Interpreting “In Consequence of” in Ohio Malpractice Policies: Direct-and-Inseparable Causation for Fraud Exclusions and No Third-Party Bad-Faith Claims

1. Introduction

In Mackenzie Bender v. Med. Protective Co. (consolidated appeals), the Sixth Circuit addressed two recurring problems arising from mass medical-malpractice litigation: (1) whether a medical-malpractice insurer must indemnify judgments where juries found both negligence and intentional fraud, in light of an exclusion for damages “in consequence of” fraud; and (2) whether hundreds of injured patients may sue the insurer and its claims executive directly for alleged litigation and claims-handling misconduct—largely framed as “fraud,” but functionally alleging bad faith.

The underlying factual backdrop was extreme: Abubakar Atiq Durrani, a former spinal surgeon, performed hundreds of allegedly unnecessary and harmful surgeries, often by exaggerating diagnoses and minimizing risks. Many plaintiffs obtained state-court judgments finding both negligent care and fraudulent inducement. With Durrani abroad and effectively judgment-proof, plaintiffs sought recovery from his insurer, The Medical Protective Company (“MedPro”).

The decision is recommended for publication and thus operates as binding circuit precedent on the federal side for Ohio-law diversity cases, especially on how federal courts should read “in consequence of” exclusions and how they should police attempts by third parties to repackage barred bad-faith theories as freestanding torts.

2. Summary of the Opinion

A. Enforcement actions (Ohio Rev. Code § 3929.06)

Four plaintiffs pursued statutory “judgment creditor” actions against MedPro under Ohio Revised Code § 3929.06, which can allow a judgment creditor to sue an insurer if the insured does not pay within thirty days. MedPro invoked an exclusion barring coverage for “payment of damages … in consequence of … a criminal act or willful tort” (including fraud).

The Sixth Circuit held that, under Ohio law, the exclusion bars recovery where damages directly stem from and are inseparable from the insured’s intentional fraud—rejecting MedPro’s broader view that any but-for or ordinary tort proximate causation automatically triggers the exclusion. Applying that standard:

  • Adams and Bender: no coverage because the negligence found (performing medically unnecessary surgery) was not independent of the fraud (fraudulent inducement into the same surgery), and verdicts were unallocated.
  • Potts: despite surgical complications that might have supported separable negligence damages, the plaintiff forfeited that theory; the case was litigated as a “single indivisible harm,” so no coverage.
  • McCann: although the verdict allocated 50/50 fraud/negligence, an appellate offset eliminated the negligence portion, leaving only fraud-allocated damages, so no coverage.

B. Direct action against MedPro and claims executive

Over 250 plaintiffs sued MedPro and its vice president of claims, alleging “fraud” and other torts based on purported collusion with defense counsel, deposition unavailability representations, refusal to settle, and coverage-position tactics. The court affirmed dismissal largely because Ohio law recognizes an insurer’s duty of good faith as running only to the insured, not to third-party claimants, and the complaint failed to plead the elements of any freestanding tort—particularly justifiable reliance for fraud. The court also affirmed key rulings on claim preclusion, denial of leave to amend as futile, and rejected discovery-based challenges.

3. Analysis

3.1 Precedents Cited

A. Procedural posture and pleading constraints

  • Bates v. Green Farms Condo. Ass'n and Rodic v. Thistledown Racing Club, Inc., Bassett v. Nat'l Collegiate Athletic Ass'n: anchored the Rule 12(b)(6) frame—accept pleaded facts as true while allowing consideration of uncontested records referenced in the complaint. This mattered because the coverage question turned heavily on state-court verdict forms and interrogatories.
  • Bell Atl. Corp. v. Twombly and Ashcroft v. Iqbal: supplied the plausibility standard that permitted dismissal where the only plausible reading of verdicts and pleadings placed damages inside the exclusion.
  • Republic Bank & Tr. Co. v. Bear Stearns & Co., Yuhasz v. Brush Wellman, Inc.: enforced Rule 9(b) particularity, especially the need to plead the “who/what/when/where/why” of fraud and to specify reliance and injury.

B. Ohio insurance interpretation principles

  • Westfield Ins. Co. v. Galatis: framed the core interpretive objective—give effect to the parties’ intent, read words in their plain and ordinary sense.
  • Cont'l Ins. Co. v. Louis Marx & Co. and 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., Perry v. Allstate Indem. Co.: supplied the contra-insurer canon for exclusions—ambiguities are construed in favor of coverage, shaping the court’s rejection of MedPro’s “any causal link” approach.
  • Am. Fin. Corp. v. Fireman's Fund Ins. Co.: reinforced that ambiguous exclusions must be read narrowly.

C. The meaning of “in consequence of” and causation in insurance law

  • U.S. Fid. & Guar. Co. v. St. Elizabeth Med. Ctr.: provided the Ohio framework that coverage can exist when a covered cause is an independent cause of loss even alongside an excluded cause—central to the Sixth Circuit’s “direct and inseparable” test.
  • Florea v. Nationwide Mut. Fire Ins. Co. and Midwest Specialties, Inc. v. Westfield Ins. Co.: supported that “proximate cause” in insurance is not always tort-style foreseeability; it focuses on the nature of the injury and how it happened, i.e., whether the loss is of the type intended to be covered or excluded.
  • Westfield Ins. Co. v. Hunter (quoting Eyler v. Nationwide Mut. Fire Ins. Co.): emphasized Ohio’s preference for a direct consequence link, not a slight or attenuated causal connection.
  • Medical Protective Co. v. Duma: an on-point Sixth Circuit application of “in consequence of” language, supporting the conclusion that injuries directly stemming from excluded conduct fall outside coverage.
  • Hybud Equip. Corp. v. Sphere Drake Ins. Co.: used to resist reading the exclusion expansively without clear contractual language; if broader causation were intended, it could have been drafted.

D. Intentional tort exclusions and relabeling problems

  • Harasyn v. Normandy Metals, Inc. and Gearing v. Nationwide Ins. Co.: reflected Ohio public policy disfavoring insurance coverage for intentional torts, reinforcing the court’s refusal to allow intentional fraud damages to be insured by indirection.
  • Snowden v. Hastings Mut. Ins. Co. and DeWitt v. Jensen: addressed attempts to plead coverage-triggering negligence where conduct is, in substance, intentional; these cases supported treating negligence here as a “lesser-included” framing that does not create independent covered damages.
  • Danis v. Great Am. Ins. Co.: used to describe when causes are “intertwined” and not independent under St. Elizabeth.

E. The statutory enforcement mechanism and “standing in the insured’s shoes”

  • Est. of Heintzelman v. Air Experts, Inc., Bennett v. Swift & Co., and Benahmed v. Houston Cas. Co.: confirmed that § 3929.06 plaintiffs assert only the insured’s coverage rights; their recovery cannot exceed what the insured could obtain under the policy.

F. Direct actions, bad faith limits, and fraud elements

  • Centennial Ins. Co. v. Liberty Mut. Ins. Co., Hoskins v. Aetna Life Ins. Co., Hart v. Republic Mut. Ins. Co., Gerken v. State Auto Ins. Co. of Ohio: described the insurer’s good-faith obligations—but the opinion used these largely to explain that such duties are enforceable by the insured, not third parties.
  • Gillette v. Est. of Gillette and Pasipanki v. Morton: supplied the decisive Ohio rule: third-party claimants cannot sue insurers for bad faith.
  • Kamnikar v. Fiorita: supported the court’s approach of rejecting “bad faith by another name”—i.e., pleading “fraud” without reliance/injury but complaining about unreasonable claims-handling.
  • Graham v. Am. Cyanamid Co. and Russ v. TRW, Inc., plus Morrow v. Reminger & Reminger Co., L.P.A.: provided the substantive fraud elements (including justifiable reliance) and the reliance-killing effect of adversarial, ongoing contestation.
  • Reister v. Gardner: applied Ohio litigation privilege to bar claims based on statements made in judicial proceedings, dooming the proposed “rescission fraud” theory.

G. Claim preclusion and appellate forfeiture

  • Grava v. Parkman Township and Bus. Dev. Corp. of S.C. v. Rutter & Russin, LLC: structured Ohio claim preclusion and its transactional approach.
  • Wheeler v. Dayton Police Dep't and Aaron v. Sup. Ct. of Ohio: supported treating a dismissal with prejudice as a final judgment on the merits, making Aaron v. Medical Protective Co. preclusive.
  • AJZ's Hauling, L.L.C. v. TruNorth Warranty Programs of N. Am.: framed “manifest injustice” as a narrow escape hatch requiring a full and fair chance to litigate.
  • Montgomery v. Vargo and Dubuc v. Greek Oak Township: clarified that newly discovered facts may avoid preclusion, but mere post-suit “additional facts” cannot relitigate the same transaction.
  • Blick v. Ann Arbor Pub. Sch. Dist., United States v. Hendrickson, United States v. Robinson: enforced forfeiture principles for undeveloped appellate arguments, narrowing what the court substantively reviewed.

H. Amendment futility and discovery discretion

  • Riverview Health Inst. LLC v. Med. Mut. of Ohio: governed futility analysis for amendments; the proposed claim must survive a 12(b)(6) motion.
  • United States ex rel. Williams v. Renal Care Grp., Inc. and Mitchell v. McNeil: supported deference to district-court discovery management absent abuse of discretion—especially where plaintiffs represented they had sufficient discovery.
  • State ex rel. Nix v. Cleveland: supplied the crime-fraud exception standard invoked by plaintiffs to seek privileged communications, which the court declined to use to disturb the judgment.

3.2 Legal Reasoning

A. The new interpretive rule for “in consequence of” in this context

The opinion’s central doctrinal move is its construction of the causation phrase “in consequence of” in an intentional-tort exclusion under Ohio law. The court rejected two extremes:

  • Too broad: MedPro’s view that any but-for or ordinary tort proximate causation suffices.
  • Too narrow: a reading that would require the excluded act to be the sole cause or would ignore how the injury “happened.”

Instead, drawing from Ohio intermediate appellate decisions and general insurance principles, the court held that the exclusion applies when the damages directly stem from and are inseparable from the intentional fraud. This is a coverage-intent inquiry: malpractice insurance is meant to cover negligent professional mistakes, but not intentional wrongdoing; and Ohio public policy disfavors insuring intentional tort damages.

B. Application to verdict structures: unallocated versus allocated damages

A key practical aspect is how verdict forms interact with coverage litigation:

  • Unallocated verdicts (Adams, Bender, Potts): when the injury theory is “the surgery should not have happened at all,” and negligence is defined as performing an unnecessary surgery, the court treated fraud and negligence as describing the same harm. Without plausible separate, independent negligence damages, the exclusion defeats the indemnity claim.
  • Allocated verdicts (McCann): allocation can, in some cases, suggest separability. But the court decided the case on narrower grounds: a settlement offset eliminated the negligence portion, leaving only fraud-allocated damages—squarely excluded.

C. Enforcement actions under § 3929.06: “standing in the insured’s shoes”

By emphasizing that § 3929.06 plaintiffs assert only the insured’s rights, the court prevented a sympathetic posture (injured patients versus insurer) from expanding coverage beyond the contract. Coverage remained bounded by what Durrani could demand from MedPro.

D. Direct claims: the boundary between fraud and barred third-party bad faith

The second half of the opinion is a categorical reaffirmation of Ohio’s no-third-party-bad-faith rule. The court’s reasoning had three steps:

  1. Identify the true gravamen: many allegations complained of refusal to settle, aggressive defenses, and claims-handling motives.
  2. Apply Ohio’s party limitation: under Gillette v. Est. of Gillette and Pasipanki v. Morton, only the insured may sue for bad faith.
  3. Require real tort elements: if plaintiffs label conduct as “fraud,” they must plead (and later prove) reliance and injury with Rule 9(b) specificity; sustained adversarial contestation undermines justifiable reliance (Morrow v. Reminger & Reminger Co., L.P.A.).

The opinion also underscored institutional limits in diversity cases: federal courts apply, not innovate, state tort law (US Framing Int'l LLC v. Cont'l Bldg. Co.).

E. Preclusion and litigation privilege as litigation-closure tools

The court treated the prior Aaron v. Medical Protective Co. dismissal with prejudice as a final merits judgment and used Ohio’s transaction-based preclusion to narrow which “fraud” theories remained viable. Then, for the proposed “rescission fraud” claim, the court invoked Ohio litigation privilege (Reister v. Gardner) to bar claims based on statements in judicial proceedings.

3.3 Impact

A. Coverage litigation after mixed fraud/negligence verdicts

The decision materially affects how malpractice plaintiffs and insurers litigate “mixed-motive” verdicts:

  • Plaintiffs seeking insurance recovery must now plead—and, ultimately, develop a record—showing independent negligence damages not directly stemming from intentional fraud, if the policy contains similar “in consequence of” wording.
  • Trial strategy around apportionment becomes consequential. The opinion illustrates a hard lesson: where plaintiffs insist damages are “inseparable” to maximize tort recovery, that position may later undermine insurance collectability.
  • Insurers gain a clearer framework to argue that certain “negligence” findings are functionally coextensive with excluded fraud where the injury is simply “undergoing the procedure at all.”

B. Limits on third-party suits against insurers in Ohio

For mass-tort contexts, the direct-action portion significantly tightens pleadings:

  • Plaintiffs cannot use creative labels (“settlement fraud,” “algorithm fraud,” “public policy fraud,” “tri-partite fraud”) to obtain what is substantively a third-party bad-faith remedy.
  • Any viable third-party claim must be a freestanding tort with standard elements—especially justifiable reliance for fraud—and must also clear Rule 9(b).

C. Systemic incentives and policy pressure

The court acknowledged the alleged conduct was “reprehensible” yet refused to create new law. Practically, that shifts pressure to: (1) the Ohio Supreme Court (common-law development), (2) the Ohio Legislature (statutory third-party remedies similar to regimes referenced in the opinion, e.g., Massachusetts and Kentucky), and (3) professional regulation and sanctions frameworks, rather than tort expansion through diversity litigation.

4. Complex Concepts Simplified

  • “In consequence of” (insurance exclusion): a causation phrase. Here, it does not mean “any connection.” It means damages are excluded when they flow directly from the intentional act and cannot be separated into a distinct, covered negligence harm.
  • Independent cause of loss: even if an excluded act occurred, coverage can still exist if a covered act (like negligent execution of a surgery) caused a separate, distinct portion of the harm.
  • Allocated vs. unallocated verdict: an allocated verdict divides damages between theories (e.g., 50% fraud, 50% negligence). An unallocated verdict does not. Allocation can help prove separability, but it is not automatically decisive.
  • Ohio Rev. Code § 3929.06: lets a judgment creditor sue an insurer, but only to collect what the insured could collect under the policy—no extra rights.
  • Bad faith vs. fraud: bad faith is an insurer’s unreasonable or dishonest claims-handling toward its insured; in Ohio it generally can be sued on only by the insured. Fraud is a separate tort requiring a false statement, intent to mislead, justifiable reliance, and injury.
  • Claim preclusion (res judicata): a final judgment blocks relitigation of the same “transaction” and claims that were or could have been brought earlier.
  • Litigation privilege: statements made in court filings and judicial proceedings are generally immune from tort suits, preventing “fraud” claims based solely on what a party argued in litigation.

5. Conclusion

The Sixth Circuit’s published decision establishes a clarifying rule for Ohio-law insurance exclusions: when a policy bars damages “in consequence of” fraud, the exclusion applies where the damages directly stem from and are inseparable from the intentional fraud—while leaving room for coverage if plaintiffs can plausibly allege and prove independent negligence-caused damages. In parallel, the court forcefully reaffirmed that Ohio does not permit third-party bad-faith suits against insurers and will not allow litigants to obtain that remedy through relabeled “fraud” theories lacking reliance and other required elements. Together, the holdings reshape strategy in malpractice trials (especially allocation decisions), tighten pleading and proof burdens in insurer misconduct suits, and signal that any broader third-party remedy in Ohio must come from state-law development rather than federal diversity adjudication.