Ohio “In Consequence Of” Fraud Exclusion: No Malpractice Indemnity When Negligence Damages Are Not Independent of Intentional Misrepresentation; No Third-Party Bad-Faith Claims

Introduction

Case: Cheryl Potts v. Med. Protective Co. (consolidated appeals captioned Patricia Adams and Larry Adams; Mackenzie Bender; Cheryl Marie Potts; Heather McCann v. The Medical Protective Company, et al.)
Court: U.S. Court of Appeals for the Sixth Circuit
Date: August 27, 2026

These consolidated appeals arise from extraordinary malpractice litigation against former spine surgeon Abubakar Atiq Durrani, whose patients obtained large Ohio state-court verdicts premised on both negligence and intentional misconduct—most notably fraudulent misrepresentations that surgeries were medically necessary. The central insurance dispute concerned whether Durrani’s malpractice insurer, The Medical Protective Company (“MedPro”), had a duty to indemnify those judgments under a policy that excluded damages “in consequence of” a “criminal act or willful tort,” including fraud.

The Sixth Circuit addressed two clusters of claims: (1) judgment-enforcement actions under Ohio Revised Code § 3929.06 seeking to compel MedPro to pay malpractice judgments; and (2) a large direct action by more than 250 plaintiffs alleging fraud and other torts based on MedPro’s litigation and settlement conduct, including alleged “scorched earth” tactics and purported schemes around Durrani’s participation in discovery.

Summary of the Opinion

The Sixth Circuit affirmed dismissal of all five cases.

  • Enforcement claims (§ 3929.06): Interpreting “in consequence of” under Ohio law, the court held the exclusion bars coverage when damages directly stem from and are inseparable from the insured’s intentional fraud. Because the verdicts (largely) treated the harmful surgery itself as the unified injury caused by both negligence and fraud—without separable negligence-based harm—the plaintiffs failed to plausibly allege covered damages.
  • Direct action: Ohio’s duty of good faith runs to the insured, not to third-party claimants; thus the plaintiffs could not sue MedPro for “bad faith” and could not repackage bad-faith allegations as “fraud” without pleading the elements of a freestanding tort (including justifiable reliance). The court also upheld claim-preclusion rulings (based on Aaron v. Medical Protective Co.) and found proposed amendments futile, including due to Ohio’s litigation privilege.

Analysis

1) Precedents Cited (and How They Shaped the Holding)

A. Contract interpretation and insurance-exclusion principles

  • Westfield Ins. Co. v. Galatis, 797 N.E.2d 1256 (Ohio 2003): Used for the foundational rule that courts give effect to the parties’ intent and presume plain meaning reflects that intent. This anchored the court’s refusal to expand “in consequence of” to the broadest conceivable causal standard absent clear policy language.
  • Cont'l Ins. Co. v. Louis Marx & Co., 415 N.E.2d 315 (Ohio 1980) and Bondex Int'l, Inc. v. Hartford Accident & Indem. Co., 667 F.3d 669 (6th Cir. 2011): Cited for the burden rule—MedPro must prove an exclusion applies. The Sixth Circuit nevertheless concluded the pleaded facts and state-court verdicts made exclusion application the only plausible reading.
  • Andersen v. Highland House Co., 757 N.E.2d 329 (Ohio 2001), King v. Nationwide Ins. Co., 519 N.E.2d 1380 (Ohio 1988), and Perry v. Allstate Indem. Co., 953 F.3d 417 (6th Cir. 2020): These cases supplied the contra-insurer canon for exclusions (ambiguity construed in favor of coverage). The court invoked this canon to reject MedPro’s argument that mere but-for causation (or ordinary tort proximate cause) automatically triggers the exclusion.
  • Hybud Equip. Corp. v. Sphere Drake Ins. Co., 597 N.E.2d 1096 (Ohio 1992) and Westfield Ins. Co. v. Hunter, 948 N.E.2d 931 (Ohio 2011): These cases supported a disciplined reading of exclusion causation language. Hunter was used to emphasize that insurers can draft broader causal bars, and that “in consequence of” generally requires a “direct consequence or responsible condition,” not merely any attenuated causal link.
  • State Mut. Life Assurance Co. of Worcester v. Heine, 141 F.2d 741 (6th Cir. 1944): Cited for the proposition that causation has “many meanings and shades of meanings,” framing the central interpretive task: choosing the right causal standard for “in consequence of.”

B. Causation in insurance vs. tort; “independent cause of loss”

  • U.S. Fid. & Guar. Co. v. St. Elizabeth Med. Ctr., 716 N.E.2d 1201 (Ohio Ct. App. 1998): A key reference for the principle that an insurer must pay when a covered cause is an “independent” cause of the loss even if an excluded cause also contributed. The court adopted independence as the operative concept, while distinguishing the vicarious-liability context.
  • Florea v. Nationwide Mut. Fire Ins. Co., No. 7908, 1983 WL 5030 (Ohio Ct. App. Jan. 28, 1983) and Standard Oil Co. of N.J. v. United States, 340 U.S. 54 (1950): Used to explain that “proximate cause” in insurance is not always the same as in tort; it looks closely at the “nature of the injury and how it happened” to determine whether the harm is of the type intended to be covered or excluded.
  • Midwest Specialties, Inc. v. Westfield Ins. Co., No. 14027, 1994 WL 107192 (Ohio Ct. App. Mar. 30, 1994): Reinforced that even if an excluded event might qualify as a tort “proximate cause,” the exclusion does not necessarily apply—supporting the court’s “direct and inseparable” test rather than a broad tort-causation test.
  • Gray v. Grange Mut. Cas. Co., No. 05AP-1199, 2006 WL 3491861 (Ohio Ct. App. Dec. 5, 2006) (citing Bendner v. Carr, 532 N.E.2d 178 (Ohio Ct. App. 1987)); and Jones v. Butler, 52 N.E.2d 347 (Ohio Ct. App. 1942): Cited to illustrate that tort law can treat earlier wrongs as proximately causing later negligent medical care; the court used these to caution against importing tort proximate-cause doctrine wholesale into insurance-exclusion causation.
  • Medical Protective Co. v. Duma, 478 F. App'x 977 (6th Cir. 2012): A Sixth Circuit reference point for applying “in consequence of” to exclude injuries directly stemming from an excluded cause (there, intoxicated medical care). It served as persuasive consistency rather than a full causation framework.

C. Public policy against insuring intentional torts

  • Harasyn v. Normandy Metals, Inc., 551 N.E.2d 962 (Ohio 1990) and Gearing v. Nationwide Ins. Co., 665 N.E.2d 1115 (Ohio 1996): These cases grounded the court’s recognition that Ohio generally prohibits coverage for intentional tort damages as a matter of public policy—framing the exclusion as aligned with (not contrary to) Ohio’s insurance policy architecture.
  • Chiquita Brands Int'l, Inc. v. Nat'l Union Fire Ins. Co. of Pittsburgh, 988 N.E.2d 897 (Ohio Ct. App. 2013): Used both for the public-policy point and for a doctrinal distinction: the Ohio Court of Appeals declined to extend certain vicarious-liability causation approaches to single-actor cases—supporting the Sixth Circuit’s skepticism of importing St. Elizabeth too broadly.

D. “Artful pleading” and recasting intentional conduct as negligence for coverage

  • Snowden v. Hastings Mut. Ins. Co., 894 N.E.2d 336 (Ohio Ct. App. 2008) and DeWitt v. Jensen, No. 25768, 2014 WL 604336 (Ohio Ct. App. Feb. 14, 2014): These cases supported the court’s rejection of attempts to obtain coverage by labeling essentially intentional conduct as negligence. In the enforcement cases, the negligence finding (performing unnecessary surgery) was treated as effectively inseparable from the fraud (inducing unnecessary surgery).

E. Enforcement actions under § 3929.06: rights are derivative of the insured

  • Bennett v. Swift & Co., 163 N.E.2d 362 (Ohio 1959) and Est. of Heintzelman v. Air Experts, Inc., 931 N.E.2d 548 (Ohio 2010): These cases established that § 3929.06 plaintiffs stand in the insured’s shoes and cannot obtain greater rights than the insured would have against the carrier. This framed the coverage analysis strictly around Durrani’s policy and exclusions.
  • Benahmed v. Houston Cas. Co., 486 F. App'x 508 (6th Cir. 2012): Cited for the basic operation of § 3929.06 in federal court.

F. Direct action: third-party bad faith barred; reliance required for fraud

  • Hoskins v. Aetna Life Ins. Co., 452 N.E.2d 1315 (Ohio 1983); Centennial Ins. Co. v. Liberty Mut. Ins. Co., 404 N.E.2d 759 (Ohio 1980); and Gerken v. State Auto Ins. Co. of Ohio, 20 N.E.3d 1031 (Ohio Ct. App. 2014): Provided the contours of Ohio “bad faith” (duty owed by insurer to insured, including reasonable justification in claims handling).
  • Gillette v. Est. of Gillette, 837 N.E.2d 1283 (Ohio Ct. App. 2005) and Pasipanki v. Morton, 572 N.E.2d 234 (Ohio Ct. App. 1990): Central authorities for the rule that third-party claimants cannot sue insurers for bad faith in Ohio—driving dismissal of claims that were, in substance, third-party bad-faith allegations.
  • Kamnikar v. Fiorita, No. 16AP-736, 2017 WL 2817467 (Ohio Ct. App. June 29, 2017): Used as an “anti-smuggling” principle: third parties cannot evade the bar on bad-faith claims by relabeling them as other torts without pleading a freestanding tort.
  • Graham v. Am. Cyanamid Co., 350 F.3d 496 (6th Cir. 2003) (citing Russ v. TRW, Inc., 570 N.E.2d 1076 (Ohio 1991)): Set out fraud elements, including justifiable reliance and injury—elements the plaintiffs could not plausibly plead given their aggressive contesting of MedPro’s positions.
  • Morrow v. Reminger & Reminger Co., L.P.A., 915 N.E.2d 696 (Ohio Ct. App. 2009): A multi-use authority: (i) no justifiable reliance where the plaintiff actively disputes the alleged misrepresentation; (ii) civil conspiracy requires an independently actionable underlying tort; and (iii) standards for IIED.
  • Reister v. Gardner, 174 N.E.3d 713 (Ohio 2020): Ohio’s litigation privilege barred fraud-based liability premised on statements made in MedPro’s rescission lawsuit—supporting futility of the proposed “rescission fraud” amendment.

G. Claim preclusion

  • Grava v. Parkman Township, 653 N.E.2d 226 (Ohio 1995) and Bus. Dev. Corp. of S.C. v. Rutter & Russin, LLC, 37 F.4th 1123 (6th Cir. 2022): Supplied Ohio’s transactional approach to res judicata and the four-element framework used to limit plaintiffs to post-Aaron conduct not previously litigated or available.
  • Wheeler v. Dayton Police Dep't, 807 F.3d 764 (6th Cir. 2015) and Aaron v. Sup. Ct. of Ohio, 258 N.E.3d 687 (Ohio Ct. App. 2024): Confirmed that a dismissal “with prejudice” is a final judgment on the merits for claim-preclusion purposes.
  • Montgomery v. Vargo, 107 N.E.3d 799 (Ohio Ct. App. 2018) and Dubuc v. Greek Oak Township, 312 F.3d 736 (6th Cir. 2002): Distinguished newly discovered claims from repackaged old claims with additional later-occurring facts.
  • Rodriguez v. Honigman Miller Schwartz & Cohn LLP, 465 F. App'x 504 (6th Cir. 2012): Used to channel “fraud on the court” arguments into Rule 60 rather than a fresh collateral lawsuit.

2) Legal Reasoning

A. The new causation rule for “in consequence of” in Ohio malpractice exclusions

The court treated “in consequence of” as an insurance-causation term that demands more than mere factual causation and can be narrower than ordinary tort proximate cause. Synthesizing Ohio insurance principles, public policy against insuring intentional torts, and case law emphasizing “direct consequence,” the Sixth Circuit articulated a functional standard:

The exclusion applies when damages “directly stem and are inseparable from” the insured’s intentional fraud. Conversely, if a plaintiff can plausibly plead damages that are independent and directly caused by covered negligence (e.g., negligent execution of a procedure) rather than the intentional inducement itself, coverage may exist notwithstanding the presence of excluded conduct.

This framework preserves the core purpose of malpractice insurance (covering negligent professional services) while preventing indemnification for intentional wrongdoing, consistent with Ohio’s public policy and exclusion drafting norms.

B. Application to the four enforcement cases

  • Adams & Bender: The negligence findings were explicitly tied to the surgeries being unnecessary—the same harm as the fraud finding (fraudulent inducement into unnecessary surgery). With unallocated verdicts and no pleaded independent negligence injury, the damages were inseparable from fraud and thus excluded.
  • Potts: The record hinted at potentially separable negligent-execution damages (serious complications), but Potts did not argue separability and instead characterized the injury as “a single indivisible harm,” forfeiting a potentially viable pathway to coverage.
  • McCann: Even with an allocated verdict (50% negligence / 50% fraud), the hospital settlement offset eliminated the negligence portion, leaving only damages expressly allocated to fraud—squarely excluded.

C. Direct action: the boundary between fraud and (non-actionable) third-party bad faith

The direct action failed because Ohio does not recognize a third-party bad-faith cause of action against an insurer. The court scrutinized the pleading to determine whether plaintiffs stated a freestanding tort (especially fraud) rather than a relabeled grievance about unreasonable refusal to settle or aggressive coverage defenses.

Two doctrinal moves were decisive:

  1. No duty of good faith to third parties: bad-faith theories were categorically unavailable.
  2. Fraud requires reliance: where plaintiffs had long contested MedPro’s positions, they could not plausibly plead “justifiable reliance,” and Rule 9(b) required particularity the complaint lacked.

The court also upheld claim preclusion (limiting plaintiffs to post-Aaron facts), denied amendment as futile (including due to Reister v. Gardner litigation privilege), and rejected discovery complaints given plaintiffs’ representations that additional discovery was unnecessary.

3) Impact

A. Coverage litigation after mixed negligence/fraud verdicts

The opinion supplies a practical coverage test for Ohio policies using “in consequence of” language: courts must ask whether the damages are separable such that some portion directly stems from covered negligence independent of the excluded intentional conduct. This approach will likely influence:

  • Trial strategy and verdict forms: Plaintiffs seeking collectability from insurers will have a stronger incentive to pursue allocation and to develop evidence of independent negligence damages (e.g., negligent execution, negligent postoperative care) distinct from inducement fraud.
  • Insurer drafting and reservation practice: Insurers may respond by drafting clearer causal language (“arising out of,” “directly or indirectly,” “in whole or in part”) or by more aggressively seeking special interrogatories that isolate intentional-tort damages.
  • Motion-to-dismiss posture: The court’s reliance on verdict interrogatories and plaintiffs’ prior positions (including opposition to allocation) signals that pleadings can be defeated early where the underlying record shows inseparability.

B. Reinforcement of Ohio’s bar on third-party bad-faith claims

The direct-action portion reaffirms a strict Ohio line: absent a recognized statutory remedy, third-party claimants cannot sue an insurer for bad faith and cannot circumvent that rule with novel labels (“algorithm fraud,” “public policy fraud,” “tri-partite fraud”) without pleading an established tort with its required elements.

Practically, this channels third-party litigants toward: (i) § 3929.06 enforcement actions (derivative of the insured’s rights), (ii) assignments of the insured’s bad-faith claims where available, or (iii) legislative reform—an avenue the opinion implicitly highlights by contrasting Ohio with states that authorize third-party unfair settlement practice claims.

Complex Concepts Simplified

  • “In consequence of” (insurance causation): Not every cause counts. The court treated the phrase as requiring a tight, common-sense connection: if the damages flow directly from the excluded fraud and can’t be separated into a distinct negligence injury, the insurer doesn’t pay.
  • “Independent” covered cause: If the insured’s negligence caused a different harm than the fraud did (for example, a surgical blunder that would be negligent even if the surgery had been appropriate), those negligence damages may remain covered.
  • Allocated vs. unallocated verdicts: An allocated verdict divides damages between theories (e.g., negligence vs. fraud). An unallocated verdict does not. Allocation can matter because it may demonstrate separable damages—though the court emphasized the deeper question is separability of harm, not the label on the verdict.
  • Third-party bad faith: “Bad faith” is a special insurer-duty claim owed to the policyholder. In Ohio, injured claimants generally cannot sue the insurer for bad faith handling of the claim unless they stand in the insured’s shoes (e.g., via assignment or statutory mechanism).
  • Claim preclusion (res judicata): If you had a full opportunity to litigate a claim and it ended with a final judgment on the merits (including dismissal with prejudice), you cannot relitigate the same transaction later by changing theories or adding minor new details.
  • Litigation privilege: Statements made in court filings and litigation are often protected from later tort suits (like defamation or fraud) to allow robust advocacy; the court applied this to bar the proposed “rescission fraud” claim.

Conclusion

The Sixth Circuit’s decision clarifies that, under Ohio law, a malpractice policy exclusion for damages “in consequence of” fraud bars indemnity where the plaintiff’s damages directly stem from and are inseparable from the insured’s intentional misrepresentation—even if a jury also found negligence. At the same time, the court indicated a pathway to coverage when plaintiffs can plead and prove independent negligence damages distinct from the fraud-induced procedure itself.

On the direct-action side, the court firmly reaffirmed Ohio’s rule that insurers’ bad-faith duties run to the insured, not third-party claimants, and that plaintiffs must plead established tort elements (especially justifiable reliance for fraud) rather than rebranding dissatisfaction with claims handling. The combined holdings will shape how future Ohio malpractice cases are tried (especially verdict allocation and proof of separable harms) and will constrain third-party litigation strategies against insurers absent legislative change.