Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca8-13-02918/USCOURTS-ca8-13-02918-0/pdf.json

Nature of Suit Code: 110
Nature of Suit: Insurance
Cause of Action: 

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United States Court of Appeals

For the Eighth Circuit

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No. 13-2918

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Sletten & Brettin Orthodontics, LLC; Daniel W. Sletten, DDS

lllllllllllllllllllll Plaintiffs - Appellants

v.

Continental Casualty Company; Wells Fargo Insurance Services USA, Inc.

lllllllllllllllllllll Defendants - Appellees

____________

 Appeal from United States District Court 

for the District of Minnesota - Minneapolis

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 Submitted: October 7, 2014

 Filed: March 19, 2015

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Before MURPHY, SMITH, and GRUENDER, Circuit Judges.

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GRUENDER, Circuit Judge.

Sletten & Brettin Orthodontics, LLC and Daniel Sletten appeal the district

court’s1 dismissal of their complaint with prejudice. We affirm.

1

The Honorable Joan N. Ericksen, United States District Judge for the District

of Minnesota.

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I.

In 2006, Daniel Sletten, an orthodontist practicing in Minnesota and Wisconsin,

bought general liability and personal injury liability insurance from Continental

Casualty Company (“Continental”) through Wells Fargo Insurance Services (“Wells

Fargo”). The next year, Sletten formed Sletten & Brettin Orthodontics, LLC

(“S&B”). S&B opened an office in Hudson, Wisconsin and employed Bryan Brettin

to practice orthodontics there. Sletten notified Wells Fargo that he had opened the

Hudson office and requested coverage for this business location. Wells Fargo added

the Hudson office as an additional insured location but never added S&B as a named

insured. 

In 2012, DouglasWolff, a dentist, and St.Croix Valley Dental, PLLC,(together

referred to as “St. Croix”) sued S&B and Brettin in Minnesota state court. The

complaint alleged that Brettin, acting “on behalf of and with the knowledge and

consent of” S&B, used his neighbor’s wireless network to post defamatory comments

about St. Croix to the Internet. Three times in 2011, Brettin allegedly posed as a

patient of St. Croix Valley Dental and criticized Wolff’s orthodontia. For example,

one review using the screen name “Hockey Mom” claimed that the reviewer’s son

required oral surgery after his braces were removed at St. Croix Valley Dental and

warned potential patients, “[b]uyer beware.” St. Croix alleged three claims:

defamation and libel, civil conspiracy, and unfair competition. Each claim specifically

alleged that S&B and Brettin intended to injure St. Croix’s reputation. 

S&B and Brettin tendered the defense of the lawsuit to Continental, but

Continental refused to defend because the policy did not identify S&B as a named

insured. S&B and Sletten then sued Continental and Wells Fargo in Minnesota state

court seeking a declaration that Continental must defend S&B and Brettin, costs

related to their legal defense, and reformation of the insurance policy to include S&B

as a named insured. After Continental and Wells Fargo removed the case to federal

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district court, Continental filed a motion to dismiss the complaint with prejudice,

which Wells Fargo joined.2 

The district court granted Continental and Wells Fargo’s motion and dismissed

the lawsuit. The court held that the insurance policy excluded coverage for acts done

with the intent to injure and that because every claim in St. Croix’s complaint pleaded

that S&B and Brettin acted with the intent to injure St. Croix, Continental and Wells

Fargo had no duty to defend S&B and Brettin. The court declined to address S&B and

Sletten’s reformation argument, explaining that Continental had no duty to defend

regardless of whether S&B was a named insured of the policy. S&B and Sletten

appealed the district court’s order arguing that, under Minnesota law, Continental has

a duty to defend S&B and Brettin.

II.

We review a district court’s grant of a motion to dismiss de novo, accepting as

true all facts pleaded by the non-moving party and granting the non-moving party all

reasonable inferences. Gallagher v. City of Clayton, 699 F.3d 1013, 1016 (8th Cir.

2012). “To survive a motion to dismiss, a complaint must contain sufficient factual

matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’” 

Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Alt. Corp. v. Twombly, 550

U.S. 544, 570 (2007)). The parties agree that Minnesota law applies in this diversity

case, and we therefore apply Minnesota law. See Netherlands Ins. Co. v. Main St.

2

Because Wells Fargo filed an answer before joining Continental’s Rule

12(b)(6) motion to dismiss, its motion was not timely. See Fed. R. Civ. P. 12(b).

However, S&Band Sletten acknowledge that the distinction between aRule 12(c) and

a Rule 12(b)(6) motion is “purely formal” and do not challenge the district court’s

order on this procedural ground. Westcott v. City of Omaha, 901 F.2d 1486, 1488 (8th

Cir. 1990). Accordingly, we refer to Continental and Wells Fargo’s joint motion as

a motion to dismiss.

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Ingredients, LLC, 745 F.3d 909, 912-13 (8th Cir. 2014). In applying Minnesota law,

“[w]e must predict how the Supreme Court of Minnesota would rule, and we follow

decisions of the intermediate state court when they are the best evidence of Minnesota

law.” Id. (quoting Friedberg v. Chubb & Son, Inc., 691 F.3d 948, 951 (8th Cir.

2012)). 

In order to determine if Continental has a duty to defend, we must interpret the

insurance policy and compare its coverage terms to the allegations in St. Croix’s

complaint. See Meadowbrook, Inc. v. Tower Ins. Co., Inc., 559 N.W.2d 411, 415

(Minn. 1997). We first interpret the insurance policy in accordance with Minnesota

law and address S&B and Sletten’s arguments pertaining to the policy’s construction. 

After determining the scope of the policy’s coverage, we apply its terms to the facts

alleged in the underlying complaint. For the reasons discussed below, we conclude

that the policy excludes coverage for defamation committed with an intent to injure

and that, accordingly, Continental has no duty to defend against St. Croix’s lawsuit

because it alleged only that S&B’s and Brettin’s conduct was intended to injure.

A.

S&B and Sletten argue that the Continental policy is ambiguous and that this

ambiguity requires Continental to defend against the St. Croix lawsuit. See Wanzek

Constr., Inc. v. Emp’rs Ins. of Wausau, 679 N.W.2d 322, 329 (Minn. 2004)

(construing an ambiguous exclusion in favor of the insured); Gen. Cas. Co. of Wis. v.

Wozniak Travel, Inc., 762 N.W.2d 572, 575 (Minn. 2009). Interpretation of an

insurance policy, including whether a contract is ambiguous and whether an exclusion

is valid and enforceable, is a question of law, which we decide de novo. Grinnell Mut.

Reins. Co. v. Schwieger, 685 F.3d 697, 700-01 (8th Cir. 2012). When the language

of an insurance policy is clear and unambiguous, it “must be given its usual and

accepted meaning.” Wanzek Constr., Inc., 679 N.W.2d at 324-25 (quoting Lobeck v.

State Farm Mut. Auto. Ins. Co., 582 N.W.2d 246, 249 (Minn. 1998)). Minnesota law

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construes an insurance policy’s words of inclusion broadly and words of exclusion

narrowly. Wozniak Travel, Inc., 762 N.W.2d at 575. 

Applying Minnesota law, we conclude that the policy unambiguously provides

coverage for defamation but excludes coverage for defamation committed with an

intent to injure. The policy states that the insurer will provide a defense for and pay

“all amounts, up to the limit of liability, which you become legally obligated to pay

as a result of injury or damage . . . . The injury or damage must be caused by an

occurrence.” Bolded terms are defined in the “Definitions” section of the policy. 

The term “injury” encompasses a list of claimsincluding, “oral or written publication

of material that: . . . slanders or libels an entity or disparages an entity’s goods,

products orservices.” “Occurrence” is defined as “an accident, [i]ncluding continuous

or repeated exposure to conditions which: A. resultsin injury and/or damage; and B.

was not expected nor intended by you.” The term “accident,” as used within the

definition of occurrence, is not defined. The policy also contains an exclusion for

“injury or damage you expected or intended, or which a reasonable person could

have expected.” 

S&B and Sletten argue that the policy is ambiguous because, on the one hand,

it purportsto provide coverage forseveral claims based on intentional acts, but on the

other hand, it precludes coverage for intentional acts by defining an occurrence as an

accident and including an intent-to-injure exclusion. See Wozniak Travel, Inc., 762

N.W.2d at 576 (“Minnesota rules of insurance policy interpretation require policies

to be read in favor of finding coverage.”). The Minnesota Supreme Court interpreted

an insurance policy with very similar language in American Family Insurance

Company v. Walser, 628 N.W.2d 605 (2001). The policy in that case provided

coverage for “compensatory damages which any insured becomes legally obligated

to pay as damages because of bodily injury or property damage” provided that “the

bodily injury or property damage [was] caused by an occurrence.” Id. at 609. 

Occurrence was defined as “an accident, including continuous or repeated exposure

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to substantially the same general harmful conditions.” Id. The Walser policy also

included a substantially similar exclusion for “damages due to bodily injury or

property damage expected or intended from the standpoint of the insured.” Id.

Walser determined that, under Minnesota case law, the term “accident” means

an “unexpected, unforeseen, or undesigned happening or consequence.” Id. at 611-12

(emphasis omitted). Because the policy in that case defined an occurrence in terms

of an accident, the court applied this definition of “accident” to determine that the

policy provided coverage for an incident where the insured did not intend or expect

to cause injury. Id. at 611-13. Walser further explained that, under Minnesota law,

“intentional act exclusion[s]”were narrowly construed as excluding only coverage for

acts committed with the intent to injure. Id. 611-12. Accordingly, Walser determined

that, as a general rule, insurance provisions that grant coverage for accidents and

provisionsthat exclude coverage for intentional acts were “opposite sides of the same

coin.” Id. at 611. Applying this generalrule, the Minnesota SupremeCourt concluded

that the Walser policy excluded coverage for acts that were intended to injure but

covered intentional acts where the resultant injury was not intended or expected. Id.

at 612-13.

We conclude that Walser controls this case. As in Walser, the policy here

grants coverage for accidentsthrough its definition of occurrence. And the exclusion

precludes coverage for intent-to-injure acts. Thus, the two provisions here are

opposite sides of the same coin, and we read them together as providing coverage for

intentional acts but excluding coverage for acts committed with the intent to injure. 

Accordingly, the insurance policy here provides coverage for defamation in general,

an intentional act, but excludes coverage for defamation committed with the intent to

injure. See Weinberger v. Maplewood Review, 668 N.W.2d 667, 673 (Minn. 2003)

(“In Minnesota, a plaintiff pursuing a defamation claim must prove that the defendant

made: (a) a false and defamatory statement about the plaintiff; (b) in unprivileged

publication to a third party; (c) that harmed the plaintiff’s reputation in the

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community.”). And this exclusion makes sense because defamation is often

committed without intending injury. See Cincinnati Ins. Co. v. E. Atl. Ins. Co., 260

F.3d 742, 746-47 (7th Cir. 2001). For example, the defamer may have attempted to

conceal the victim’s name, may have thought the victim’s reputation was already

damaged beyond repair, or may have thought the defamatory statement was true and

thus would not cause any legal injury. Id. Accordingly, we cannot find this insurance

policy ambiguous where the Minnesota Supreme Court’s Walser decision found

substantially similar language to be enforceable. 628 N.W.2d at 609-12. 

S&B and Sletten attempt to distinguish Walser and other intentional-actexclusion cases because those casesinvolved bodily injury or property damage rather

than injury caused by defamation. See, e.g., Walser, 628 N.W.2d at 608-09; Am. Mut.

Ins. Co. v. Peterson, 405 N.W.2d 418, 419-20 (Minn. 1987). But we think this is a

distinction without a difference. Whether the injury caused is physical or reputational,

the rationale for excluding coverage for acts committed with an intent to injure is the

same—it eliminates the insured’s ability to cause harm intentionally with impunity. 

See State Farm Fire & Cas. Co. v. Schwich, 749 N.W.2d 108, 114 (Minn. Ct. App.

2008) (explaining that Minnesota public policy bars liability coverage for serious

criminal acts because it permits an insured to “consciously control the risks covered

by the policy”). 

Our conclusion that an intent-to-injure exclusion is enforceable for defamation

coverage is buttressed by our previous decision that a knowledge-of-falsity exclusion

to defamation coverage was enforceable under Minnesota law. See Callas Enters.,

Inc. v. Travelers Indem. Co. of Am., 193 F.3d 952, 957 (8th Cir. 1999) (concluding

that, even if a different exclusion did not apply, coverage for defamation would have

been obviated by the knowledge-of-falsity exclusion). Such knowledge-of-falsity

exclusions preclude coverage for defamatory acts committed with the knowledge that

the published material was false. Id. Accordingly, while precluding coverage for

defamation committed with the intent to injure is not coextensive with an exclusion

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for knowledge-of-falsity, the general principle that insurance providers may exclude

coverage for more severe types of defamation is the same. 

In a related argument, S&B and Sletten contend that if the policy

unambiguously excludes coverage for acts done with the intent to injure, then the

policy’s coverage for intentional acts, such as defamation, is illusory and should be

construed to provide coverage. See Sawyer v. Midland Ins. Co., 383 N.W.2d 691,

695-96 (Minn. Ct. App. 1986) (declining to read an insurance term strictly because to

do so would “eliminate totally its usefulness” and instead construing the provision as

providing coverage). “Under the doctrine [of illusory coverage], ‘liability insurance

contracts should, if possible, be construed so as not to be a delusion to the insured.’” 

In re SRC Holding Corp., 545 F.3d 661, 671 (8th Cir. 2008) (quoting Jostens, Inc. v.

Northfield Ins. Co., 527 N.W.2d 116, 118 (Minn. Ct. App. 1995)). “The doctrine of

illusory coverage qualifies the general rule that insurance contracts will be enforced

in accordance with their plain language.” Id. The doctrine is best applied “where part

of the premium is specifically allocated to a particular type or period of coverage and

that coverage turns out to be functionally nonexistent.” Id. (quoting Jostens, Inc., 527

N.W.2d at 119).

First, S&B and Sletten argue that the policy’s coverage for defamation is

illusory because Minnesota law requires proof of actual malice in a defamation case

against a corporation or public figure. See Porous Media Corp. v. Pall Corp., 173

F.3d 1109, 1116 (8th Cir. 1999) (“Minnesota law considers a corporation a public

figure and requires it to show that a statement was made with actual malice to

establish a defamation claim.”)(quotingN.W. Airlines, Inc. v. Astraea Aviation Servs.,

Inc., 111 F.3d 1386, 1393 (8th Cir. 1997)). This argument fails. Intent to injure is not

a required element for defamation claims against private individuals under Minnesota

law, Weinberger, 668 N.W.2d at 667, and as discussed above, defamation is often

committed without an intent to injure, see Cincinnati Ins. Co., 260 F.3d at 746-47. 

Thus, even assuming that S&B and Sletten are correct that the policy excludes

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coverage for defamation committed against public figures and corporations because

proving actual malice necessarily proves an intent to injure, the policy provides

coverage for many claims of defamation committed against private individuals. See

BancInsure, Inc. v. Marshall Bank, N.A., 453 F.3d 1073, 1076-77 (8th Cir. 2006)

(holding that the illusory coverage doctrine did not apply where coverage was

available for some but not all forgery claims); W. Bend. Mut. Ins. Co. v. Allstate Ins.

Co., 776 N.W.2d 693, 704-05 (Minn. 2009). Accordingly, the policy’s coverage for

defamation is not illusory. 

Second, S&B and Sletten argue that the policy’s coverage is illusory with

respect to several other intentional torts that the policy lists as covered: battery,

assault, and malicious prosecution. But even assuming that this assertion is true, it

provides S&B and Sletten with no remedy here. The doctrine of illusory coverage

“operates to qualify the general rule that courts will enforce an insurance contract as

written.” Jostens, Inc., 527 N.W.2d at 118. Accordingly, under Minnesota law,

illusory-coverage doctrine operates as a remedy where an insured seeks coverage

under a provision that purports to provide coverage but such coverages turns out to

be functionally nonexistent. In re SRC Holding Corp., 545 F.3d at 671. S&B and

Sletten do not seek coverage for these other torts, and so the doctrine of illusory

coverage cannot provide them with a remedy in this case. 

B.

Having concluded that the policy provides coverage for defamation generally

but not defamation committed with the intent to injure, we next address the issue

whether Continental has a duty to defend based on the allegations in St. Croix’s

complaint. An insurance provider’s “duty to defend extends to every claim that

arguably falls within the scope of coverage, and the duty to defend one claim creates

a duty to defend all claims.” AMCO Ins. Co. v. Inspired Techs., Inc., 648 F.3d 875,

880 (8th Cir. 2011) (alteration omitted) (internal quotation marks omitted) (quoting

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Wozniak Travel, Inc., 762 N.W.2d at 576). An insurer bears “the burden of

demonstrating that all parts of the cause of action against the insured fall clearly

outside the scope of coverage.” Id. at 881 (quoting Farmers & Merchs. State Bank

of Pierz v. St. Paul Fire & Marine Ins. Co., 242 N.W.2d 840, 843 (Minn. 1976)). To

determine whether there is a duty to defend, “a court will compare the allegations in

the complaint in the underlying action with the relevant language in the insurance

policy.” Meadowbrook, Inc., 559 N.W. 2d at 415 (emphasis omitted).

Here, each claim in the St. Croix lawsuit alleges that S&B and Brettin acted

with the intent to injure Wolff and St. Croix Valley Dental. In Callas Enterprises,

Inc., we concluded that an insurance provider had no duty to defend a defamation

claim where the underlying policy had a knowledge-of-falsity exclusion. 193 F.3d at

957. After reviewing the underlying complaint, we explained, “[i]t would defy logic

to interpret this language as alleging anything other than that [the insured] acted

falsely and with knowledge of that falsity.” Id. at 957 n.5. Here as well, the St. Croix

lawsuit clearly alleges that S&B and Brettin both acted with the intent to injure. 

Brettin allegedly used his neighbor’s wireless network to post false and negative

reviews of Wolff and St. Croix Valley Dental. As to S&B, the complaint specifically

alleges that “Brettin was acting on behalf of and with the knowledge and consent of

the other Defendants and for their benefit.” S&B was one of the named “other

Defendants” in the complaint. All three claims, defamation and libel, civil conspiracy,

and unfair competition, arose out of the same alleged facts. And all three claims

specifically alleged that the defendants acted with the intent to injure Wolff and

St. Croix Valley Dental’s reputation. 

S&Band Sletten nonetheless argue that, because a Minnesota defamation claim

does not require proof of intent to injure, see Weinberger, 668 N.W.2d at 667,

Continental has a duty to defend. This argument misapprehends the distinction

between an insurer’s duty to indemnify and its duty to defend. Whether an insurer has

a duty to defend is determined by looking to the allegations of the underlying

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complaint, Meadowbrook, Inc., 559 N.W. 2d at 415, not by considering hypothetical

scenarios that could result in indemnity coverage, Bethel v. Darwin Select Ins. Co.,

735 F.3d 1035, 1040 (8th Cir. 2013). Here, the underlying complaint alleged that

S&B and Brettin intended to injure. “We will not imagine allegationsthat [St. Croix]

could have made merely because [St.Croix’s] actual allegations went beyond the bare

minimum of notice pleading.” See. id.

Finally, S&B and Sletten argue that it was inappropriate for the district court

to dismiss with prejudice because, regardless of whether Continental has a duty to

defend, Continental may yet be required to indemnify S&B and Sletten after trial. 

S&B and Sletten argue that, for this reason, the district court should have dismissed

their claims without prejudice. However, both S&B and Sletten’s complaint and the

district court’s dismissal order addressed only whether there was a duty to defend

against the pending St. Croix lawsuit. Because we agree with the district court that

S&B and Sletten failed to state a claim that Continental breached its duty to defend,

we discern no abuse of discretion in its dismissal with prejudice. See Schriener v.

Quicken Loans, Inc., 774 F.3d 442, 446 (8th Cir. 2014).

III.

We affirm the district court’s grant of Continental and Wells Fargo’s motion

to dismiss with prejudice.

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