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No Foundation

House-moving disaster leads insureds to sue agents for negligence

By Barry Zalma | Updated on August 31, 2012
By Barry Zalma, founder of Zalma Insurance Consultants

Michael Paul and others sued their insurance agents in Minnesota state court only to have the trial court dismiss their negligence and contract claims against the insurance agency (the “agency”). The Minnesota Court of Appeal, in  Michael Paul, et al v. Wayne Holmgren D/B/A Wayne W. Holmgren & Sons, Noah Insurance Inc., Vineland-Huntsville Mutual Insurance Co. No. A11-1645 (Minn.App. 06/25/2012) found part of the trial court’s judgment erroneous and part appropriate.

In July 2009, the Pauls purchased a house for their daughter and son-in-law, the Helgesons. At the time of the purchase, the Pauls and the Helgesons (the “Pauls”) were aware that the foundation needed to be repaired or replaced. The Pauls met with an insurance agent at the agency to obtain insurance to cover the house. The agency is an independent insurance agency that places insurance policies with several different insurance companies, including Vineland-Huntsville Mutual Insurance Co. (“Vineland”). The Pauls initially requested a homeowners’ policy. Because the Helgesons did not own the house, they did not qualify for such a policy. The agency procured a renters’ policy for the Helgesons and a “named perils” dwelling-owners’ policy for Mr. and Mrs. Paul. Vineland placed both policies. The dwelling-owners’ policy included an “increase of hazard” provision, stating that Vineland would “not pay for loss if the hazard is increased by any means within the control or knowledge of any insured.”

Related: Read Zalma’s previous column “20/20 Hindsight.” 

In November 2009, the Helgesons hired Wayne Holmgren to move the house to a new foundation. On Dec. 23, 2009, the house fell from a dolly while it was being moved and was a total loss. Following the loss, appellants discovered that Holmgren did not have proper insurance to cover moving the house. The Pauls then made a claim for the loss under the dwelling-owners’ policy. Vineland denied coverage stating that the loss was not caused by a peril specifically covered by the policy. The Pauls filed suit against Holmgren, Noah and Vineland. They claimed that Holmgren was negligent and breached his contract. Appellants alleged negligence and breach-of-contract claims against the agency for failing to procure insurance to cover the house move. They also filed a breach-of-contract claim against Vineland for its denial of coverage under the dwelling-owners’ policy.

Vineland and the agency moved separately for summary judgment and the district court granted both motions. The trial court found that, by attempting to move the house, it was undisputed that the Pauls had increased the risk of hazard. The loss was therefore not covered by the policy. 

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