I experienced the same issue. After sucessfull OpenVPN connection
/var/run/nm-dns-dnsmasq.conf contains the following:

server=/10.in-addr.arpa/10.1.106.7
server=192.168.0.1
server=192.168.3.2

This 10.in-addr.arpa prefix appears only when "Use this connection only for 
resources on its network" checkbox was turned on at IPV4 routes page of VPN 
configuration window.  Syslog contains the following:
...
Mar 23 09:41:35 shakira dnsmasq[4138]: using nameserver 10.1.106.7#53 for 
domain 10.in-addr.arpa
...

Finally, I found, that the OpenVPN server was not pushing down the
domain suffix. After inserting the proper "dhcp-option DOMAIN" entry
into openvpn server configuration, it started to work.

openvpn server.conf:
...
push "dhcp-option DNS 10.1.106.7"
push "dhcp-option DOMAIN dev.xxx.domain.com"
...

/var/run/nm-dns-dnsmasq.conf:
...
server=/devzone.cloud.xemeti.com/10.1.106.7
...

So I think it is not a client side bug, just a server side configuration
requirement. Affects only users with "Use this connection.." flag turned
on, without dhcp-option DOMAIN push entry.

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https://bugs.launchpad.net/bugs/924013

Title:
  VPN DNS only works for IP, not names

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