This opinion will be unpublished and

may not be cited except as provided by

Minn. Stat. § 480A.08, subd. 3 (2000).








Back & Neck Pain Clinic, Inc., et al.,





Mount Vernon Fire Insurance Company,




Filed March 12, 2002


Parker, Judge*



Washington County District Court

File No. C1003845



James T. Hynes, James T. Hynes, PLLC, 1190 Ecolab University Center, 386 North Wabasha Street, St. Paul, MN 55102 (for appellants)


Christopher M. Kaisershot, Flynn & Gaskins, L.L.P., 333 South Seventh Street, 2900 Metropolitan Centre, Minneapolis, MN 55402 (for respondent)


            Considered and decided by Willis, Presiding Judge, Shumaker, Judge, and Parker, Judge.

U N P U B L I S H E D   O P I N I O N


            Appellants Back & Neck Pain Clinic, Inc. and Randy S. Miland (sole owner) brought an action for declaratory judgment, reformation of an insurance policy, and breach of contract against Mount Vernon Fire Insurance Company.  The district court granted summary judgment to the insurer, finding appellants had engaged in misrepresentations precluding coverage.

Appellants argue that the district court erred by (1) finding appellant Miland committed misrepresentation in an insurance application resulting in an increase in risk of loss, by stating he was unaware of any fact or situation that may result in a claim of sexual harassment or discrimination; (2) finding respondent was not estopped from raising defenses other than the physician/doctor exclusion; (3) finding the physician/doctor exclusion applies; and (4) awarding attorney fees to respondent.  We affirm.


            As a question of law, the district court on a motion for summary judgment may interpret an insurance contract.  Am. Nat’l Fire Ins. Co. v. Cordie, 478 N.W.2d 531, 533 (Minn. App. 1991).  Coverage issues and the construction and interpretation of a policy are questions of law.  Jenoff, Inc. v. N.H. Ins. Co., 558 N.W.2d 260, 261 (Minn. 1997); Haarstad v. Graff, 517 N.W.2d 582, 584 (Minn. 1994).  If there is no dispute of material fact, this court independently reviews the district court’s interpretation of the insurance contract.  Nat’l City Bank v. St. Paul Fire & Marine Ins. Co., 447 N.W.2d 171, 175 (Minn. 1989); see also Zimmerman v. Safeco Ins. Co. of Am., 605 N.W.2d 727, 729 (Minn. 2000).  In examining an insurance policy, a court’s function is to “determine what the agreement was and enforce it.”  Fillmore v. Iowa Nat’l Mut. Ins. Co., 344 N.W.2d 875, 877 (Minn. App. 1984).


            Appellant Miland argues that the district court erred in concluding he failed to disclose in his application for insurance information regarding a potential employment claim for sexual harassment arising from his relationship with an employee who was his ex-fiancée and the contentious issue of her salary, which increased the risk of loss.

An insurer and its insured owe correlative duties of good faith in their dealings with each other.  Buysse v. Baumann-Furrie & Co., 448 N.W.2d 865, 873 (Minn. 1989).  The elements of fraudulent misrepresentation are:

            1.   There must be a representation;

            2.   That representation must be false;

            3.   It must have to do with a past or present fact;

            4.   That fact must be material;

            5.   It must be susceptible of knowledge;

            6.   The representer must know it to be false, or in the alternative, must assert it as of his own knowledge without knowing whether it is true or false;

            7.   The representer must intend to have the other person induced to act, or justified in acting upon it;

            8.   That person must be so induced to act or so justified in acting;

            9.   That person’s action must be in reliance upon the representation;

            10.That person must suffer damage;

            11.That damage must be attributable to the misrepresentation, that is, the statement must be the proximate cause of the injury.


Davis v. Re-Trac Mfg. Corp., 149 N.W.2d 37, 38-39 (Minn. 1967).

What constitutes an increase of risk is a question of fact for the jury unless the increase is obvious.  Nathan v. St. Paul Mut. Ins. Co., 68 N.W.2d 385, 390 (Minn. 1955); see also Schaffer v. Hampton Farmers’ Mut. Fire Ins. Co., 183 Minn. 101, 235 N.W. 618 (1931) (finding the evidence was conclusive that the operation of a still and the storing of alcohol in an ordinary barn increased the fire hazard as to such structure).  This court “will not reverse such a finding unless it is manifestly contrary to the evidence.”  Bd. of Trustees of First Congregational Church of Austin v. Cream City Mut. Ins. Co. of Milwaukee, 96 N.W.2d 690, 694 (Minn. 1959).

The application for insurance form asked whether appellants were aware of “any fact, circumstance or situation which may result in an employment claim of sexual harassment, discrimination or wrongful termination against [him].”  (Emphasis added.)  Appellants answered no.  Appellants failed to inform the insurance company about several personal problems Miland was having with a current employee (his ex-fiancée) that affected their working relationship and working environment.

One co-worker testified in an affidavit that it was a “very poor, disturbing work environment” after the relationship between Miland and the employee ended.  She stated the fighting began in the summer of 1994.  She stated they were unable to control their tempers in the office and would (verbally) fight in the hall and waiting rooms, slam doors and talk about their situation in front of patients.  She said several employees quit because of it.  Subsequently, appellant’s (then) fiancée began to date another man.  The co-worker also stated she heard appellant say in the summer of 1995 that his ex-fiancée threatened to sue him for sexual harassment.  She said appellant told her, in regard to the ex-fiancée, that he could not have an employee who disrupts the office, talks behind his back, gets the employees to go against him, and “sucks money out” of his clinic.  Then, the co-worker testified, appellant said “I have to try to fire her, but I can’t because she says she’s going to sue me for sexual harassment.”  Another employee heard appellant say he needed to buy insurance and that he needed to “get his ducks in a row” before he terminated his ex-fiancée.

When appellant purchased the insurance, his ex-fiancée/current employee was still living in the same house with him, although she dated another man; she received a salary about $70,000 more than her productivity justified; and she was very concerned her salary would be cut after their break-up.  Appellant had inflated her salary so that she could qualify on her own for a home loan, so that the home would not be in his name.  He was enmeshed in an insurance fraud lawsuit at the time.  The ex-fiancée stated in her affidavit for her lawsuit against appellant that he threatened to fire her after she started dating another man.  Appellant also admits the ex-fiancée’s salary was a contentious issue when he purchased the insurance.  Appellant renewed his insurance in November 1996 and stated he did not intend to terminate anyone within the next 12 months.

Appellant’s misrepresentation must either be made with intent to deceive/defraud or increase the risk of loss.  Minn. Stat. § 60A.08, subd. 9 (2000).  The district court found the evidence conclusive that the misrepresentations increased the risk of loss.  The record shows that the ex-fiancée threatened to sue appellant for sexual harassment prior to his purchase of the insurance.  Moreover, appellant renewed his insurance a year later and still did not inform respondent of the existing facts that ultimately resulted in a lawsuit for sexual harassment.  At the time of the renewal, the ex-fiancée had threatened to sue appellant for sexual harassment if he fired her and appellant had to fire her because she was costing the clinic too much money.  At that time, the lawsuit was foreseeable and, hence, the risk of loss was increased.  We hold that the record supports the district court’s holding that appellant misrepresented his knowledge of facts that “may result” in a sexual harassment lawsuit.

            The district court found there was a great deal of animosity between appellant and his ex-fiancée; that her salary was greatly inflated solely because of a former relationship between the two and had become a source of concern for both parties, and that dating was an issue causing confrontation at the workplace.  We hold that these findings are supported by the record.  We further hold that the district court’s conclusion that appellant’s misrepresentations, and the consequent increase in the risk of loss, voided the policy is not erroneous.


Appellants argue respondent should be estopped from bringing all defenses except the physician/doctor exclusion because respondent failed to raise them in its initial denial-of-coverage letter.  We disagree.

In a letter dated March 31, 1997, respondent informed appellant Miland that the policy did not cover his defense costs or loss and that the letter should not be construed to waive any other defenses it may have under that policy.  The lawsuit was then postponed until after appellant’s criminal proceedings and prison sentence.  At the time respondent submitted its answer, it was unaware of the misrepresentation.  Respondent did not have full knowledge and appellant was not forthcoming on his application to the insurance company.  See Malakowsky v. Johannsen, 374 N.W.2d 816, 818-19 (Minn. App. 1985) (stating this court does not impose liability on an insurer for a risk for which it did not bargain).

 When respondent learned of the misrepresentation, it asked appellants if it could amend its answer.  In a letter dated August 31, 2000, appellants informed respondent they did not have any objection to respondent amending its answer if it was done quickly, and no later than September 1, 2000.  Respondent faxed the amended answer to appellants on August 31, 2000.  Additionally, the record establishes that for a great deal of the time between respondent’s initial answer and its amended answer, appellant Miland was involved in other civil and criminal lawsuits and, during some of this period, incarcerated.

Appellants argues the physician/doctor exclusion is not part of the policy because it was not part of the offer and acceptance process.  Appellants assert that because it was not included in the sample materials, “it was not in his particular contract.”  Appellants also contend the exclusion does not apply to chiropractors because they are not “doctors.”

In construing an insurance contract, the intention of the parties is the overriding concern, to be determined by the language of the entire contract.  Bobich v. Oja, 258 Minn. 287, 294, 104 N.W.2d 19, 24 (1960).  Endorsements and exclusions must be construed in terms of the entire contract, and in such a way, if possible, to give effect to all provisions, and language is to be given its plain meaning.  Id. at 294-95, 104 N.W.2d at 24-25.

Appellants were on notice that the promotional material was not a part of their contract, but rather was a sample policy.  Respondent advised appellant Miland to read his own policy and endorsements.  Further, the sample policy stated it did not alter his own policy, and to fully understand his own policy he needed to read it and discuss it with his broker.

Appellants argue the doctrine of reasonable expectations defeats the exclusion.

The doctrine of reasonable expectations protects the objectively reasonable expectations of insureds even though painstaking study of the policy provisions would have negated those expectations.


Jostens, Inc. v. Northfield Ins. Co., 527 N.W.2d 116, 118 (Minn. App. 1995) (quotations omitted), review denied (Minn. Apr. 27, 1995).  However:

The doctrine does not remove from the insured the responsibility to read the policy but at the same time does not hold the insured to an unreasonable level of understanding of the policy.  Other factors to be considered are the presence of ambiguity, language which operates as a hidden exclusion, oral communications from the insurer explaining important but obscure conditions or exclusions, and whether the provisions in a contract are known by the public generally.


Nat’l Indem. Co. of Minn. v. Ness, 457 N.W.2d 755, 757 (Minn. App. 1990), review denied (Minn. Sept. 14, 1990).

Appellants argue chiropractors are not doctors, although they may be referred to as “doctor of chiropractic.”  The record shows that appellant Miland referred to himself as “Dr. Miland,” signed his name as “Doctor,” and has referred to his former fiancée as “Doctor,” as well.  It is reasonable that the exclusion was put in the policy for a reason and if it did not apply to chiropractors, to whom at appellant’s clinic would it refer?  We find the exclusion applicable, even though it may not have been necessary for this court to address the issue because the misrepresentation voided the contract.

Attorney Fees

Appellants argue there is no basis for the district court’s award of attorney fees to respondent.  This court will not reverse a district court’s denial of attorney fees absent an abuse of discretion.  For an award of fees to be granted under rule 11 or Minn. Stat. § 549.211, there must be some showing of bad faith on the part of the party being sanctioned.  Kellar v. Von Holtum, 605 N.W.2d 696, 701 (Minn. 2000).

Respondent requested attorney fees in its answer and amended answer.  The district court set forth the law regarding attorney fees and stated reasons for awarding them.  The district court found that appellants brought suit against respondent to gain from their misrepresentation and withheld information about the fraud from respondent during the discovery process.  The court found that appellants acted in bad faith and wasted court resources by defrauding their insurance company and by suing the company in an attempt to gain from the fraud.  See Gendreau v. Foremost Ins. Co., 423 N.W.2d 712 (Minn. App. 1988).  We hold that sufficient evidence sustains the findings and there was no error.



*  Retired judge of the Minnesota Court of Appeals, serving by appointment pursuant to Minn. Const. art. VI, § 10.