Augustine Torres v. American Employers Insurance Co.

*Honorable George Caram Steeh, United States District Judge for the Eastern District of
Michigan, sitting by designation.
NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
File Name: 05a0833n.06
Filed: October 7, 2005
No. 04-6246
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
AUGUSTINE TORRES,
Plaintiff-Appellant,
v.
AMERICAN EMPLOYERS INSURANCE CO.,
et al.,
Defendants-Appellees.
/
ON APPEAL FROM THE UNITED
STATES DISTRICT COURT FOR THE
EASTERN DISTRICT OF KENTUCKY
BEFORE: CLAY and GIBBONS, Circuit Judges, and STEEH, District Judge.*
CLAY, Circuit Judge. Plaintiff, Augustine Torres, appeals the district court’s dismissal,
pursuant to Federal Rule of Civil Procedure 12(b)(6), of Plaintiff’s state law claims against
Defendant insurance companies. Plaintiff’s claims allege illegal and tortious conduct under
Kentucky state law during the mediation of an underlying tort claim against the owners, builders,
and sellers of a pool in which Plaintiff was injured. Plaintiff’s suit alleges causes of action for 1)
unfair claim settlement practices under the Kentucky Unfair Claims Settlement Practices Act

-- 1 of 21 --

No. 04-6246
2
(“UCSPA”), 2) bad faith, 3) fraud, 4) outrageous conduct, and 5) intentional or negligent infliction
of emotional distress. For the reasons set forth below, this Court AFFIRMS the district court’s
dismissal of all claims for failure to state a claim upon which relief can be granted. See Fed. R. Civ.
P. 12(b)(6).
BACKGROUND
I. Substantive Facts
This case has its origins in a separate tort action brought by Plaintiff after he sustained
injuries, including quadriplegia, when diving into a private swimming pool. Plaintiff brought an
action in Kentucky’s Clark County Circuit Court on August 4, 2000, charging negligence by pool
owners Allen and Pamela Willoughby. (Compl. ¶¶ 1-8, Torres v. Willoughby et al., No. 00-CI-
00362 (Ky. Cir. Ct. Clark County filed Aug. 4, 2000)).
Plaintiff subsequently amended his complaint in the underlying tort action to add defendants
Tri-Star Pool Construction, the builder and installer of the pool; SPC Pool Corporation, South
Central Pool Supply, Inc., and SCP Distributors, LLC, (collectively, “SCP”), the manufacturers and
sellers of the component parts of the pool; and S. R. Smith, LLC, the manufacturer and seller of the
pool slide. (First Amended Compl.¶¶ 2-13, Torres, No. 00-CI-00362.) In a second amended
complaint, Plaintiff added as defendants Cookson Plastic Molding Corporation and Pacific
Industries, alleging that “either” of them had manufactured the vinyl liner of the pool and other
component parts of the pool, and Kentucky Pool & Supply, Inc. and CENTE’ Industries, Inc., the

-- 2 of 21 --

No. 04-6246
3
sellers of the pool slide and other component parts of the pool. (Second Amended Compl.¶¶ 2-10,
Torres, No. 00-CI-00362.)
Defendants in the instant case are all insurance companies with whom the underlying tort
defendants had policies or coverage. Defendant American Employers’ Insurance Company
(“AEIC”) insured Cookson Plastic and Pacific Industries for $1,000,000 per occurrence for personal
injury. (Def. Br. at 5.) Defendant One Beacon Insurance Company (“One Beacon”) is the parent
company of AEIC. (Id.) Defendant Fireman’s Fund Insurance Companies (“Fireman’s Fund”)
insured Cookson Plastic and Pacific Industries for $10,000,000 excess liability. (Id.) Defendant
Zurich American Insurance Company (“Zurich”) insured SCP for $1,000,000 primary liability, and
Defendant Chubb National Insurance Company (“Chubb”) was contracted to provide $10,000,000
in excess liability for SCP. (Id.)
When reviewing a Rule 12(b)(6) motion, we take as true all allegations in Plaintiff’s
complaint. See Ricco v. Potter, 377 F.3d 599, 602 (6th Cir. 2004). The following version of events
therefore presumes Plaintiff can prove all attendant allegations.
The discovery period for the underlying tort action took place over the course of
approximately 16 months. Plaintiff first learned of SCP’s and Cookson/Pacific’s primary liability
insurance and limits in September 2002 in responses to interrogatories and requests for production
of documents (Compl. ¶ 12.) Over the course of the next year, Plaintiff’s counsel and counsel for
SCP and Cookson/Pacific exchanged correspondence and requests over the details of insurance
coverage, in particular the existence and extent of any excess liability insurance coverage. (Id. ¶ 13-
24.) Plaintiff repeatedly requested information on any excess liability coverage. (Id.)

-- 3 of 21 --

No. 04-6246
1The sentence reads in full: “Please be advised that I have now received correspondence from
both Zurich Insurance Company and Chubb confirming that they have not raised any coverage
defenses or reservation of rights relative to the insurance coverage issued to South Central Pool
Supply, Inc. regarding the subject litigation.” Letter from Neal Smith (Smith, Atkins & Thompson,
PLLC) (counsel for SCP) to Joe Savage (Savage, Garmer, Elliott & O’Brien, PLLC) (counsel for
Plaintiff) (November 21, 2003).
2The Complaint paragraph addressing Pacific and Cookson’s admissions with respect to
coverage issues actually states that these statements took place on November 6, 2002. Given the rest
of Plaintiff’s timeline, this Court will grant Plaintiff the benefit of the doubt and presume Plaintiff
meant that these admissions took place in November 2003. In any event, the apparent typographic
error has no effect on this Court’s analysis.
4
In September 2003 counsel for Cookson/Pacific revealed $10,000,000 in excess liability
insurance with the Fireman’s Fund. (Id. ¶ 20.) In November 2003 counsel for SCP disclosed SCP’s
$10,000,000 excess liability policy with Chubb. (Id. ¶ 21.) Also in November 2003 counsel for
SCP stated that he had “now received correspondence from both [Zurich] and Chubb confirming that
they have not raised any coverage defenses or reservation of rights . . . regarding the subject
litigation.” 1 (Id. ¶ 23.) That same month, “[Pacific] admitted there were no coverage defenses,
reservation of rights or any other coverage questions between Pacific and [AEIC] and Fireman’s
Fund Insurance Companies.” 2 (Id. ¶ 24.) Cookson also “admitted there were no coverage defenses,
reservation of rights or any other coverage questions between Cookson and [AEIC] and Fireman’s
Fund Insurance Companies.” (Id.)
The underlying tort case was scheduled for mediation on March 13, 2004. (Id. ¶ 25.)
Plaintiff’s mother drove Plaintiff, a quadriplegic, to the mediation. (Id. ¶ 28.) Plaintiff’s counsel
presented a summary of Plaintiff’s case. (Id.) After a recess, defendants returned to the mediation
session and counsel for SCP and Cookson/Pacific informed the mediator and Plaintiff that “there
were insurance coverage questions between or among the insurance companies, SCP and/or

-- 4 of 21 --

No. 04-6246
3 This quotation comes from the language of the complaint and is not a quotation from the
mediation session itself.
5
Cookson/Pacific and that the mediation was being terminated.”3 (Id.) The mediation was
terminated. (Id.)
According to the district court, “the parties to the underlying tort action were able to resolve
all claims (except the instant causes of action against the insurance companies) during a second
mediation on April 9, 2004.” Torres v. One Beacon Ins. Co., No. 04-191-KSF (E.D. Ky Sept. 24,
2004). The settlement reached in the underlying tort action remains confidential, but Plaintiff stated
during oral argument that under the settlement Plaintiff reserved the right to pursue the current
action; Defendants’ counsel did not argue otherwise.
II. Procedural History
On April 4, 2004, Plaintiff brought the instant action against Defendants One Beacon, AEIC,
Fireman’s Fund, Zurich, and Chubb, also in Clark Circuit Court. (Compl. at 1.) Plaintiff alleges that
Defendants’ conduct 1) violated Kentucky’s Unfair Claims Settlement Practices Act, Ky. Rev. Stat.
Ann. § 304.12-230 (2004); 2) constituted bad faith; 3) constituted fraud, willful misrepresentation,
negligent misrepresentation, and/or concealment; 4) constituted outrageous conduct; and 5)
constituted intentional and/or negligent infliction of emotional distress. (Id. ¶ 29-33.) Plaintiff
alleges “severe emotional distress, mental anguish, and unnecessary expense” and seeks
compensatory and punitive damages. (Id. ¶ 34-35.) Defendants removed the case to the United
States District Court for the Eastern District of Kentucky on April 23, 2004. Notice of Removal,

-- 5 of 21 --

No. 04-6246
6
Torres v. One Beacon Ins. Co., No. 04-CI-00192 (E.D.Ky. April 23, 2004) (subsequently
renumbered as No. 04-191-KSF).
In May 2004, all Defendants moved to dismiss the complaint. Torres, No. 04-191-KSF, at
1. The district court granted Defendants’ motions, in their entirety, on September 24, 2004 and
dismissed Plaintiff’s complaint with prejudice. Id. at 20. On the same day, Plaintiff filed his notice
of appeal to this Court.
ANALYSIS
I. STANDARD OF REVIEW
This Court reviews de novo a district court's dismissal of a complaint under Federal Rule of
Civil Procedure 12(b)(6). PR Diamonds, Inc. v. Chandler, 364 F.3d 671, 680 (6th Cir. 2004) (citing
Valassis Commc’ns v. Aetna Cas. & Sur. Co., 97 F.3d 870, 873 (6th Cir. 1996)).
In considering whether a complaint fails to state a claim upon which relief can be granted,
this Court construes “the complaint in the light most favorable to the plaintiff, accept[s] all factual
allegations [of the plaintiff] as true, and determine[s] whether the plaintiff undoubtedly can prove
no set of facts in support of his claims that would entitle him to relief.” Ricco v. Potter, 377 F.3d
599, 602 (6th Cir. 2004) (internal quotations and citations omitted). Although this is a liberal
pleading standard, it requires more than the bare assertion of legal conclusions. Rather, the
complaint must contain either direct or inferential allegations respecting all the material elements
to sustain a recovery under some viable legal theory. In re DeLorean Motor Co., 991 F.2d 1236,
1240 (6th Cir. 1993).

-- 6 of 21 --

No. 04-6246
4The language of the complaint tracks the language of the statute itself. The UCSPA states:
It is an unfair claims settlement practice for any person to commit or perform any of
the following acts or omissions:
(1) Misrepresenting pertinent facts or insurance policy provisions relating to
coverages at issue;
. . .
(14) Failing to promptly provide a reasonable explanation of the basis in the
insurance policy in relation to the facts or applicable law for denial of a claim or for
the offer of a compromise settlement.
Ky. Rev. Stat. Ann. § 304.12-230 (2004).
7
II. THE CLAIM UNDER THE KENTUCKY UNFAIR CLAIMS SETTLEMENT
PRACTICES ACT
Plaintiff’s claim under the Kentucky UCSPA hinges on the threshold matter of whether the
UCSPA applies to conduct by insurance companies taken after litigation commences. Because we
find that the UCSPA does not apply, we affirm the district court’s dismissal of Plaintiff’s UCSPA
claim.
1. Plaintiff’s Claim Under the UCSPA
Plaintiff charges that Defendants violated § 1 of the UCSPA “in that these companies
misrepresented pertinent facts or insurance policy provisions relating to coverages at issue,” and §
14 “in that these companies failed to promptly provide a reasonable explanation of the basis in the
insurance policy for denial of claims or for the offer of a compromise settlement.”4 (Compl. ¶ 29.)
These claims are apparently rooted in the allegation that Defendants first denied that there were any
coverage defenses or coverage questions, only to raise such issues during the first attempt at
mediation in March 2004, which caused that mediation session to be terminated.
2. The District Court’s Dismissal of Plaintiff’s UCSPA Claim

-- 7 of 21 --

No. 04-6246
8
The district court agreed with Defendants’ argument that conduct occurring after the
commencement of litigation could not form the basis of a UCSPA claim and therefore dismissed
Plaintiff’s claim under the UCSPA . Torres, No. 04-191-KSF, at 9, 11. In reaching this conclusion,
the district court recognized that “there is no published Kentucky decision directly on point,” but
essentially adopted the reasoning of an unpublished Kentucky Court of Appeals decision, Knotts v.
Zurich Insurance Co. Torres, No. 04-191-KSF, at 5-11 (analyzing Knotts v. Zurich Ins. Co.,
No.2002-CA-001846-MR, 2004 WL 221213 (Ky. Ct. App. Feb. 6, 2004) (as modified April 30,
2004)). The district court looked at the language of the UCSPA and determined that the statute’s
repeated use of the word “claims” rather than litigation is unambiguous and demonstrates “that the
General Assembly did not intend for the UCSPA to regulate anything but the conduct of insurance
companies in the adjustment of claims prior to the commencement of litigation.” Id. at 9. The court
also concluded that “if the legislature had intended for the UCSPA to apply to actions by insurance
companies after the initiating of litigation, it would have so provided.” Id.
The Supreme Court of Kentucky granted discretionary review in the Knotts case on February
9, 2005. See Knotts v. Zurich Ins. Co., No. 2004-SC-0400-DG (Ky. Feb. 9, 2005 (order granting
discretionary review). The Court noted in the grant of discretionary review that “[i]ssues in this case
include whether the Kentucky Unfair Claims Settlement Practices Act applies to conduct which
occurs after the commencement of litigation or is limited to conduct during the claims adjustment
period.” Supreme Court of Kentucky, Discretionary Review Granted (Pending Cases Only) 18,
http://www.kycourts.net/Supreme/documents/discretionarygranted.pdf. As of this writing, the
Supreme Court of Kentucky has not issued a decision in the case.

-- 8 of 21 --

No. 04-6246
5The UCSPA provision reads in full:
It is an unfair claims settlement practice for any person to commit or perform any of
the following acts or omissions:
(1) Misrepresenting pertinent facts or insurance policy provisions relating to
coverages at issue;
(2) Failing to acknowledge and act reasonably promptly upon communications with
respect to claims arising under insurance policies;
(3) Failing to adopt and implement reasonable standards for the prompt investigation
of claims arising under insurance policies;
(4) Refusing to pay claims without conducting a reasonable investigation based upon
all available information;
(5) Failing to affirm or deny coverage of claims within a reasonable time after proof
of loss statements have been completed;
(6) Not attempting in good faith to effectuate prompt, fair and equitable settlements
of claims in which liability has become reasonably clear;
(7) Compelling insureds to institute litigation to recover amounts due under an
insurance policy by offering substantially less than the amounts ultimately recovered
in actions brought by such insureds;
(8) Attempting to settle a claim for less than the amount to which a reasonable man
would have believed he was entitled by reference to written or printed advertising
material accompanying or made part of an application;
(9) Attempting to settle claims on the basis of an application which was altered
without notice to, or knowledge or consent of the insured;
(10) Making claims payments to insureds or beneficiaries not accompanied by
statement setting forth the coverage under which the payments are being made;
(11) Making known to insureds or claimants a policy of appealing from arbitration
awards in favor of insureds or claimants for the purpose of compelling them to
accept settlements or compromises less than the amount awarded in arbitration;
(12) Delaying the investigation or payment of claims by requiring an insured,
claimant, or the physician of either to submit a preliminary claim report and then
requiring the subsequent submission of formal proof of loss forms, both of which
submissions contain substantially the same information;
9
3. The District Court Correctly Concluded That the UCSPA Does Not Apply Once
Litigation Begins.
We agree with the district court’s analysis of the UCSPA. The district court properly looked
to the statutory provision as a whole and understood the provision to make distinct use of the terms
“litigation” and “claim.”5 This analysis comports with direction from the Supreme Court of

-- 9 of 21 --

No. 04-6246
(13) Failing to promptly settle claims, where liability has become reasonably clear,
under one (1) portion of the insurance policy coverage in order to influence
settlements under other portions of the insurance policy coverage;
(14) Failing to promptly provide a reasonable explanation of the basis in the
insurance policy in relation to the facts or applicable law for denial of a claim or for
the offer of a compromise settlement; or
(15) Failing to comply with the decision of an independent review entity to provide
coverage for a covered person as a result of an external review in accordance with
KRS 304.17A-621, 304.17A-623, and 304.17A-625.
Ky. Rev. Stat. Ann. § 304.12-230 (2004).
10
Kentucky that courts “in construing an extant act may refer to prior acts or sections of the statute
relating to the same subject in ascertaining the meaning of the law under consideration.” Burbank
v. Sinclair Prairie Oil Co., 202 S.W.2d 420, 424 (Ky. 1946). Plaintiff helpfully instructs us to
follow the clear language of the statute but then references Black’s Law Dictionary to come up with
a definition of “claim” as a “cause of action.” (See Pl. Br. at 13.) Were this Court to follow
Plaintiff’s advice to follow the clear language of the statute, we would not consult a specialized
dictionary for the definition of a term used. Rather, we would reference a general dictionary to find
that “claim” has several listed definitions. See Webster’s Third New International Dictionary 414
(1993). Because “claim” has multiple meanings, this Court must look to the context of the term’s
usage to understand the drafter’s intent.
UCSPA uses “claim” in the context of a law regulating the insurance industry. The common
understanding of “claim” with reference to insurance is a demand for insurance payment under the
terms of the insurance contract. Moreover, the statute uses “claim” as distinct from “litigation,”
evidencing the Kentucky legislature’s intent to distinguish between the claims adjustment phase and
a litigation phase. As further evidence, all the usages of “claim” in section 301.12-230 are

-- 10 of 21 --

No. 04-6246
11
consistent with the common understanding of “insurance claim,” while not all usages are consistent
with an understanding of “claim” to encompass a legal claim or cause of action, see, e.g., § 301.12-
230(10).
Most persuasively, the Kentucky Court of Appeals has found that the UCSPA does not
address litigation behavior. See Knotts v. Zurich Ins. Co., No. 2002-CA-001846-MR, 2004 Ky. App.
LEXIS 22, at *14 (Ky. Ct. App. 2004). While Plaintiff correctly points out that while under a
pending review by the Supreme Court of Kentucky the Knotts decision is not deemed final (see Pl.
Br. at 5-7), that should not and does not deter this Court from taking that opinion into consideration
when there are no published decisions on point, or, alternatively, from considering the court’s
reasoning. The Knotts’ court points out that the impetus behind the UCSPA was not to exercise
control over insurance litigation, but to exercise control over the claims adjustment process such that
litigation occurred less frequently. Knotts, 2004 Ky. App. LEXIS 22, at *9-10. We find the
Kentucky Court of Appeals’ reasoning persuasive.
Plaintiff points to a prior Kentucky Court of Appeals decision which held that the UCSPA
did apply during litigation. (Pl. Br. at 11, citing Am. Physicians Assur. Corp. v. Schmidt, No. 2002-
CA-001292-MR, 2003 WL 22927781 (Kt. Ct. App. Dec. 12, 2003). The court’s treatment in
Schmidt, however, consisted entirely of a conclusory statement that the argument that the UCSPA
did not apply in litigation was “without basis in fact and is clearly contradicted by the language of
the law, and the relevant case law.” Id. This stands in direct contrast to the same court’s treatment
in Knotts, which took several pages to analyze the statute, its policy, and the relevant law. Knotts,

-- 11 of 21 --

No. 04-6246
12
2004 Ky. App. LEXIS 22, at *7-14. Moreover, as the district court correctly noted, one of the
concurring judges in Schmidt actually authored the opinion in Knotts. See id. at *1.
Because we find that the UCSPA does not address behavior after the commencement of
litigation, this Court need not opine on Defendants’ arguments that interpreting the statute to apply
once litigation begins would violate the Kentucky state constitution. Accordingly, this Court affirms
the district court’s dismissal of Plaintiff’s UCSPA claim.
III. THE COMMON LAW BAD FAITH CLAIM
The district court correctly interpreted Kentucky law to require that before a third party
claimant can bring a common law bad faith claim against an insurer, the third party claimant must
plead that the first party insured has assigned his rights as against the insurer to the third party
claimant. Because Plaintiff did not (and apparently could not) make any such pleading in this case,
the district court was correct in its dismissal of Plaintiff’s common law bad faith claim.
1. Plaintiff’s Common Law Bad Faith Claim
Plaintiff charged in Count II of his complaint that the conduct of Defendants “constitutes bad
faith in violation of their duty to exercise good faith and act reasonably to fairly handle Torres’
claims.” (Compl. ¶ 30.) In summary, the complaint in its entirety alleges facts contending 1) that
defendants’ counsel in the underlying case initially informed Plaintiff that Defendant insurance
companies had not raised any coverage defenses or reservation of rights (id. ¶¶ 21, 24), 2) that at the
first mediation, counsel for defendants in the underlying case informed Plaintiff that “there were

-- 12 of 21 --

No. 04-6246
13
insurance coverage questions between or among the insurance companies, SCP and/or
Cookson/Pacific” (id. ¶ 28), and 3) that as a result, the mediation was terminated (id.).
Nowhere does the complaint allege that the defendants in the underlying action have
assigned their rights against Defendant insurance companies to Plaintiff. Plaintiff’s brief concedes
that there was no assignment in this case. (Pl. Br. at 20.)
2. Kentucky Law Requires a Third Party Claimant to Plead and Prove
Assignment
The Supreme Court of Kentucky has addressed common law bad faith claims in the context
of insurance contracts in a number of cases spanning the past three decades. A proper synthesis of
these cases produces an undeniable understanding that Kentucky common law bad faith arises in the
insurance context only when a privity relationship exists between claimant and the insurance
company.
In Manchester Insurance & Indemnity Co. v. Grundy, 531 S.W. 2d 493 (Ky. Ct. App. 1976),
a third-party claimant injured in a pedestrian/automobile accident with the first-party insured sued
the insurer, alleging bad faith in failing to settle his claim and pleading an assignment of rights from
the first-party insured, id. at 494-95. The case required the court to undertake “a consideration of
the proper application of a test to determine ‘bad faith’ on the part of an insurance company in
failing to settle a claim.” Id. at 496. Faced as it was with a third-party claimant, the court first noted
that “[t]here is no privity of contract between the insurer and the claimant, so the insurer is never
guilty of ‘bad faith’ to the claimant. The claimant can only look to the insured for satisfaction of
the judgment unless the insured makes an assignment to the claimant, as was done here.” Id. at 498
(citations omitted).

-- 13 of 21 --

No. 04-6246
14
While Kentucky law has evolved since the Grundy decision to permit tort damages for bad
faith on the part of an insurer, the Supreme Court of Kentucky has not extended insurance company
liability to third party claimants lacking an insured’s assignment of rights. A 1989 decision, Curry
v. Fireman’s Fund Insurance Co., overruled a previous decision of the court and permitted punitive
damages for an insurance company’s bad faith. 784 S.W.2d 176, 198 (Ky. 1989) (overruling Fed.
Kemper Ins. Co. v. Hornback, 711 S.W.2d 844 (Ky. 1986), which had precluded the recovery of
punitive damages, and returning to the state of law as articulated by Feathers v. State Farm Fire &
Cas. Co., 667 S.W.2d 693 (Ky. Ct. App. 1983)). The Curry court noted that “the essence of a claim
for first party bad faith is exposure of the insurance carrier to damages recoverable in tort. Such a
claim should not be lightly entertained in view of the contractual nature of the parties’ original
relationship.” Id. at 178. Both Hornback and Curry involved claims by first-party insured
claimants.
In Wittmer v. Jones, 864 S.W.2d 885, 886 (Ky. 1993), the Supreme Court of Kentucky
synthesized its “three recent decisions . . . recogniz[ing] a cause of action to recover tort damages
against insurance companies upon proof of bad faith failure to pay claims clearly due and payable.”
In addition to Curry, which recognized a common law bad faith cause of action, the court discussed
Stevens v. Motorists Mutual Insurance Co., 759 S.W.2d 819 (Ky. 1988), “recognizing a statutory
bad faith claim by an insured against his own insurer under the Consumer Protection Act, [Ky. Rev.
Stat. Ann.]§ 367.110 et seq.,” and State Farm Mutual Automobile Insurance Co. v. Reeder, 763
S.W.2d 116 (Ky. 1988), “recognizing the existence of a claim by a third-party for damages sustained
by reason of an insurance company’s violation of” the UCSPA. Id. The court held that the elements

-- 14 of 21 --

No. 04-6246
15
of a common law bad faith tort claim were, likewise, the elements of a statutory claim: 1) that the
insurer is obligated to pay the claim under the terms of the policy; 2) that the insurer lacks a
reasonable basis in law or fact for denying the claim; and 3) that the insurer knowingly or recklessly
denied the claim without a reasonable basis. Id. at 890 (citations omitted).
In Davidson v. American Freightways, 25 S.W.3d 94 (Ky. 2000), on which Plaintiff relies
heavily, the Supreme Court of Kentucky explained that in Wittmer, it had “gathered all of the bad
faith liability theories under one roof and established a test applicable to all bad faith actions,
whether brought by a first-party claimant or a third-party claimant, and whether premised upon
common law theory or a statutory violation.” 25 S.W.3d at 100 (citing Wittmer, 864 S.W.2d at 890).
The court then reiterated the elements of a bad faith claim, summarized in the preceding paragraph
of this opinion.
Plaintiff insists that Wittmer, as interpreted by Davidson, eliminates the requirement set forth
in Grundy that a third-party claimant attempting to recover from an insurer receive an assignment
of rights from the first-party insured. According to Plaintiff, Wittmer and Davidson mean that the
three elements common to all bad faith claims are all that any claimant is required to show. (Pl. Br.
at 20.) Plaintiff’s argument is unpersuasive. The district court correctly determined that while
Wittmer set forth the three elements necessary in any bad faith claim, it did not do away with the
requirement that a third party may only bring a bad faith action against the insurer in a derivative
capacity, as the assignee of the insured.
The Wittmer court never announced that it was eliminating the assignment requirement set
forth in Grundy; rather, it confined itself to a discussion of the elements common to all bad faith

-- 15 of 21 --

No. 04-6246
16
claims. Likewise, in summarizing the evolution of bad faith law in Kentucky, the Davidson court
certainly did not explicitly eradicate the Grundy requirement. Moreover, in a case decided after
Wittmer, Motorists Mutual Insurance Co. v. Glass, 996 S.W.2d 437, 451-52 (Ky. 1997), the
Supreme Court of Kentucky endorses the distinction between first and third-party bad faith claims,
see id. at 451-52 (discussing the evolution of bad faith law in Kentucky and repeatedly
distinguishing between first and third-party actions).
The Davidson case itself does not support Plaintiff’s argument when we view the case in its
entirety. The Davidson court opined that the Wittmer decision was a restatement of Kentucky law
as it existed prior to the mid 1980s elimination of punitive damages for an insurer’s bad faith, “that
a cause of action for bad faith arises out of a breach of contract ‘so great that it would constitute
tortious conduct on the part of the insurance company.’” Davidson, 25 S.W.3d at 100 (emphasis in
original) (quoting Feathers, 667 S.W.2d at 696). The state of law at the time of the Feathers
decision required a third party claimant to procure an assignment of rights from the insured. See
Grundy, 531 S.W. 2d at 498.
3. The District Court Correctly Concluded That Plaintiff Failed to State a
Common Law Bad Faith Claim Under Kentucky Law
Plaintiff did not allege that the underlying defendants assigned their rights against the instant
Defendants to collect for monies or damages due under the relevant insurance contracts, and
Plaintiff’s brief concedes that there was no assignment in this case. (Pl. Br. at 20.) Because the
Supreme Court of Kentucky has never abolished the requirement of an assignment of rights to a
third-party claimant attempting to sue an insurance company for bad faith, and instead has appeared

-- 16 of 21 --

No. 04-6246
17
to endorse the continuing viability of that requirement, the district court correctly concluded that
Plaintiff has failed to state a common law bad faith claim under Kentucky law.
IV. THE FRAUD CLAIM
Plaintiff contends that the Complaint, taken in its entirety, pleads particular facts sufficient
to sustain a cause of action for fraud. (Pl. Br. at 22-23.) Defendants and the district court disagree.
Plaintiff fails to demonstrate to this Court, however, that Plaintiff has even pled all six elements of
the tort of fraud under Kentucky law as a threshold matter.
1. Fraud Claims Under Kentucky Law
Pursuant to both the Federal and Kentucky Rules of Civil Procedure, “[i]n all averments of
fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity.”
Fed. R. Civ. P. 9(b); Ky. R. Civ. P. 9.02(c). Moreover, under Kentucky law, fraud consists of six
elements:
1) material representation
2) which is false
3) known to be false or made recklessly
4) made with inducement to be acted upon
5) acted in reliance thereon and
6) causing injury.
United Parcel Service Co. v. Rickert, 996 S.W.2d 464, 468 (Ky. 1999). A complaint must contain
either direct or inferential allegations respecting all the material elements to sustain a recovery. If
it fails to do so, the claim may be dismissed pursuant to Rule 12(b)(6). In re DeLorean Motor Co.,
991 F.2d at 1240.
2. The District Court Properly Dismissed Plaintiff’s Fraud Claim

-- 17 of 21 --

No. 04-6246
18
The district court dismissed Plaintiff’s fraud claim for failure to state a claim upon which
relief could be granted. Torres, No. 04-191-KSF, at 16. The court determined that Plaintiff had
failed to allege sufficient facts to satisfy the elements of a fraud claim under Kentucky law, and that
Plaintiff had failed to plead facts with sufficient particularity to meet the requirements of the civil
procedure rule. Id. The court specifically found “insufficient allegations regarding which
representations were known to be false or made recklessly, that they were made with the inducement
to be acted upon, or that [Plaintiff] somehow acted in reliance thereon.” Id. The court also noted
that “the representations of which he complains, that there were no coverage disputes, reservations
of rights or coverage questions prior to the March Mediation, were made by counsel for the
defendants in the underlying tort action,” and not by Defendant insurance companies. Id.
A complaint must contain either direct or inferential allegations respecting all the material
elements to sustain a recovery under some viable legal theory. If it fails to do so, the claim may be
dismissed pursuant to Rule 12(b)(6), as it was in this case. In re DeLorean Motor Co., 991 F.2d at
1240.
In the view of this Court, Plaintiff’s allegations—that counsel for the underlying defendants
denied that there were any coverage disputes, and that such disputes arose at the mediation only after
Plaintiff’s counsel had made a presentation of his evidence at trial—do not suffice to meet the
elements of a Kentucky fraud claim. As the district court pointed out, the complaint contains no
allegations in support of the third, fourth, and fifth elements of a fraud claim: that the statements
made were known to be false, or are made recklessly, that they were made with inducement to be
acted upon, and that they were acted in reliance upon. Although the district court presumed that the

-- 18 of 21 --

No. 04-6246
19
statements alleged to be false were those made by the underlying defendants’ counsel, to the effect
that there were no coverage disputes, this is not alleged anywhere in the complaint with particularity,
as required by the civil procedure rules, and, in any event, Defendants are not liable for statements
made by others. Therefore, this Court affirms the district court’s dismissal of Plaintiff’s fraud claim.
V. THE OUTRAGEOUS CONDUCT AND INTENTIONAL INFLICTION OF
EMOTIONAL DISTRESS CLAIMS
Although Plaintiff alleges outrage and intentional infliction of emotional distress in two
separate counts of his complaint, they are the same tort under Kentucky law. See Banks v. Fritsch,
39 S.W.3d 474, 480 (Ky. Ct. App. 2001).
The Supreme Court of Kentucky recognized the tort of outrage, or intentional infliction of
emotional distress, in Craft v. Rice, 671 S.W.2d 247 (Ky. 1984). The court adopted the Restatement
(Second) of Torts § 46, which states that “one who by extreme and outrageous conduct intentionally
or recklessly causes severe emotional distress to another is subject to liability for such emotional
distress, and if bodily harm to the other results from it, for such bodily harm.” Craft, 671 S.W.2d
at 251 (quoting Restatement (Second) of Torts § 46). The court emphasized that a showing of
bodily harm was not required. Id.
The elements of an outrageous conduct claim are: “[1)] [t]he wrongdoer's conduct must be
intentional or reckless; [2)] the conduct must be outrageous and intolerable in that it offends against
the generally accepted standards of decency and morality; [3] there must be a causal connection
between the wrongdoer's conduct and the emotional distress and [4)] the distress suffered must be
severe.” Osborne v. Payne, 31 S.W.3d 911, 913-14 (Ky. 2000). The tort is not available for “petty
insults, unkind words and minor indignities,” Kroger Co. v. Willgruber, 920 S.W.2d 61, 65 (Ky.

-- 19 of 21 --

No. 04-6246
6Ohio has similarly adopted the Restatement (Second) of Torts on the tort of outrageous
conduct.
20
1996), or for behavior that is “cold, callous and lacking sensitivity.” Humana of Ky., Inc. v. Seitz,796
S.W.2d 1, 3-4 (Ky. 1990). “Rather, it is intended to redress behavior that is truly outrageous,
intolerable and which results in bringing one to his knees.” Osborne, 31 S.W. 3d at 914 (citations
omitted).
As a threshold matter, Plaintiff fails to plead conduct that at least approaches “truly
outrageous, intolerable” behavior necessary for this tort. See id.; see also DeLoach v. American Red
Cross, 967 F. Supp. 265, 269 (N.D. Ohio 1997) (finding that plaintiff had failed to allege conduct
sufficiently objectionable to survive a Rule 12(b)(6) motion) (applying Ohio law).6 Plaintiff alleges
misrepresentations during the course of litigation that caused a quadriplegic, in essence, time and
inconvenience, false hope, and additional expense. Even had Plaintiff successfully asserted a claim
for fraud on the part of Defendants, however, such misrepresentations are not the stuff of the tort for
outrageous conduct. As the district court noted “the only conduct complained of by Plaintiff . . . is
that the attorneys for the defendants in the underlying action (as opposed to the insurers or their
agents) represented to Plaintiff’s counsel that there were no coverage disputes, reservation of rights
or coverage questions prior to the March mediation. Then, because coverage questions among the
various insurers allegedly arose during the mediation, Plaintiff insinuates that this was ‘outrageous
conduct.’” Torres, No. 04-191-KSF, at 18. The court noted that Plaintiff could not cite to any case
that would support an argument that the insurance companies’ conduct—in announcing coverage

-- 20 of 21 --

No. 04-6246
21
disputes during the mediation —would “offend generally accepted standards of morality and
decency.” Id. at 74.
This Court agrees with the district court. Plaintiff has failed to allege conduct even arguably
capable of “bringing one to his knees.” We affirm the district court’s dismissal of this claim.
VI. THE NEGLIGENT INFLICTION OF EMOTIONAL DISTRESS CLAIM
While Plaintiff phrases the issue in this appeal as “[w]hether the District Court’s dismissal
of all claims” was proper, Plaintiff has failed to argue in his brief that the lower court’s dismissal
of Plaintiff’s negligent infliction of emotional distress claim was improper. Accordingly, Plaintiff
has waived this argument. See Kocsis v. Multicare Mgt., Inc., 97 F.3d 876, 881 (6th Cir. 1997). We
affirm the district court’s dismissal of this claim.
CONCLUSION
For the foregoing reasons, we AFFIRM the district court’s dismissal of Plaintiff’s claims.

-- 21 of 21 --