Aspen American Insurance Company v. Jones

Background

Vickie M. Jones received dental treatment from Michael Dan Smilanich. In March 2014, she paid Smilanich $8,000 in advance for additional work related to a permanent bridge. At that time, Smilanich’s dental practice faced serious financial problems, including a scheduled sheriff’s sale, threatened foreclosure, and substantial debts. The practice was later foreclosed on, and Smilanich did not complete the promised work within the expected two weeks. A permanent bridge was eventually placed in November 2015, about 20 months after Jones’s payment.

Jones later sued Smilanich, Michael Dan Smilanich, D.D.S., Ltd., and Smilanich Smile Design in Minnesota state court for negligence and medical malpractice, and for fraud and misrepresentation. The jury found fraud and misrepresentation, awarded Jones $100,000, and did not find negligence. The state court also awarded Jones $39,416.39 in costs, disbursements, and pre-verdict interest.

Smilanich had a claims-made professional-liability policy with Aspen American Insurance Company covering December 15, 2017, through December 15, 2018. Aspen defended Smilanich in the state-court case while reserving its rights. The policy covered amounts legally owed because of injury or damage caused by a “dental incident” arising from providing or failing to provide professional services. It excluded injury or damage that the insured expected or intended, or that a reasonable person could have expected.

Summary Judgment

Both Aspen and Jones moved for summary judgment, which is a ruling without a trial when no genuine dispute of important facts exists and one side is entitled to judgment under the law. Aspen sought a declaration that it did not have to indemnify the Smilanich Defendants, defend the state-court action on appeal, or pay any resulting judgment. Jones sought to enforce the policy so she could recover the judgment from Aspen.

The court applied Minnesota law, under which insurance exclusions are construed narrowly and strictly against the insurer. Aspen had the burden of proving that the intentional-act exclusion applied. Under the applicable law, intent to injure generally requires a specific intent to cause injury. A court may infer that intent as a matter of law when the conduct makes harm substantially certain or is calculated and remorseless, but foreseeable harm alone is not enough.

The court declined to infer intent to injure as a matter of law. It found that the cases supporting such an inference involved more extreme conduct than Smilanich’s conduct. The court also rejected Aspen’s argument that accepting Jones’s payment while taking a calculated financial risk necessarily established an intent to injure. The state-court fraud verdict did not resolve the insurance question because civil fraud required intent that Jones rely on false statements, not intent to injure her.

At the same time, the court held that Jones had not established as a matter of law that Smilanich lacked the specific intent to injure her. The evidence included his knowledge of the impending sheriff’s sale and his serious financial difficulties, as well as the delay and his statements to Jones. His testimony that he did not intend or expect to harm Jones was not dispositive. These circumstances created a factual question about his intent.

The court also identified factual disputes about whether Smilanich failed to provide professional dental services during the approximately 20-month delay and whether his material misrepresentations arose from a covered dental incident. Because those disputes remained, the court denied both parties’ summary-judgment motions.

Default Judgment

Aspen also sought default judgment against the Smilanich Defendants, who had been personally served but had not entered an appearance. The clerk had entered default against them. Jones did not oppose default judgment except to the extent it might affect her ability to recover the state-court judgment from Aspen.

The court denied Aspen’s motion for default judgment without prejudice. The record did not show that the Smilanich Defendants had assigned their rights to Jones, so it was unclear whether a default judgment against them would extinguish or otherwise affect the coverage action.

Disposition

The court ordered that Aspen’s motion for summary judgment was denied, Aspen’s motion for entry of default judgment was denied without prejudice, and Jones’s motion for summary judgment was denied.