## Facts

- Dennis Hickman and his wife bought a Minnesota home in 1986 with a first mortgage later assigned to Guaranty Residential Lending, Inc.
- The mortgage required Hickman to maintain homeowners insurance and provide proof of coverage; he failed to provide proof beginning in 1999 or earlier.
- Guaranty obtained lender-placed fire and windstorm insurance from an insurer affiliated with SAFECO.
- The policy covered losses to the dwelling, other structures, and the personal property of the “borrower” and the borrower’s family.
- For dwelling/structure losses, the policy made payments to Guaranty up to its mortgage interest, with any excess payable to the borrower.
- For personal property losses, the policy required payment directly to the borrower and gave the borrower a right to demand arbitration of the insurer’s appraisal.
- Premiums were paid from an escrow account funded by Hickman’s monthly mortgage payments.
- In June 2002, a storm damaged the home; Hickman sought coverage and was denied.
- SAFECO later paid Guaranty an amount exceeding the remaining mortgage balance, and Guaranty remitted the excess to Hickman; Hickman claimed the payment was inadequate and sued SAFECO and Guaranty.

## Issues

1. Whether the homeowner-borrower was an intended third-party beneficiary of the lender-placed insurance contract under the Restatement (Second) of Contracts § 302 “intent-to-benefit” test, giving him enforceable contract rights against the insurer.

## Decision

- The Minnesota Supreme Court reversed summary judgment for SAFECO and remanded.
- The court held Hickman was an intended third-party beneficiary under the “intent-to-benefit” test.
- The court focused on the promisee-lender’s intent and the policy’s borrower-directed coverage and payment provisions, rather than on whether Hickman was a “named insured.”

## Legal Principles

- A third party may enforce a contract as an intended beneficiary when recognition of that right is appropriate to effectuate the contracting parties’ intent and the circumstances indicate the promisee intended to give the third party the benefit of the promised performance.  
- Under the intent-to-benefit analysis, the promisee’s intent is central; the absence of “named insured” status does not bar third-party beneficiary rights if the contract’s terms and structure show intent to benefit the third party.
- Contract terms expressly covering a borrower’s personal property, requiring direct payment to the borrower, providing excess proceeds to the borrower, and granting borrower procedural rights (such as appraisal arbitration) support intended-beneficiary status.
- Payment of premiums from funds supplied by the borrower may reinforce the inference that the lender intended the borrower to receive enforceable benefits from the policy, not merely incidental benefits.

## Conclusion

Because the policy expressly insured the borrower’s personal property, directed certain payments to the borrower, provided excess proceeds to the borrower, and granted the borrower an appraisal-arbitration right—against a backdrop of premiums funded through the borrower’s escrow payments—the borrower qualified as an intended third-party beneficiary and could pursue contract claims under the lender-placed policy.


Hickman v. SAFECO Ins. Co. of Am., 695 N.W.2d 365 (Minn. 2005)