“In Consequence of” Fraud Means Damages that Directly Stem from and Are Inseparable from Intentional Misrepresentation (and Third-Party Claimants Cannot Recast Bad Faith as Fraud)

Case: Patricia Adams v. Med. Protective Co. (consolidated Nos. 25-3930/3934/3935/3936/3937)
Court: U.S. Court of Appeals for the Sixth Circuit
Date: August 27, 2026
Author: Judge Bloomekatz (Clay, Murphy, Bloomekatz)

1. Introduction

These consolidated appeals arise from a former spine surgeon’s performance of “hundreds of unnecessary and harmful surgeries” and the ensuing effort by injured patients to collect on malpractice judgments from the surgeon’s insurer, The Medical Protective Company (“MedPro”). In the underlying Ohio trials, juries commonly found the surgeon liable for both professional negligence and intentional fraud (and sometimes battery or lack of informed consent), often without allocating damages between covered and excluded theories.

The Sixth Circuit addressed two clusters of disputes:

  • Enforcement actions (Nos. 25-3934, 25-3935, 25-3936, 25-3937): judgment creditors sued MedPro under Ohio Revised Code § 3929.06 to compel payment, confronting a policy exclusion for damages “in consequence of” a “criminal act or willful tort” (including fraud).
  • Direct action (No. 25-3930): more than 250 plaintiffs sued MedPro and its claims executive for alleged litigation and settlement misconduct—claims that largely tracked insurer “bad faith” themes but were pleaded as fraud and other torts.

The central interpretive question in the enforcement cases was the scope of the exclusion’s causation phrase “in consequence of.” The central tort-law question in the direct action was whether Ohio permits third-party claimants (non-insureds) to sue an insurer for “bad faith” (or repackage it as fraud/public-policy torts).

2. Summary of the Opinion

2.1 Enforcement actions (coverage)

Applying Ohio insurance-contract principles, the court held that MedPro’s exclusion for damages “in consequence of” fraud bars recovery where the damages directly stem from and are inseparable from the insured’s intentional fraud. The court rejected an overbroad view that any but-for or ordinary tort “proximate cause” connection automatically triggers the exclusion, but found that the pleaded and record-established injuries in these cases were not plausibly separable from the fraudulent inducement to undergo unnecessary surgery. Accordingly, all four enforcement complaints failed under Rule 12(b)(6).

2.2 Direct action (tort claims against insurer and executive)

The court affirmed dismissal of the direct action. In Ohio, an insurer’s duty of good faith runs to the insured, not to third-party claimants; thus plaintiffs could not assert “bad faith” claims and could not “smuggle” bad faith allegations into claims labeled as fraud or novel “public policy” theories. Many theories were also barred by claim preclusion from an earlier federal case, and several arguments were forfeited on appeal for inadequate briefing. The court also affirmed denial of leave to amend as futile and rejected discovery-based challenges.

3. Analysis

3.1 Precedents Cited (and how they shaped the decision)

A. Standards on motions to dismiss and record use

  • Bates v. Green Farms Condo. Ass'n: reaffirmed that, at the pleading stage, courts accept plausible pleaded facts as true—framing the lens for both coverage and tort claims.
  • Rodic v. Thistledown Racing Club, Inc. and Bassett v. Nat'l Collegiate Athletic Ass'n: allowed the panel to consult uncontested state-court records referenced in complaints, critical to assessing jury interrogatories, allocation, and offsets without converting the motions to summary judgment.
  • Bell Atl. Corp. v. Twombly and Ashcroft v. Iqbal: supplied the plausibility framework; the complaints had to plausibly show covered damages or a freestanding tort.
  • Republic Bank & Tr. Co. v. Bear Stearns & Co. and Rule 9(b): governed the “who, what, when, where, and why” pleading demands for fraud theories in the direct action.

B. Ohio insurance-contract interpretation and exclusions

  • Westfield Ins. Co. v. Galatis: anchored the interpretive “intent of the parties” inquiry and the presumption of plain meaning.
  • Cont'l Ins. Co. v. Louis Marx & Co. (via Bondex Int'l, Inc. v. Hartford Accident & Indem. Co.): placed the burden on the insurer to prove an exclusion applies.
  • Andersen v. Highland House Co., King v. Nationwide Ins. Co., and Am. Fin. Corp. v. Fireman's Fund Ins. Co.: supplied the canon that ambiguities in exclusions are construed in favor of coverage, shaping the court’s rejection of MedPro’s broad “any but-for/proximate cause” reading.
  • Westfield Ins. Co. v. Hunter: emphasized that causation in insurance commonly demands a “direct consequence or responsible condition,” supporting the court’s “directly stem/inseparable” standard.
  • Florea v. Nationwide Mut. Fire Ins. Co. and Midwest Specialties, Inc. v. Westfield Ins. Co.: guided the panel’s distinction between tort-style foreseeability proximate cause and insurance proximate cause focused on “the nature of the injury and how it happened.”
  • U.S. Fid. & Guar. Co. v. St. Elizabeth Med. Ctr.: provided the independence framework—coverage can exist when a covered cause is an “independent” cause of loss even if an excluded cause also contributed. The panel adopted the independence concept but distinguished the vicarious-liability context.
  • Danis v. Great Am. Ins. Co.: operationalized St. Elizabeth with “intertwined/directly connected/not independent” language that matched the court’s conclusion about inseparable harm.
  • Harasyn v. Normandy Metals, Inc., Gearing v. Nationwide Ins. Co., and Chiquita Brands Int'l, Inc. v. Nat'l Union Fire Ins. Co. of Pittsburgh: supplied Ohio’s public-policy baseline disfavoring insurance coverage for intentional torts, reinforcing why the exclusion must have meaningful bite.
  • Hybud Equip. Corp. v. Sphere Drake Ins. Co.: supported the court’s demand for “clear” intent before reading exclusions broadly; if insurers want broader causation language, they can draft it.
  • Medical Protective Co. v. Duma: a Sixth Circuit analogue treating “in consequence of” as capturing injuries directly stemming from an excluded cause, bolstering the panel’s reading.

C. Allocation, intent-versus-negligence framing, and “lesser-included” conduct

  • Snowden v. Hastings Mut. Ins. Co. and DeWitt v. Jensen: prevented plaintiffs from securing coverage by relabeling intentional conduct as negligence when the injury actually flows from intentional action.
  • Collins v. Grange Mut. Cas. Co. (quoting Hybud): limited “waiver” as a mechanism to expand coverage; settlement of other claims does not typically waive exclusions for non-covered losses.
  • World Harvest Church v. Grange Mut. Cas. Co.: referenced in the “burden to allocate” debate; the panel found MedPro at least satisfied any duty to “seek” allocation by requesting it.

D. Ohio § 3929.06 enforcement suits and “standing in the insured’s shoes”

  • Est. of Heintzelman v. Air Experts, Inc., Benahmed v. Houston Cas. Co., and Bennett v. Swift & Co.: reinforced that § 3929.06 plaintiffs assert the insured’s coverage rights and “cannot rise above” them—critical to the exclusion analysis.

E. Direct-action limits: bad faith belongs to the insured; fraud requires reliance

  • Centennial Ins. Co. v. Liberty Mut. Ins. Co. and Hoskins v. Aetna Life Ins. Co.: described Ohio’s insurer good-faith duty in defending/settling and the “reasonable justification” standard—used as a comparator to show plaintiffs were alleging bad faith rather than actionable fraud.
  • Gillette v. Est. of Gillette and Pasipanki v. Morton: the core rule—third-party claimants cannot bring insurer bad faith claims in Ohio.
  • Kamnikar v. Fiorita: supplied the “no smuggling” principle—plaintiffs cannot evade the third-party bad faith bar by labeling claims as something else.
  • Morrow v. Reminger & Reminger Co., L.P.A.: defeated “justifiable reliance” where plaintiffs were actively contesting representations; also supplied Ohio civil conspiracy requirements and cited standards relevant to IIED/outrageousness.
  • Suver v. Murphy and Schmitz v. Nat'l Collegiate Athletic Ass'n (quoting Cohen v. Est. of Cohen): required a fiduciary relationship for constructive fraud; no fiduciary duty exists between an insurer and third-party claimants.
  • Reister v. Gardner: Ohio litigation privilege barred tort liability premised on statements made in judicial proceedings, dooming the proposed “rescission fraud” claim.

F. Claim preclusion and appellate forfeiture

  • Grava v. Parkman Township: defined Ohio’s transactional res judicata scope.
  • Bus. Dev. Corp. of S.C. v. Rutter & Russin, LLC, Wheeler v. Dayton Police Dep't, and Aaron v. Sup. Ct. of Ohio: supported treating the earlier dismissal “with prejudice” as a final judgment on the merits.
  • AJZ's Hauling, L.L.C. v. TruNorth Warranty Programs of N. Am. and Montgomery v. Vargo: framed exceptions for “newly discovered facts” and “full and fair opportunity,” which the panel found unmet on the plaintiffs’ showing.
  • Dubuc v. Greek Oak Township: prevented plaintiffs from avoiding preclusion by repleading the same transaction with a few later facts.
  • Blick v. Ann Arbor Pub. Sch. Dist., United States v. Hendrickson, and Greco v. Livingston County: enforced forfeiture for skeletal briefing and failure to raise issues below.

3.2 Legal Reasoning

A. The new interpretive rule for “in consequence of” under Ohio law (as applied by the Sixth Circuit)

The enforcement appeals turned on the causation phrase “in consequence of” in MedPro’s exclusion for damages tied to “criminal act” or “willful tort.” The panel’s interpretive steps were:

  • Identify the excluded event: Fraudulent misrepresentation is a “willful tort” because it is intentional (supported by Becker v. Direct Energy, LP and Funk v. Durant), and battery similarly qualifies (supported by Anderson v. St. Francis-St. George Hosp., Inc.).
  • Define the causation demanded by “in consequence of”: The phrase implies causation, but not necessarily the broadest type. The court rejected MedPro’s view that any but-for or ordinary tort proximate cause is enough.
  • Adopt an “independence/inseparability” test: The exclusion applies when damages directly stem from and are inseparable from the intentional fraud. If there are independent negligence damages (distinct harm directly caused by negligent professional conduct apart from the fraud), coverage may exist for that independent portion.

This reading harmonized three considerations the court treated as controlling: (1) the parties’ intent and the ordinary purpose of malpractice insurance (coverage for negligence); (2) Ohio’s public policy disfavoring indemnification for intentional torts; and (3) the contra-insurer canon for ambiguous exclusions, which pushed the court away from expansive causation language absent clear drafting.

B. Application to each plaintiff’s verdict

  • Adams & Bender: The negligence finding was essentially that the surgery should not have occurred (unnecessary surgery). That “harm” matched the fraud harm (fraudulently inducing unnecessary surgery). With unallocated verdicts and plaintiffs’ own anti-allocation stance (inseparable injury), the complaints could not plausibly allege independent covered damages.
  • Potts: The record contained hints of potentially distinct negligent execution complications, but Potts did not argue separation of harms on appeal and even described a “single indivisible harm.” The court treated the negligence as effectively subsumed within fraud/battery for coverage purposes.
  • McCann: Even with an allocated verdict, the post-appeal offset applied only to negligence damages, reducing them to $0; the only outstanding damages were expressly allocated to fraud and therefore excluded.

C. The direct action: drawing the line between fraud and bad faith (and refusing to create new Ohio causes of action)

The direct action’s core was an attempt to hold MedPro liable for litigation and settlement conduct that, in substance, alleged breach of insurer good faith (refusal to settle, strategic defenses, alleged collusion). Ohio law, however, restricts bad faith claims to the insured (Gillette v. Est. of Gillette; Pasipanki v. Morton), and the panel treated many “fraud” labels as impermissible repackaging (Kamnikar v. Fiorita).

Where plaintiffs tried to plead ordinary fraud, they failed primarily on Rule 9(b) and the substantive element of justifiable reliance—especially because plaintiffs were actively disputing MedPro’s representations (Morrow v. Reminger & Reminger Co., L.P.A.). The panel also stressed institutional restraint: under diversity jurisdiction, it would apply, not expand, Ohio law (citing US Framing Int'l LLC v. Cont'l Bldg. Co.).

D. Claim preclusion and the narrowing of permissible “post-Aaron” theories

The panel largely endorsed the district court’s Ohio res judicata analysis: an earlier federal case, Aaron v. Medical Protective Co., ended with dismissal “with prejudice,” which operated as a final judgment. The court barred claims that were brought or could have been brought based on facts available by then (including the 2018 deposition), allowing only genuinely new, post-dismissal factual predicates. Attempting to relabel the same alleged scheme with added later details did not avoid preclusion (Dubuc v. Greek Oak Township).

3.3 Impact

A. Coverage litigation: “inseparable fraud” as a decisive exclusion trigger

The opinion’s most practically important contribution is its operational definition of “in consequence of” in an intentional-tort exclusion: coverage is barred when the damages directly stem from and are inseparable from fraud. This is narrower than “any causal contribution” but still robust enough to defeat claims where the negligence theory does not add a distinct injury beyond the intentional inducement.

Consequences for future malpractice-and-fraud cases:

  • Verdict structuring becomes coverage-critical: Plaintiffs who want access to insurance proceeds must anticipate exclusion litigation and develop a record (and, where appropriate, verdict forms) that can support “independent” negligence damages.
  • Substance over labels: Courts may treat “negligence” as functionally subsumed by fraud where the negligence is merely “performing the procedure at all” and the decision to undergo it was intentionally procured.
  • Allocation is helpful but not automatically dispositive: Even an allocated verdict may not yield collectible covered damages if offsets or post-trial rulings eliminate the negligence portion (as in McCann).

B. Third-party insurer accountability: Ohio remains restrictive absent legislative change

The decision underscores that Ohio does not permit third-party claimants to sue insurers for bad faith and will not allow end-runs through creative tort naming. The panel explicitly contrasted Ohio with states that authorize third-party claims by statute (e.g., the Massachusetts and Montana schemes it cited). The opinion thus places the locus of reform (if any) with Ohio courts or the Ohio legislature, not federal courts applying state law.

C. Litigation conduct claims: privilege and reliance barriers

The court’s reliance and privilege analyses (especially Reister v. Gardner) emphasize that attacking an insurer’s litigation positions as “fraud” faces steep hurdles: plaintiffs must show actual, justifiable reliance and damages flowing from that reliance, and statements in judicial proceedings are often privileged.

4. Complex Concepts Simplified

  • “In consequence of” (insurance causation): Not every causal connection is enough. Here, it means the injury must be directly caused by, and not practically separable from, the excluded intentional conduct (fraud).
  • Independent vs. intertwined causes: If negligence causes a distinct injury (e.g., a separate surgical mistake) independent of the fraud-induced decision to operate, that portion may be covered; if the only harm is the unnecessary operation itself, negligence is “intertwined” with fraud.
  • Allocated vs. unallocated verdicts: An allocated verdict separates damages between theories; an unallocated verdict does not. Allocation can help demonstrate independent covered damages, but it is not a guarantee (offsets and legal rulings can erase covered portions).
  • § 3929.06 judgment-creditor enforcement: The plaintiff “steps into the insured’s shoes.” If the insured would not have coverage, neither does the judgment creditor.
  • Bad faith vs. fraud: Bad faith is an insurer’s unreasonable/dishonest handling of claims and is generally actionable only by the insured in Ohio. Fraud requires a material false statement, intent, justifiable reliance, and damages caused by that reliance.
  • Claim preclusion (res judicata): If a claim arising from the same transaction was already resolved “with prejudice,” it generally cannot be relitigated—even under new legal labels—unless it is truly based on newly discovered facts that were not previously available.
  • Litigation privilege: Statements made in court filings and proceedings are often shielded from later tort suits, preventing “fraud” claims based solely on what was argued in a case.

5. Conclusion

Adams v. Medical Protective Co. establishes a durable Sixth Circuit articulation of how Ohio law reads “in consequence of” in an intentional-tort exclusion: the exclusion bars indemnity where damages directly stem from and are inseparable from fraud, while leaving conceptual room for coverage where negligence causes genuinely independent harm. Applied to unnecessary-surgery verdicts grounded in fraudulent inducement, the “independence” requirement proved fatal—especially where plaintiffs argued the injury was indivisible.

The opinion also reaffirms a hard limit in Ohio tort law: third-party claimants cannot sue insurers for bad faith, and courts will scrutinize “fraud” labels to ensure plaintiffs plead a truly freestanding tort with reliance and non-privileged misrepresentations. In both coverage and direct-action contexts, the decision signals that doctrinal outcomes will turn on careful pleading, careful verdict structuring, and—if broader third-party remedies are desired—legislative rather than judicial innovation.