Keith Rath and Dennis Faltis v. Arch Insurance Company

IN THE COURT OF APPEALS OF IOWA

No. 23-0157
Filed April 10, 2024

KEITH RATH and DENNIS FALTIS,
Plaintiffs-Appellants,

vs.

ARCH INSURANCE COMPANY,
Defendant-Appellee.
________________________________________________________________

Appeal from the Iowa District Court for Linn County, David M. Cox, Judge.

Plaintiffs appeal from the district court’s grant of summary judgment

dismissing breach-of-contract and related claims because it concluded that

plaintiffs are not intended third-party beneficiaries of a force-placed insurance

policy issued by the defendant. REVERSED AND REMANDED.

Claire M. Diallo and James C. Larew of Larew Law Office, Iowa City, for

appellants.

Mollie Pawlosky of Dickinson, Mackaman, Tyler & Hagen, P.C., Des

Moines, for appellee.

Heard by Schumacher, P.J., Langholz, J., and Doyle, S.J.*

*Senior judge assigned by order pursuant to Iowa Code section 602.9206

(2024).
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LANGHOLZ, Judge.

Keith Rath has a dispute with the insurer of his home—Arch Insurance

Company—over coverage for damage from the derecho that hit Cedar Rapids in

2020. But Rath did not contract directly with Arch for its insurance coverage.

Rather, the bank holding a security interest in his home contracted with Arch to

obtain a force-placed policy after Rath’s homeowners insurance lapsed. So when

Rath sued Arch for breach of contract and related claims, Arch sought to cut him

off at the pass—arguing that he had no right to sue because Rath was not an

intended third-party beneficiary of the contract between Arch and the bank. The

district court agreed with Arch and granted Rath summary judgment on that basis.

But on this narrow question of contract interpretation, we disagree. The

parties chose to replace text in the policy stating that Rath, as the “Borrower,” “has

no interest in this policy” with an endorsement expressly giving Rath a benefit.

That endorsement provides that while Rath “is neither a Named Insured nor an

additional named insured under the policy,” he “shall be considered an additional

loss payee only as respects amounts of insurance over and above the interests of”

the bank in his home. And it increases the amount of insurance from only enough

to cover the bank’s interest to whatever amount the parties set on the notice of

insurance for the property. We see no possible purpose for this endorsement

besides providing a benefit to Rath.

So because the insurance contract manifests an intent to benefit Rath, he

is an intended third-party beneficiary under the contract. And the district court

erred in dismissing his claims based on the contrary conclusion. We thus reverse

and remand for Rath to continue to pursue his claims in the district court.
 3

I.

Keith Rath lives in a home in Cedar Rapids that he bought under a real-

estate-installment-sales contract now held by First National Bank of America.

While the actual series of transactions and parties involved is a bit complicated—

and not relevant to this appeal—in essence, the bank is now Rath’s lender for a

loan secured by his home.1 At some point, Rath let his homeowners insurance

lapse in violation of the terms of the contract.

When the bank learned of the lapse, it notified Rath: “Because property

insurance is required on your property, we bought insurance for your property. You

must pay us for any period during which the insurance we buy is in effect but you

do not have insurance.”2 The bank also warned Rath that the insurance it bought

might be “significantly more expensive than the insurance” he could obtain himself

and might provide less coverage than such a personal policy. Rath then began

paying monthly premiums for this insurance to the bank.

The Insurance Contract. The insurance for Rath’s home was obtained by

the bank from Arch Insurance Company under a mortgage hazard insurance

policy. This type of insurance—often referred to as force-placed insurance

1 The other plaintiff, Dennis Faltis, is the owner of the business entity that originally

sold the home under a real-estate-installment-sales contract to a business entity
owned by Rath. Faltis’s business eventually transferred its interest in the contract
to the bank in return for immediate access to cash. And Rath then began making
his monthly payments under the contract directly to the bank. Because any further
distinction between the plaintiffs or their related business entities is irrelevant to
deciding this appeal, for simplicity, we refer only to Rath.
2 The insurance documents contain many words and phrases that are bolded for

emphasis or because the word or phrase is a defined term. For readability, we
omit all such bold type without noting the omission. The insurance policy also
capitalizes defined terms regardless of the term’s placement in a sentence. We
do not alter this capitalization.
 4

because it is involuntarily forced upon the owner of the insured property—is mainly

designed to protect the interests of the bank on property that secures its loans.

See Leo v. Nationstar Mortg. LLC, 964 F.3d 213, 214 (3d Cir. 2020).

Consistent with that core purpose, the policy warns in a general statement

on its cover pages that it does not “provide coverage for the Interest or equity of

the Borrower.” It later defines the “Named Insured” as “the creditor, lending

institution, company, or person holding and/or servicing the Mortgagee Interest on

the Described Location.” And it expressly confirms that “[t]he Borrower is not a

Named Insured under this policy and no coverage is provided, either directly or

indirectly, to the Borrower.” The policy’s default text also defines the Borrower and

then makes abundantly clear: “The Borrower has no interest in this policy.”

But that last line of default text does not remain in the policy as in force here.

It is stricken and replaced with text from an Amount-of-Insurance endorsement that

the parties added to the policy. So rather than having “no interest in this policy,”

under the endorsement: “The Borrower is neither a Named Insured nor an

additional named insured under this policy; however, the Borrower shall be

considered an additional loss payee only as respects amounts of insurance over

and above the interests of the Named Insured in the Described Location.”

As one might expect—given its name—the endorsement also changes the

amount of insurance coverage from the default policy text. That default text limits

coverage to only the bank’s interest in the property by providing “in no event shall

We pay . . . an amount greater than the loan balance.” But the endorsement

instead provides that Arch will pay “the amount entered on a Notice of Insurance,
 5

as respects that Building,” and that “the amount designated . . . may be over and

above the interests of the Named Insured.”

Arch issued a notice of insurance to Rath (the Borrower under the policy)

and the bank (the Named Insured) covering his home from April 2020 to April 2021.

The notice listed residential coverage in the amount of $72,151.19. The notice

included disclaimers:

This is not a Homeowner’s Policy: This insurance provides
dwelling protection against loss to the property from perils including
but not limited to fire, lightning, explosion, vandalism and riot; subject
to the terms, conditions and exclusions set forth in the lenders master
policy. This coverage may not meet your insurance needs. There is
no liability, theft of contents, flood or earthquake coverage. In the
event of a total loss, the limits provided above may not be adequate
to restore the property.

Deductible: In the event of loss, this policy shall be subject to
a deductible as defined in the policy Declarations of the lender’s
master policy. If more than one dwelling is insured and damaged by
the same occurrence, the deductible shall apply separately to each
dwelling.

This Notice of Insurance is for information only. It neither amends,
extends nor alters the coverage afforded by the lender’s master
policy which it describes.

The notice also listed the annual premium for the policy, which Rath paid

plus service fees in monthly payments to the bank.

The Storm. In August 2020, a derecho swept across Iowa, hitting Cedar

Rapids especially hard. See generally NOAA National Weather Service, August

10, 2020, Midwest Derecho: The Costliest Severe Thunderstorm Event in United

States History, https://storymaps.arcgis.com/stories/f98352e2153b4865b99ba53b

86021b65 (Aug. 6, 2021). Rath’s home was not spared from damage. A tree fell

on the house and it sustained wind damage. Among other damage, Rath believes
 6

most of the roof was damaged, along with siding, windows, and electrical systems.

And so, Rath reported the damage to the bank, which made a claim to Arch under

the policy. After Arch’s adjuster agreed that “the dwelling sustained damage due

to wind and tree impact,” Arch decided that there was a covered loss of $1222.37

and mailed a check for that amount directly to Rath.

Rath disagreed with Arch’s decision, contending that the adjuster “missed

a lot during the initial visit.” So the bank reached out on his behalf to Arch

requesting a second visit. Arch refused and explained what additional information

it would need to consider adjusting the amount, including estimates from at least

three contractors. Rath eventually got one repair estimate “valu[ing] the loss at a

replacement cost value of $23,331.67 and an actual cash value of $19,442.97.”

He claims that he could not get other contractors to his property “because all of

them were overwhelmed with all the damage to properties” and “were overbooked

due to the huge number of Derecho losses in the area.”

The record is unclear whether Rath provided the single estimate to Arch.

But he did not receive any more payments. As of November 2022, he had not

made all the needed repairs to his home. And Arch closed the claim with a notation

that the bank did “not anticipate repairs to be done or to pursue depreciation.”

This Proceeding. About a year after the storm, Rath sued Arch over this

dispute. In his eventual second amended petition, Rath claimed that Arch

breached the insurance contract by denying proper payment for his losses and

refusing to engage in the appraisal process under the policy. He also brought

claims of bad faith and unjust enrichment and sought declaratory and injunctive

relief related to his rights under the policy and the appraisal process.
 7

Arch moved for summary judgment based on the sole argument that Rath

is not an intended third-party beneficiary of the insurance contract between Arch

and the bank. Rath agreed that the third-party-beneficiary issue could be resolved

as a matter of law but moved for partial summary judgment seeking a ruling that

he was an intended third-party beneficiary of the contract. The district court denied

Rath’s motion and granted Arch summary judgment on all Rath’s claims. The court

reasoned that Rath was not an intended third-party beneficiary able to sue under

the insurance policy because it “includes clear language that negates coverage for

a borrower under the policy” and that “[t]here is no language in the policy, including

the provisions relied on by Plaintiffs, that shows that there was any intent by the

contracting parties to provide for Plaintiffs to have any third-party benefit on

Plaintiffs.” And because the breach-of-contract claim fails, the court concluded

that Rath’s other claims must fail as a matter of law as well.

Rath now appeals the district court’s grant of summary judgment and

dismissal of all his claims.3

3 Rath includes a stray reference in the conclusion of his opening brief asking for

reversal of the denial of his cross-motion for partial summary judgment as well.
But in his statement of the issues and argument section of his brief he only
challenges the grant of summary judgment—not the denial of his cross-motion. He
thus failed to properly raise a challenge to that ruling and we do not consider it.
See Soo Line R.R. Co. v. Iowa Dep’t of Transp., 521 N.W.2d 685, 691 (Iowa 1994)
(holding that “random mention” of issue in a brief “without elaboration or supportive
authority, is insufficient to raise the issue” for appellate review): see also Iowa R.
App. P. 6.903(2)(a)(3), (8). In any event, since Rath sought only a legal ruling that
he is a third-party beneficiary of the insurance policy—which we necessarily
provide in this opinion—the disposition of his cross-motion is largely academic as
a practical matter. See United Fire & Cas. Co. v. Iowa Dist. Ct., 612 N.W.2d 101,
103 (Iowa 2000) (explaining “that an appellate decision becomes the law of the
case” and “issues decided by an appellate court generally cannot be reheard,
reconsidered, or relitigated in the trial court”).
 8

II.

To sue for breach of contract, one normally needs to be a party to the

contract. See Davis v. Clinton Water-Works Co., 6 N.W. 126, 127 (Iowa 1880) (“It

is a rule of law, familiar to the profession, that a privity of contract must exist

between the parties to an action upon a contract.”). A stranger to the contract

generally has no legal claim to make the parties abide by it—even if their doing so

would give some incidental benefit to the stranger. Id.; see, e.g., Uhl v. City of

Sioux City, 490 N.W.2d 69, 72–73 (Iowa Ct. App. 1992) (holding that landowner

near a potential road that city agreed to build in a contract with the State had no

right to enforce the contract). But Iowa law recognizes an exception to this general

rule—an intended third-party beneficiary of a contract may sue under the contract

to remedy the breach of a duty benefitting the third party. See Vogan v. Hayes

Appraisal Assocs., Inc., 588 N.W.2d 420, 423–24 (Iowa 1999) (holding that

homeowners were intended third-party beneficiaries of a contract between their

bank and an appraiser to monitor progress of the construction of their home and

thus could sue to remedy the appraiser’s breach of contract by preparing faulty

progress reports).

Distinguishing between an intended third-party beneficiary and an incidental

beneficiary is mainly a question “whether the contract manifests an intent to benefit

a third party.” Id. at 423. “The intent need not be to benefit a third party directly.”

Tredrea v. Anesthesia & Analgesia, P.C., 584 N.W.2d 276, 281 (Iowa 1998). And

it need not be the only intent. See Midwest Dredging Co. v. McAninch Corp., 424

N.W.2d 216, 225 (Iowa 1988) (“Numerous other courts have found that the intent

to benefit oneself and the intent to benefit a third party are not mutually exclusive.”).
 9

For “[c]ontracting parties may have several purposes or intended results in mind

when entering a contract.” Id. And of course, each contracting party likely has

distinct intentions. See Tredrea, 584 N.W.2d at 281–82 (“The two parties have

purposes, motives and intentions; but they never have quite the same ones.”

(quoting 4 Arthur Linton Corbin, A Comprehensive Treatise on the Working Rules

of Contract Law § 776, at 15–16 (1951))).

Following the lead of the Second Restatement of Contracts, our supreme

court guides us to focus on the intent of the promisee—who presumably bargained

for the term—rather than the promisor—who must perform the duty sought to be

enforced by the third party. See id. (“In third-party cases, the right of such party

does not depend upon the purpose, motive, or intent of the promisor. The

motivating cause of his making the promise is usually his desire for the

consideration given by the promisee.” (cleaned up)); see also Restatement

(Second) of Contracts § 302 (Am. Law. Inst. 1979). And “we look to the contract

itself, and to the circumstances surrounding it,” to decide whether it manifests this

required intent. Midwest Dredging Co., 424 N.W.2d at 225.

To be sure, the contracting parties may expressly agree in the contract that

they do not intend to benefit any third party. And if they do so unambiguously, the

contract’s express disclaimer ends the inquiry—we must enforce the contract as

written and cannot find a contrary intent. See RPC Liquidation v. Iowa Dep’t of

Transp., 717 N.W.2d 317, 320–25 (Iowa 2006) (holding that subcontractor was

precluded from being a third-party beneficiary by contract term that “it is not

intended by any of the provisions of any part of the contract documents to create

in the public or any member thereof a third party beneficiary hereunder” (emphasis
 10

omitted)); cf. Walters v. Kautzky, 680 N.W.2d 1, 3–4 (Iowa 2004) (holding that

inmates were not third-party beneficiaries of a legal services contract between the

State Public Defender and an attorney because the contract implemented another

agreement between the State Public Defender and Department of Corrections

including a term that “there are no third party beneficiaries to this Agreement”

(cleaned up)).

With these legal principles in mind, we review the district court’s grant of

summary judgment for corrections of errors of law. See Boelman v. Grinnell Mut.

Reinsurance Co., 826 N.W.2d 494, 500 (Iowa 2013). Interpreting an insurance

policy is a legal question. See id. And so is deciding whether a person is an

intended third-party beneficiary. See RPC Liquidation, 717 N.W.2d at 319. Thus,

we do not defer to the district court’s resolution of these matters. See id. “[W]e

examine the record in the light most favorable to” Rath, as “the nonmoving party.”

Boelman, 826 N.W.2d at 501. And if we encounter a material factual dispute, then

summary judgment should not have been granted. See id.

Rath’s main argument that he is an intended third-party beneficiary of the

insurance policy relies on the Amount-of-Insurance endorsement.4 He argues that

this provision manifests an unambiguous intent to benefit him by increasing the

policy’s coverage from only the bank’s interest in his home to whatever amount the

parties chose to select on the Notice of Insurance—even “over and above the

interests of the Named Insured.” And he finds the same clear intent in the

endorsement’s text making him “an additional loss payee only as respects

4 Given our resolution based on this argument, we need not consider whether any

of the other contract terms highlighted by Rath could also show the required intent.
 11

amounts of insurance over and above the interests of the Named Insured in the

Described Location.”

We agree with Rath that the endorsement manifests an unambiguous intent

to benefit him. Indeed, we can conceive of no other possible intent for contract

provisions increasing the coverage above the bank’s interest and giving Rath a

right to payment. And Arch has offered no contrary theory of possible intent—even

when pressed directly at oral argument.

The intent to benefit is manifested even more clearly in the endorsement’s

text than other contracts that have been held to grant third-party-beneficiary rights.

The benefit provided can be seen from the face of a written contract—not just

gleaned from the circumstances of an oral agreement, see Vogan, 588 N.W.2d at

423–24, nor implied from the general subcontracting structure of a written contract

and the knowledge of the parties, see Midwest Dredging, 424 N.W.2d at 225–26.

And though it need not do so, the text shows an intent to benefit Rath directly—

not just indirectly. See Tredrea, 584 N.W.2d at 281–82.

In reaching a contrary conclusion, the district court reasoned that the

contracting parties agreed to provisions in the contract that are “clear, express

disclaimers of any third-party beneficiary status” for Rath. Arch advances the

same argument on appeal. But none of the provisions relied on by the court and

Arch—nor any other in the policy—even uses the term “third-party beneficiary.”

Rather, those provisions say that Rath, as the borrower, “is neither a Named

Insured nor an additional named insured under this policy,” that “no coverage is

provided, either directly or indirectly, to” him, and that the policy does not “provide

coverage for the Interest or equity of the Borrower.”
 12

This language is far afield from the text previously held to be an

unambiguous disclaimer of third-party-beneficiary status. In both prior supreme

court cases, the contract said expressly that it did not create any third-party

beneficiaries. See RPC Liquidation, 717 N.W.2d at 320–21 (saying that “it is

specifically agreed between the parties executing this contract that it is not

intended by any of the provisions of any part of the contract documents to create

in the public or any member thereof a third party beneficiary hereunder” (emphasis

omitted and added)); Walters, 680 N.W.2d at 3–4 (saying that “there are no third

party beneficiaries to this Agreement” (cleaned up) (emphasis added)). This

makes sense because if we must imply whether the parties are intending to

disclaim a benefit to third parties—rather than just enforcing an express provision

as written—we are essentially back to the normal analysis of deciding “whether the

contract manifests an intent to benefit a third party.” Vogan, 588 N.W.2d at 423.

Saying that Rath is not a “Named Insured nor an additional named insured”

is not the same as saying he is not a third-party beneficiary. Those are distinct

concepts. See Mosely v. Balboa Ins. Co., No. 5:10-CV-0132, 2013 WL 5938096,

at *6 (W.D.N.C. Nov. 5, 2013) (explaining a disclaimer of “‘insured’ or ‘additional

insured’” status in a contract “does not exclude or otherwise deal with” third-party

beneficiary status under North Carolina law); Hickman v. SAFECO Ins. Co. of Am.,

695 N.W.2d 365, 366–67 (Minn. 2005) (reversing court of appeals decision that

borrower “was not a third-party beneficiary” under force-placed insurance policy

“because he was not the named insured or listed as an insured under the policy”

(cleaned up)); cf. Osmic v. Nationwide Agribusiness Ins. Co., 841 N.W.2d 853,

859–61 (Iowa 2014) (applying third-party beneficiary analysis to a car passenger
 13

who fell under express coverage including passengers as additional insureds in

policy held by car owner while favorably citing the Restatement’s Illustration 4 that

“indicates a beneficiary of a life insurance policy would be considered a third-party

beneficiary of the life insurance contract”).

Perhaps the policy’s lack-of-coverage text comes closest to expressing

some intent not to benefit Rath. But even if it could be interpreted to mean not just

that Rath has no coverage but also that the policy gives no benefit, that term would

conflict with the express terms of the Amount-of-Insurance endorsement, which

contains no such text and makes Rath a loss payee. And “[t]he terms in the

endorsement govern if the terms in the body of the policy conflict with the

endorsement.” Boelman, 826 N.W.2d at 502. What’s more, the endorsement

deleted the strongest expression of lack of intent to benefit Rath originally in the

body of the policy: “The Borrower has no interest in this policy.” By deleting that

text—while also increasing the coverage above the bank’s interest and giving Rath

a right to payment—the endorsement leaves little doubt that indeed Rath does now

have an interest in the policy. He is an intended third-party beneficiary.

Arch tries a few other ways to escape this conclusion. But none succeed.

Relying on caselaw from outside Iowa, Arch contends that any benefit given by the

endorsement is “incidental” when compared to the contract as a whole. See, e.g.,

Davis v. Integon Nat’l Ins. Co., No. 21-CV-62170, 2022 WL 59654, at *4 (S.D. Fla

Jan. 5, 2022). But that type of comparison is irrelevant to the proper third-party-

beneficiary analysis under Iowa law, which instead asks us to decide only whether

a given promise in a contract is intended to benefit the third party. See Vogan,

588 N.W.2d at 423. When the provision manifests that intent, the beneficiary is
 14

not “incidental”; he is an intended third-party beneficiary, entitled to bring a contract

suit. And our supreme court has repeatedly recognized intended third-party

beneficiaries based on comparatively minor contract provisions in larger contracts

with other significant purposes not benefiting the third-party beneficiary. See, e.g.,

Midwest Dredging, 424 N.W.2d at 225–26 (recognizing third-party beneficiary from

provisions relating to transportation of certain raw materials in a massive interstate-

highway-grading-and-construction contract); Tredrea, 584 N.W.2d at 281–82

(recognizing third-party beneficiary from provisions detailing an exception to the

exclusivity terms in a larger contract for anesthesiology services at a hospital).

Arch also argues that because Rath’s right under the endorsement is

“contingent” on any loss being greater than the bank’s interest, it does not create

a third-party beneficiary. But a third-party beneficiary’s rights are enforceable even

“when his beneficial interest is dependent on a contingency.” Iowa Home Mut.

Cas. Co. v. Farmers Mut. Hail Ins. Co., 73 N.W.2d 22, 25 (Iowa 1955).

For the first time at oral argument, Arch pushed even further, contending

that the endorsement is not in effect at all because the amount of insurance

selected by the contracting parties is not greater than the bank’s interest in Rath’s

home. But this argument was not raised as a ground for summary judgment in the

district court or Arch’s appellate brief, and thus we cannot consider it. See State

v. Warren, 955 N.W.2d 848, 860 (Iowa 2021) (holding that appellate courts cannot

“decide or consider arguments raised for the first time during oral argument”);

DeVoss v. State, 648 N.W.2d 56, 63 (Iowa 2002) (holding that because “one party

should not ambush another by raising issues on appeal, which that party did not

raise in the district court,” appellate courts must “not consider a substantive or
 15

procedural issue for the first time on appeal, even though such issue might be the

only ground available to uphold a district court ruling”).5

We reach this conclusion based on the application of Iowa contract law to

the precise contract terms and factual circumstances of this case. But our

reasoning fits comfortably with the precedent from other jurisdictions considering

similar questions about third-party-beneficiary status for homeowners under force-

placed insurance policies. See Alvarado v. Lexington Ins. Co., 389 S.W.3d 544,

553–55 (Tex. App. 2012) (collecting cases). We do not attempt to synthesize them

all. But in our view, the varying outcomes mainly stem from the differing contract

terms and litigation strategies of the parties in each case rather than competing

legal theories about force-placed insurance policies generally.6 See Alvarado, 389

S.W.3d at 553 (reaching similar conclusion).

5 If Arch tried to raise this factual issue with the single line in its appellate brief that

Rath’s benefit under the contract is “solely as the consequence of a separate
action taken by the Insured, which is not alleged to have been taken here,” the lack
of any supporting legal or record citations or further elaboration of this argument
makes it ineffective to do so. But even if properly raised on appeal, Arch’s sole
focus on the legal interpretation of the contract terms in its summary judgment
motion would still preclude it from asserting this new ground for summary judgment
for the first time on appeal. See DeVoss, 648 N.W.2d at 63. Indeed, while the
amount of insurance selected ($72,151.19) can be found in the record, Arch did
not include that fact—nor any information about the value of the bank’s interest in
the property—in its statement of material facts supporting summary judgment.
6 Compare Jones v. Gen. Ins. Co. of Am., Civ. No. 07-0844, 2009 WL 1537866, at

*8–10 (S.D. Ala. May 29, 2009) (holding that homeowner was third-party
beneficiary based on provision—much like the Amount-of-Insurance endorsement
here—that entitled homeowner to payment for loss above the bank’s interest), with
Barbe v. Ocwen Loan Servicing, LLC, 383 F. Supp. 3d 634, 642–43 (E.D. La. 2019)
(recognizing that similar loss-payee provision could make homeowner third-party
beneficiary, but dismissing case with leave to amend because of failure to allege
facts about the mortgage balance or amount of loss that would support such claim),
and Garcia v. Great Am. Assurance Co., Civ. No. H-23-0090, 2023 WL 3262061,
at *3 (S.D. Tex. May 4, 2023) (holding that homeowner who could “not cite any
Policy term that indicates an intent to benefit him” was not third-party beneficiary).
 16

Likewise, our holding here should not be read as adopting a universal rule

that a homeowner is always a third-party beneficiary of a force-placed insurance

policy. Nor does it mean that Rath will necessarily succeed—or even get to trial—

on any of his claims. The parties fought a preliminary legal skirmish on the limited

ground chosen by Arch—whether Rath is a third-party beneficiary under the

contract. And because Arch lost that battle, the fight must now go on.

In sum, the insurance contract between Arch and the bank manifests an

intent to benefit Rath through its Amount-of-Insurance endorsement. Rath is thus

an intended third-party beneficiary under the contract. And the district court’s grant

of summary judgment to Rath based on the contrary holding must be reversed.

The case is remanded for further proceedings on all Rath’s claims in his second

amended petition consistent with this opinion.

REVERSED AND REMANDED.

Doyle, S.J., concurs; Schumacher, P.J., dissents.
 17

SCHUMACHER, Presiding Judge (dissenting).

A lender obtained a force-placed mortgage insurance policy to protect its

interest when the borrower allowed his insurance coverage for mortgaged property

to lapse, placing the lender's collateral at risk. Following the 2020 derecho, the

borrower initiated action against the lender's insurance carrier directly for coverage

for damage to his home. While the law presumes that an insurance contract

governs only those who are parties to it, the borrower does not claim to be a party

to the contract. Rather, he asserts he is an intended third-party beneficiary of his

lender’s force-placed policy.

The policy does not name the borrower as an additional insured, delineate

that the policy covers the borrower’s interest in the insured property, or otherwise

state that the borrower is a beneficiary of the lender’s coverage, including that of

a third-party beneficiary. To the contrary, the policy indicates that no direct or

indirect coverage is provided to the borrower. The trial court properly granted

summary judgment, which we should affirm. As we do not, I respectfully dissent.

Rath owns a home in Cedar Rapids, where he has lived since 2016. First

National Bank of America (FNBA) is the mortgage holder of the property. In 2019,

Rath failed to maintain home insurance as required by the mortgage agreement.

As a result, FNBA obtained a force-placed insurance policy from Arch to protect

its interest in the property,7 which was valued at $72,151.19. The policy listed

FNBA as the “Named Insured,” and it stated, “[t]he Borrower is not a Named

7 According to Rath, “I was struggling to make payments for insurance at the time

and therefore I made the payments to First National for the insurance it had
obtained.” FNBA billed Rath monthly for the insurance premiums, “plus a fee of
$8.00 to service each insurance premium payment.”
 18

Insured under this policy and no coverage is provided, either directly or indirectly,

to the Borrower.”

The policy automatically renewed each April. Arch sent Rath a “Mortgage

Hazard Program Notice of Insurance,” which provided the coverage period (April

4, 2020, to April 4, 2021) of FNBA’s policy, the borrower’s “name and mailing

address,” and the address of the covered property (Rath’s home). It also stated in

relevant part:

This is not a Homeowner’s Policy: This insurance provides
dwelling protection against loss to the property from perils including
but not limited to fire, lightning, explosion, vandalism and riot; subject
to the terms, conditions and exclusions set forth in the lender’s
master policy. This coverage may not meet your insurance needs.
There is no liability, theft of contents, flood or earthquake coverage.
In the event of a total loss, the limits provided above may not be
adequate to restore the property.
Deductible: In the event of loss, this policy shall be subject to
a deductible as defined in the policy Declarations of the lender’s
master policy. If more than one dwelling is insured and damaged by
the same occurrence, the deductible shall apply separately to each
dwelling.
This Notice of Insurance is for information only. It neither
amends, extends nor alters the coverage afforded by the
lender’s master policy which it describes.

In August 2020, Rath’s home sustained damage as a result of a derecho

windstorm. Rath contacted FNBA to report the damages, and FNBA initiated a

claim with Arch. Arch sent an adjuster to Rath’s home to inspect the damage. The

adjuster determined “the dwelling sustained damage due to wind and tree impact.”

Upon its review of FNBA’s policy, Arch found “there is coverage for this loss” and

notified FNBA.
 19

But Rath disagreed with the estimate. Per Rath’s request, FNBA contacted

Arch to request “the adjuster to come back out as [Rath] stated he missed a lot

during the initial visit.” Arch responded:

At this point we won’t send the adjuster back out. If we are presented
with 3 estimates from licensed contractors we will then consider a re-
inspection or work with a contractor on an agreed cost of repair. The
borrower has indicated that half of the roof was “missed.” However,
this is not the case, the front slope did not sustain wind damage. It
is, however, suffering from deterioration and needs to be replaced.
As for the tree we look at that cost in 2 different ways. The cost
associated with removing the tree from the covered structure to the
ground is considered part of the structure repair cost. Beyond that,
any removal of the tree is limited to $250. As for the electrical, we
are aware that code requirements may require increased cost.
However, we will only consider an adjustment to this cost if we have
an estimate and a copy of the code requirements from a licensed
contractor/electrician.

Rath continued to maintain “a lot was missed” and prepared to collect

estimates from contractors. FNBA asked Arch “if there is anything in particular that

[Arch is] needing to see regarding these ‘missed’ items?” Arch responded, “In

general, if the contractors feel there are ‘missed items’ they should take photos of

the missed items and include them in their estimate. Once we receive the

estimates and photos we can review them to determine if we need to adjust our

estimate.” No further action was taken on the file until February 2021, at which

time Arch noted FNBA did “not anticipate repairs to be done or to pursue

depreciation.” Arch closed the file.

According to Rath, “all contractors were overbooked due to the huge

number of derecho losses in the area.” In April 2021, Rath obtained a roofing

estimate “valu[ing] the loss at a replacement cost value of $23,331.67 and an

actual cash value of $19,442.97.” Rath made no repairs to the home.
 20

In August 2021, Rath initiated this action against Arch.8 Arch filed a pre-

answer motion to dismiss, claiming Rath “lack[ed] standing to pursue claims”

against Arch because Rath was neither a party nor third-party beneficiary to the

insurance policy Arch issued to FNBA. The district court entered a ruling denying

Arch’s motion, finding in relevant part, “[v]iewing the allegations of the Petition in

the light most favorable to [Rath], the Court finds it cannot be said with certainty

that there is no set of facts under which [Rath] may be entitled to recover against

[Arch], under any state of facts.” Accordingly, the court concluded Rath’s claims

“are not appropriately dismissed under a pre-answer motion to dismiss for failure

to state a claim upon which relief may be granted.”

Arch later moved for summary judgment, claiming “[b]ecause Plaintiffs are

not intended third party beneficiaries to the Policy, Plaintiffs cannot succeed with

their claims for breach of contract, bad faith, or declaratory relief.” Rath resisted

Arch’s motion and filed a motion for partial summary judgment “on the issue of

their third-party beneficiary status based on the clear Policy language,” which Rath

“agree[d] with [Arch] is a matter of law and can be determined by the Court on

summary judgment.”

The district court determined the insurance policy “includes clear language

that negates coverage for a borrower under the policy.” The court further

determined “[t]here is no language in the policy, including the provisions relied on

by Plaintiffs, which shows that there was any intent by the contracting parties to

provide for Plaintiffs to have any third-party benefit on Plaintiffs.” The court

8 Rath thereafter filed several amended petitions. Rath’s second amended petition

is the one we focus on for purposes of this appeal.
 21

therefore found Arch’s motion “should be granted as to Plaintiffs’ breach of contract

claim,” and “[b]ecause Plaintiffs cannot succeed on the breach of contract claim,

the bad faith, unjust enrichment, and declaratory judgment/injunctive relief claims

also fail as a matter of law.” Accordingly, the court granted Arch’s motion for

summary judgment, denied Rath’s motion for partial summary judgment, and

dismissed Rath’s claims. Rath appealed.

Rath contends the district court erred in failing to find he was a third-party

beneficiary to FNBA’s insurance policy. Arch maintains the court correctly

dismissed Rath’s breach-of-contract claim because Rath has “only an incidental

benefit under the policy, which is not sufficient to confer third-party beneficiary

status.”

For third-party beneficiary cases, Iowa has adopted the principles below

from the Restatement (Second) of Contracts:

(1) Unless otherwise agreed between promisor and promisee,
a beneficiary of a promise is an intended beneficiary if recognition of
a right to performance in the beneficiary is appropriate to effectuate
the intention of the parties and either
(a) the performance of the promise will satisfy an
obligation of the promisee to pay money to the beneficiary; or
(b) the circumstances indicate that the promisee
intends to give the beneficiary the benefit of the promised
performance.
(2) An incidental beneficiary is a beneficiary who is not an
intended beneficiary.

Vogan v. Hayes Appraisal Assocs., Inc., 588 N.W.2d 420, 423 (Iowa 1999)

(quoting Restatement (Second) of Contracts § 302 (Am. Law. Inst. 1979)). “[T]he

primary question in a third-party beneficiary case is whether the contract manifests

an intent to benefit a third party.” Id.; accord Tredrea v. Anesthesia & Analgesia,

P.C., 584 N.W.2d 276, 281 (Iowa 1998); accord Midwest Dredging Co. v.
 22

McAninch Corp., 424 N.W.2d 216, 224 (Iowa 1988). “However, this intent need

not be to benefit a third party directly.” Vogan, 588 N.W.2d at 423.

[W]hen a contract is made, the two or more contracting parties have
separate purposes; each is stimulated by various motives, some of
which he may not be acutely conscious . . . . A third party who is not
a promisee and who gave no consideration has an enforceable right
by reason of a contract made by two others . . . if the promised
performance will be of pecuniary benefit to [the third party] and the
contract is so expressed as to give the promisor reason to know that
such benefit is contemplated by the promisee as one of the
motivating causes of his making the contract.

Id. at 423–24 (citation omitted). “In applying section 302, . . . the promisee’s intent

generally controls.” RPC Liquidation v. Iowa Dep’t of Transp., 717 N.W.2d 317,

319 (Iowa 2006). To determine intent, the court “look[s] to the language of the

contract and to the circumstances surrounding it.” Id.

The circumstances surrounding the insurance policy are set forth above.

The relevant language of the policy includes the following. The Declarations Page

lists the “NAMED INSURED: FIRST NATIONAL BANK OF AMERICA” and

“POLICY PERIOD: From: 02/01/2019 To: Continuing Until Terminated.” The

Declarations Page further provides, “This Policy does not provide coverage for

Errors & Omissions or liability Insurance, nor does It provide coverage for

the Interest or equity of the Borrower as It Is collateral protection Insurance,

protecting Your Interest, subject to the Policy terms and conditions.” The

policy states:

MORTGAGE HAZARD INSURANCE
Throughout this policy “You” and “Your” refer to the Named
Insured shown on the Declarations Page; “We”, “Us”, and “Our”
refer to the Company providing this insurance as shown on the
Declarations Page.
....
I. AGREEMENT
 23

In return for payment of the premium due and Your
compliance with all applicable provisions of this policy, the Company
will provide You the Mortgagee Interest insurance described in this
policy.
....
II. DEFINITIONS
A. The Named Insured means the creditor, lending
institution, company, or person holding and/or servicing the
Mortgagee Interest on the Described Location. The Borrower is
not a Named Insured under this policy and no coverage is provided,
either directly or indirectly, to the Borrower.
B. The Borrower is the purchaser and/or owner of the
Described Location for whom You have financed property or which
You are servicing for others under written agreement. The
Borrower is neither a Named Insured nor an additional named
insured under this policy; however, the Borrower shall be
considered an additional loss payee only as respects amounts of
insurance over and above the interests of the Named Insured in the
Described Location.[9]
....
F. Mortgagee Interest means Your interest in the
Described Location under a conditional sales agreement,
mortgage, deed of trust, contract for deed, loan contract, contract for
sale, or any other instrument representing Your interest in the
Described Location as limited herein. Mortgagee Interest
includes the interest of others on loans You service for them under
a written servicing agreement or contract. Your interest in foreclosed
property shall in no event exceed the mortgage balance due on the
date title passes to You. Foreclosed property is understood to
include Your interest in all property acquired by deed in lieu of
foreclosure.
....
VIII. CONDITIONS
....
F. Appraisal—If You and We fail to agree on the amount
of loss, either can demand that the amount of the loss be set by
appraisal.

Rath relies on the definition of “Borrower,” as provided by the endorsement

in section II.B set forth above, to support his claim of third-party beneficiary status

under the policy. Rath argues that the endorsement “expressly recognizes an

9 This definition of Borrower under section II.B DEFINITIONS was included as

endorsement number 00 MHP0028 00 04 15 to the policy.
 24

interest of the Borrower as an additional loss payee.” Arch acknowledges the

endorsement established Rath as an additional loss payee. But even this

endorsement, by its terms, insured only FNBA’s interest in the property and not

the property itself or Rath’s interest in the property. See Restatement (Second) of

Contracts § 302 cmt. e (“Performance of a contract will often benefit a third person.

But unless the third person is an intended beneficiary as here defined, no duty to

him is created.” (emphasis added)); see also Mallavarapu v. City of Cedar Falls,

No. 19-1792, 2020 WL 7383115, at *5 (Iowa Ct. App. Dec. 16, 2020) (“The key

difference between an incidental beneficiary and an intended beneficiary is the

duty owed to the third party by the contracting parties.”).

The endorsement did not establish third-party beneficiary status in Rath.

This is especially clear given the express disclaimers providing that the Borrower

is “not a Named Insured nor an additional named insured under this policy”; the

policy does not “provide coverage for the Interest or equity of the Borrower,” and

most significantly, “The Borrower is not a Named Insured under this policy and no

coverage is provided, either directly or indirectly, to the Borrower.” (Emphasis

added.) See Mallavarapu, 2020 WL 7383115, at *5 (“In section 302 cases, ‘the

intent of the promisee is generally considered controlling.’” (quoting Midwest

Dredging Co., 424 N.W.2d at 224)).

The district court construed the policy language as follows:

Even when the facts are viewed in the light most favorable to
Plaintiffs, the Court concludes there is no genuine issue of material
fact on the question of whether Plaintiffs are intended third-party
beneficiaries. The language of the insurance policy is not capable of
more than one reasonable interpretation, and thus there is no
ambiguity in the policy; rather, the parties simply disagree about the
meaning of terms in the policy, which does not establish an
 25

ambiguity. The policy includes clear language that negates
coverage for a borrower under the policy. This language includes that
the policy does not “provide coverage for the Interest or equity of the
Borrower” and that the “Borrower is not a Named Insured under this
policy and no coverage is provided, either directly or indirectly, to the
Borrower.” The “Definitions” section of the policy also provides that
the “Borrower is not a Named Insured under this policy and no
coverage is provided, either directly or indirectly, to the Borrower.”
The Court agrees with Defendant that these are clear, express
disclaimers of any third-party beneficiary status on the part of
Plaintiffs. At most, as Defendant argues, Plaintiffs are incidental
beneficiaries of the policy, since they do not have any direct or
primary benefit under the policy. There is no language in the policy,
including the provisions relied on by Plaintiffs, that shows that there
was any intent by the contracting parties to provide for Plaintiffs to
have any third-party benefit on Plaintiffs. The Notice of Insurance
document relied on by Plaintiffs clearly states that it is not a
homeowner’s policy, and that it does not extend any provision therein
to change the coverage terms of the policy itself.

The policy language here does not evince “an intent to benefit a third party.”

See Vogan, 588 N.W.2d at 423. Rather, it expressed—unambiguously—that “no

coverage [wa]s provided, either directly or indirectly, to [Rath].” See RPC

Liquidation, 717 N.W.2d at 320 (“When a contract expressly negates the creation

of third-party beneficiaries, we have rejected the claim that such status exists.”);

Osmic v. Nationwide Agribusiness Ins. Co., 841 N.W.2d 853, 860 (Iowa 2014)

(“Where there is a contract, the right of a beneficiary is subject to any limitations

imposed by the terms of the contract.” (quoting Restatement (Second) of Contracts

§ 309 cmt. b)); but see Vogan, 588 N.W.2d at 424 (holding home buyers were

third-party beneficiaries of an agreement between their lender and an appraiser

hired by the lender to monitor the progress of the construction of the home, finding,

“[t]he promised performance of Hayes Appraisal to MidAmerica will be of pecuniary

benefit to the Vogans, and the contract is so expressed as to give Hayes reason
 26

to know that such benefit is contemplated by MidAmerica as one of the motivating

causes of making the contract”).

I disagree with the majority opinion’s conclusion that reversal of the district

court’s grant of summary judgment “fits comfortably with the precedent from other

jurisdictions considering similar questions about third-party beneficiary status for

homeowners under force-placed insurance policies.” The majority opinion cites a

case from Minnesota to support the conclusion that Rath is a third-party

beneficiary. See Hickman v. Safeco Ins. Co. of America, 695 N.W.2d 365 (Minn.

2005). But there are stark differences in the two policies at play. The Hickman

court held that because the insurance contract contained several provisions that

provided for the payment of insurance proceeds to the “borrower,” he was a third-

party beneficiary to the insurance contract. Id. at 370–71. The insurance contract

in Hickman provided that the insurer would pay any amount in excess of the

mortgagee’s interest to the borrower; the borrower had the right to seek arbitration

of the appraisal of a loss covered by the policy if the borrower disagreed with the

amount of loss determined by the insurer; and the policy included coverage for

personal property that the mortgagee had no insurable interest. Id. at 370–71.

Because of these clauses, the court believed that the policy meant that the

borrower was an intended third-party beneficiary. Id. at 371. Such provisions are

absent in the policy involved in the instant appeal.

In Harrison v. Safeco Insurance Company of America, a court addressed

issues with regard to lender-placed insurance policies. No. 06-4664, 2007 WL

1244268, at *3–5 (E.D. La. Jan. 26, 2007). The plaintiffs filed suit against the

defendants claiming that the defendants intentionally, improperly, unjustly, and
 27

negligently adjusted insurance claims after Hurricane Katrina. Id. at *1. The

plaintiffs, however, were not parties to the insurance policies, but rather the policies

were “lender-placed” policies where the mortgagees paid the premiums on the

policies. Id. The court found that the plaintiffs lacked standing to bring their claims

because they were not parties to the insurance contracts. Id. at *4. According to

the court, there was no relationship between the plaintiffs and the defendant

insurers and “the property was only insured because [the p]laintiffs’ mortgage

holders obtained coverage when [the p]laintiffs could not provide them with

sufficient proof of coverage.” Id. at *5. The court also found that the plaintiffs were

not third-party beneficiaries to the policies. Id. In so holding, the court found that

the plaintiffs were not intended beneficiaries under the policies, and the references

to “borrowers” in the policies did not create “a stipulation pour auturi.” Id.; accord

Jones v. Proctor Fin. Ins. Corp., No. Civ.A. 06-9503, 2007 WL 4206863, at *2 (E.D.

La. Nov. 21, 2007).

And considering the policy language quoted above, Rath’s invitation to find

the policy’s peripheral coverage for “lawns, plants, shrubs, and trees”; the policy’s

requirement that FNBA report its “Borrower Name and Address”; and the policy’s

condition allowing “[t]he Borrower, at [FNBA’s] discretion and as [FNBA’s]

representative, [to] submit claims on [FNBA’s] behalf” amount to “recogni[tion of]

the interests of the Borrower,” are sufficient to make Rath a third-party beneficiary

should also be declined.

I concur with the district court that the policy language unambiguously

resolves the legal question presented here. See RPC Liquidation, 717 N.W.2d at

321 (“In determining the parties’ intention we are bound by what the contract says
 28

except in cases of ambiguity. And when the contract is not ambiguous, we will

enforce it as written.” (internal citation omitted)). The district court highlighted the

absence of precedent in Iowa concerning third-party beneficiaries on forced-

placed insurance policies, stating:

The parties have gone to great lengths to provide the Court
with authorities from other jurisdictions that support their respective
positions. While the Court is appreciative of the parties’ efforts to
provide these authorities, the Court finds it unnecessary to consider
these authorities. First, the parties have been able to locate authority
that supports their respective positions while also providing authority
that contradicts the other party’s position. In short, there is authority
from other jurisdictions that could be construed as supporting the
positions of both sides, and it is not clear which side the Iowa
Appellate Courts would take on these issues. Second, the Court
finds that consideration of such authority is moot, because
application of Iowa law regarding interpretation of insurance policies
and third-party beneficiaries is sufficient for the Court to reach a legal
conclusion, based on the language of the policy, that Plaintiffs are
not intended third-party beneficiaries of the insurance policy.

Before concluding, I note another point of disagreement with the majority

opinion. I disagree with the majority determination that Arch was unable to offer a

theory of intent for the endorsement at oral argument. Arch has consistently

argued that, at best, Rath was an incidental beneficiary to the insurance policy.

And as noted by Arch, the endorsement states that it does not change any of the

definitions of the insurance policy. While the policy does not use the term “third-

party beneficiaries,” the policy states that it does not directly or indirectly benefit

Rath.

Finding no error in the court’s determination that Rath is not an intended

third-party beneficiary under FNBA’s force-placed insurance policy on his home,

the district court should be affirmed.