at 720. A third party can establish third-party beneficiary status and associated rights by showing that the contracting parties intended to benefit the third party at the time the contract was executed. Julian Johnson Constr. Corp. v. Parranto, 352 N.W.2d 808, 811 (Minn. App. 1984). The requisite intent must be found in the contract as read in light of all the surrounding circumstances. Buchman Plumbing Co., Inc. v. Regents of the Univ. of Minn., 298 Minn. 328, 334, 215 N.W.2d 479, 483 (1974).
Unless the contract expresses the parties’ intent to benefit a third party through contractual performance, the third party is no more than an incidental beneficiary and cannot enforce the contract. Wurm, 405 N.W.2d 484, 486. Usually, when there is no reference to the third party in the contract, there is no intent to benefit the third party. 614 Co. v. Minneapolis Cmty. Dev. Agency, 547 N.W.2d 400, 410 (Minn. App. 1996).
“If, by the terms of the contract, performance is directly rendered to a third-party, he is intended by the promisee to be benefited. Otherwise, if the performance is directly rendered to the promisee, the third-party who also may be benefited is an incidental beneficiary with no right of action.” Zimmerman, 411 N.W.2d at 296 (quotation omitted); see also Cretex Cos., 342 N.W.2d 135, 139 (stating that while the third party may “receive a benefit when paid . . ., the issue is whether that benefit was intended by the contracting parties”). Appellant was not the named insured or listed as an insured under the policy, and payment was made directly to GRL. No evidence in the record indicates that appellant was more than an incidental beneficiary of the contract.
The district court properly granted summary judgment for SAFEC/GICA.
Appellant argues that the district court erred in granting summary judgment for GRL because GRL did not make its own summary-judgment motion or join in SAFECO/GICA’s summary-judgment motion. In his complaint, appellant asserted that “[GRL] has wrongfully, and in breach of its mortgage and lending agreements with [appellant] and applicable Minnesota law, failed and refused to apply those monies to the mortgage and has further failed and refused to satisfy the mortgage of record.” Appellant further asserted in his complaint that as a result of SAFECO/GICA’s and GRL’s wrongful acts, appellant
has been unable to obtain the low-interest disaster loan from FEMA, has been unable to repair or rebuild either the house or the out building on his homestead, has been denied the use and occupancy of the home and out building on his homestead, and has sustained damages in an amount [in] excess [of] $50,000.
Appellant acknowledged in an affidavit that following commencement of this lawsuit, GRL applied the insurance proceeds in the manner requested by appellant. But appellant’s affidavit does not state whether GRL satisfied the mortgage of record. Therefore, it is not apparent whether appellant’s claim against GRL has been fully resolved.
The memorandum accompanying the district court’s summary-judgment order does not address appellant’s claim against GRL, and the district court’s order only directs that judgment be entered “in favor of Defendants SAFECO and GICA”; it does not direct that judgment be entered in favor of GRL. But the order dismisses the complaint, which contains a claim against GRL.
Because the district court’s memorandum does not address appellant’s claim against GRL and the district court’s order does not grant GRL summary judgment, it is not apparent why the district court dismissed appellant’s complaint. On the record before us, we cannot determine if the district court simply failed to explain its reason for dismissing the complaint or overlooked appellant’s claim against GRL when it dismissed the complaint. Therefore, we reverse the dismissal of the complaint and remand this matter to the district court to permit it to address appellant’s claim against GRL. See Boughton v. Boughton, 385 N.W.2d 384, 387 (Minn. App. 1986) (remanding for consideration of attorney’s fees issue when district court’s order did not specifically address appellant’s request for fees).
Affirmed in part and reversed and remanded in part.
* Retired judge of the Minnesota Court of Appeals, serving by appointment pursuant to Minn. Const. art. VI, § 10.
 SAFECO/GICA asserts that the policy was issued by GICA, one of several insurance companies affiliated with SAFECO, and that SAFECO was erroneously named as the defendant in this lawsuit. But the SAFECO logo appears on the policy.
 We note that there was no appearance by GRL before the district court.