*

The Honorable George Caram Steeh, United States District Judge for the Eastern District of Michigan, sitting

by designation.

RECOMMENDED FOR FULL-TEXT PUBLICATION

Pursuant to Sixth Circuit Rule 206

File Name: 08a0030p.06

UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT _________________

SCOTTSDALE INSURANCE COMPANY,

 Plaintiff-Appellee/Cross-Appellant,

v.

NORMAN FLOWERS,

Defendant,

KATHLEEN BURKE,

 Defendant-Appellant/Cross-Appellee.

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Nos. 06-6385/6412

Appeal from the United States District Court

for the Western District of Kentucky at Louisville.

No. 06-00019—Jennifer B. Coffman, Chief District Judge.

Argued: October 26, 2007

Decided and Filed: January 16, 2008 

Before: KEITH and CLAY, Circuit Judges; STEEH, District Judge.*

_________________

COUNSEL

ARGUED: Martha M. Eastman, EASTMAN LAW OFFICE, Louisville, Kentucky, for Appellant.

John W. Walters, GOLDEN & WALTERS, Lexington, Kentucky, for Appellee. ON BRIEF:

Michael R. Hance, FRANKLIN & HANCE, Louisville, Kentucky, for Appellant. John W. Walters,

Drew Byron Meadows, GOLDEN & WALTERS, Lexington, Kentucky, for Appellee. 

_________________

OPINION _________________

CLAY, Circuit Judge. Defendant Kathleen Burke (“Burke”) appeals the district court’s

amended order granting Plaintiff Scottsdale Insurance Company’s (“Scottsdale”) motion for

declaratory judgment. Burke argues that the district court abused its discretion in exercising

jurisdiction over the case pursuant to the Declaratory Judgment Act, 28 U.S.C. § 2201 (2000), and

erred in its determination that Norman Flowers (“Flowers”), a therapist at the Morton Center, was

not covered by the Morton Center’s liability insurance policy with Scottsdale for tort damages

1
Nos. 06-6385/6412 Scottsdale Ins. Co. v. Flowers, et al. Page 2

arising from Flowers’ sexual affair with Burke. Scottsdale cross appeals the district court’s decision

to amend the language of its original order and requests that this Court reinstate the original order.

For the reasons that follow, we AFFIRM the district court’s amended order. 

I. BACKGROUND

In October 2001, Burke sought treatment for mental health issues at the Morton Center which

referred her to Flowers, one of the Morton Center’s therapists. Burke had two sessions with Flowers

in October; two additional sessions in March 2002; and a session in July 2002. Several days after

this last session, Burke and Flowers began a sexual relationship which lasted from July through

August of 2002. 

Scottsdale is the liability insurer of the Morton Center. Its contract with the Morton Center

provides that Scottsdale “will pay those sums that the insured becomes legally obligated to pay as

DAMAGES because of injury as a result of a WRONGFUL ACT.” J.A. at 51. Wrongful act is

defined as “an act, error, or omission in the furnishing of professional health care services.” J.A.

at 56. The insurance contract defines an “insured” for the Morton Center to include “[y]our

employees and volunteers, but only for acts within the scope of their employment by you.” J.A. at

53.

On March 17, 2003, Burke filed a civil tort action against Flowers and the Morton Center

in Jefferson Circuit Court in Kentucky. Burke alleged that Flowers negligently breached his

professional standards for treatment by engaging in sexual relations with Burke and that this conduct

had caused Burke severe emotional distress. Burke further claimed that the Morton Center was

negligent in hiring and supervising Flowers. Scottsdale was not joined as a defendant in this state

court action. Scottsdale claims in its brief that it attempted to intervene in this state court action (but

there is no evidence of such facts in the record) and its motion was denied. See Pl. Br. at 38 n.4. 

On January 13, 2006, Scottsdale filed a Complaint for Declaratory Judgment against Burke

and Flowers in the United States District Court for the Western District of Kentucky. The Morton

Center was never joined as a party to the dispute. Scottsdale sought a declaration that it had no duty

to extend liability coverage to Flowers for the claims brought against him by Burke in state court.

On June 5, 2006, Scottsdale filed a motion for declaratory judgment against Burke. Burke’s

response to this motion disputed Scottsdale’s characterization of the issue presented but did not

request that the district court decline to exercise jurisdiction pursuant to the discretion afforded it

under the Declaratory Judgment Act, 28 U.S.C. § 2201. Flowers did not file a response to the

motion. 

On July 25, 2006, the district court granted Scottsdale’s motion and issued an opinion and

order finding that Flowers’ sexual affair with Burke was outside the scope of his employment as a

matter of Kentucky law and concluding that Scottsdale “has no duty to extend coverage to Norman

Flowers for any of the torts alleged in [the state tort action].” J.A. at 709.

On August 2, 2006, pursuant to Federal Rules of Civil Procedure 59 and 60, Burke filed a

Motion to Alter, Amend or Reconsider Declaratory Judgment in which she did not directly challenge

the district court’s legal findings or its exercise of jurisdiction but asked the district court to amend

the language of its order. Scottsdale filed a response to this motion on August 17, 2006. On

August 29, 2006, in her reply to Scottsdale’s response, Burke challenged the district court’s decision

to exercise jurisdiction over Scottsdale’s declaratory judgment action and requested that the district

court vacate its previous order.

On September 27, 2006, Burke filed an additional Motion to Vacate Prior Declaratory

Judgment and Stay Proceedings. In this motion, Burke further elaborated her arguments against the
Nos. 06-6385/6412 Scottsdale Ins. Co. v. Flowers, et al. Page 3

district court’s decision to exercise jurisdiction. In particular, Burke informed the district court that

the Morton Center had attempted to use the district court’s July 25, 2006 order to preclude litigation

on the issue of the Morton Center’s liability in state court. Scottsdale did not file a response to this

motion.

On October 3, 2006, the district court vacated its previous opinion and order and entered an

amended opinion and order. After considering the factors regarding the exercise of jurisdiction over

declaratory judgments which this Court outlined in Bituminous Cas. Corp. v. J & L Lumber Co., 373

F.3d 807, 812-13 (6th Cir. 2004), the district court found that its exercise of jurisdiction over

Scottsdale’s claim was appropriate. The district court then restated its analysis from the previous

order and confirmed its holding that Flowers’ sexual affair with Burke was outside the scope of his

employment as a matter of Kentucky law. However, based upon Burke’s arguments, the district

court chose to modify the language of its order concluding that Scottsdale “has no duty to extend

coverage to Norman Flowers for his sexual affair with Kathleen Burke.” J.A. at 25. Finally, without

discussion, the district judge denied Burke’s motion to stay the proceedings as moot. 

On October 25, 2006, Burke timely filed her Notice of Appeal which was followed shortly

by Scottsdale’s timely Notice of Cross-Appeal. 

II. DISCUSSION

On appeal, Burke challenges, as an abuse of discretion, the district court’s decision to

exercise the jurisdiction over this appeal granted it under the Declaratory Judgment Act. She further

contends that the district court erred in concluding that a therapist’s sexual affair with a patient is

outside the therapist’s scope of employment as a matter of Kentucky law, and thereby finding that

Scottsdale does not have a contractual obligation to extend tort liability insurance coverage to

Flowers for his sexual affair with Burke. In its cross-appeal, Scottsdale argues that the district court

abused its discretion in modifying the language of its original order when issuing its amended

opinion and order. We consider each of these issues in turn. 

A. JURISDICTION WITH RESPECT TO PLAINTIFF’S DECLARATORY

JUDGMENT ACTION

1. Preservation of the Issue for Appeal

Scottsdale argues that Burke did not preserve this issue for appeal because she failed to raise

it with the district court until her reply to Scottsdale’s response to Burke’s motion to amend the

original declaratory judgment order. See Pl. Br. at 30-32. Burke contends that the issue was not

waived because it was eventually brought to the district court’s attention and because the district

court discussed the issue in its final amended order. See Def. Third Br. at 5-8. We agree with

Scottsdale that this issue has not been properly preserved for appeal.

In general, challenges to the district court’s subject matter jurisdiction are not waived by

failure to raise them below and can be raised “at any time in the same civil action, even initially at

the highest appellate instance.” Kontrick v. Ryan, 540 U.S. 443, 455 (2004) (citing Mansfield, C.

& L.M.R. Co. v. Swan, 111 U.S. 379, 382 (1884)). See also Fed. R. Civ. Proc. 12(h)(3). However,

on this appeal, Burke does not challenge the district court’s subject matter jurisdiction, but rather

its discretionary decision to entertain an action over which it has subject matter jurisdiction pursuant

to the Declaratory Judgment Act, 28 U.S.C. § 2201. The Supreme Court has explained that while

the Declaratory Judgment Act provides the district court with jurisdiction over such actions, the

court is “under no compulsion to exercise that jurisdiction.” Brillhart v. Excess Ins. Co. of Am., 316

U.S. 491, 494 (1942). Thus, the issue presented is not actually a jurisdictional challenge but a

question of the propriety of the district court’s decision to exercise its discretion with respect to the
Nos. 06-6385/6412 Scottsdale Ins. Co. v. Flowers, et al. Page 4

subject matter jurisdiction granted it by Congress in the Declaratory Judgment Act. See id. Accordingly, traditional rules regarding the waiver of issues apply. 

These rules generally provide that an argument not raised before the district court is waived

on appeal to this Court. See United States v. Universal Mgmt. Servs., Inc., 191 F.3d 750, 759 (6th

Cir. 1999); Thurman v. Yellow Freight Sys., Inc., 97 F.3d 833, 835 (6th Cir. 1996); White v. Anchor

Motor Freight, Inc., 899 F.2d 555, 559 (6th Cir. 1990). Two main policies justify this general rule.

First, the rule eases appellate review “by having the district court first consider the issue.” Foster

v. Barilow, 6 F.3d 405, 409 (6th Cir. 1993). Second, the rule ensures fairness to litigants by

preventing surprise issues from appearing on appeal. See Novosteel SA v. United States, 284 F.3d

1261, 1274 (Fed. Cir. 2002).

Despite the rationale supporting this rule, “we have, on occasion, deviated from the general

rule in ‘exceptional cases or particular circumstances’ or when the rule would produce a ‘plain

miscarriage of justice.’” Foster, 6 F.3d at 407 (quoting Pinney Dock & Transport Co. v. Penn Cent.

Corp., 838 F.2d 1445, 1461 (6th Cir. 1988)). In Friendly Farms v. Reliance Ins. Co., we clarified

that: 

[T]he Court has discretion to entertain novel questions. The exercise of such

discretion is guided by factors such as: 1) whether the issue newly raised on appeal

is a question of law, or whether it requires or necessitates a determination of facts;

2) whether the proper resolution of the new issue is clear beyond doubt; 3) whether

failure to take up the issue for the first time on appeal will result in a miscarriage of

justice or a denial of substantial justice; and 4) the parties’ right under our judicial

system to have the issues in their suit considered by both a district judge and an

appellate court.

79 F.3d 541, 545 (6th Cir. 1996) (citing Taft Broad. Co. v. United States, 929 F.2d 240, 243 (6th Cir.

1991)). We have rarely exercised such discretion. See id. (finding nothing unjust about refusing

to entertain plaintiff’s argument regarding the discovery date of loss when plaintiff did not contest

the issue below); Foster, 6 F.3d at 409 (finding no compelling reason to consider plaintiffs’

argument regarding the award of attorney’s fees when plaintiffs failed to raise the issue below).

Instead, we have generally focused on whether the issue was properly raised before the district court.

See, e.g., Thurman, 97 F.3d at 835.

While we have never articulated precisely what constitutes raising an issue with the district

court, we have found issues to be waived when they are raised for the first time in motions

requesting reconsideration or in replies to responses. See Am. Family Prepaid Legal Corp. v.

Columbus Bar Assoc., 498 F.3d 328, 335 (6th Cir. 2007); Thurman, 97 F.3d at 835 (finding that

issue raised for first time in motion to alter or amend the judgment was not preserved for appeal);

Am. Meat Inst. v. Pridgeon, 724 F.2d 45, 47 (6th Cir. 1984) (finding that issue raised for the first

time in motion to reconsider issuance of injunction was untimely and thus waived on appeal). But

see Lexicon, Inc. v. Safeco Ins. Co. of Am., Inc., 436 F.3d 662, 670 n.6 (finding that issue raised for

the first time in defendant’s response to plaintiff’s reply brief for summary judgment was not waived

because the district court fully addressed the argument in its order and because both parties fully

briefed the issue on appeal). The Federal Circuit has articulated the rationale for not permitting

issues, raised for the first time in a reply to a response, to be raised on appeal:

Raising the issue for the first time in a reply brief does not suffice; reply briefs reply

to arguments made in the response brief – they do not provide the moving party with

a new opportunity to present yet another issue for the court’s consideration. Further

the non-moving party ordinarily has no right to respond to the reply brief, at least not
Nos. 06-6385/6412 Scottsdale Ins. Co. v. Flowers, et al. Page 5

until oral argument. As a matter of litigation fairness and procedure, then, we must

treat [such issues] as waived.

Novosteel, 284 F.3d at 1274 (finding that plaintiff had failed to preserve an issue for review by not

presenting it in its principal summary judgment brief and raising it for the first time in its reply

brief). See also Lexicon, 436 F.3d at 675-76 (Griffin, J., concurring).

In the instant case, Burke failed to properly raise the issue of the propriety of the district

court’s exercise of jurisdiction with the district court. Burke first raised this issue in her “Reply to

Scottsdale’s Response to Burke’s Motion to Alter, Amend or Reconsider Declaratory Judgment.”

J.A. at 753. Procedurally, Scottsdale was not afforded a response to this reply. Under Thurman and

Pridgeon, raising the issue in such a motion is untimely. Likewise, the fairness concerns that

underlie the rule preventing issues not raised in the district court from being raised on appeal

strongly point toward a finding of waiver. Burke’s failure to challenge the district court’s decision

to exercise jurisdiction until the last minute unfairly prevented Scottsdale from presenting a counterargument to the court. Finally, some of the discretionary factors that might permit us to consider

this issue on appeal indicate that we should decline such an invitation. The resolution of this issue

is not clear beyond doubt as it involves the delicate balancing of factors supporting the district

court’s exercise of discretion. See infra section II.A.3. Also, the failure to take up this issue will

not result in a miscarriage of justice because Burke had ample opportunity to raise the issue to the

district court before filing her reply to Scottsdale’s response to her motion to amend the original

declaratory judgment. 

Accordingly, we find that the issue of the propriety of the district court’s exercise of

jurisdiction over Scottsdale’s declaratory judgment action has not been properly preserved for

appeal. However, in order to clarify our precedent regarding the discretionary exercise of the

jurisdiction granted by the Declaratory Judgment Act and because the district court did consider the

issue in this case, we address the merits of Burke’s argument on this issue and conclude that the

district court did not abuse its discretion by retaining jurisdiction over Scottsdale’s action.

2. Standard of Review

We review a district court’s decision to exercise jurisdiction over a declaratory judgment

action for abuse of discretion. Wilton v. Seven Falls Co., 515 U.S. 277, 289-90 (1995); Travelers

Indem. Co. v. Bowling Green Prof’l Assoc., PLC, 495 F.3d 266, 271 (6th Cir. 2007). “Abuse of

discretion is defined as a definite and firm conviction that the trial court committed a clear error of

judgment.” Tahfs v. Proctor, 316 F.3d 584, 593 (6th Cir. 2003) (quoting Amerinational Indus., Inc.

v. Action-Tungsram, Inc., 925 F.2d 970, 975 (6th Cir. 1991)). 

3. Analysis

The Declaratory Judgment Act provides that “[i]n a case of actual controversy within its

jurisdiction . . . any court of the United States, upon the filing of an appropriate pleading, may

declare the rights and other legal relations of any interested party seeking such declaration, whether

or not further relief is or could be sought.” 28 U.S.C. § 2201 (emphasis added). The Supreme Court

has indicated that this act “confer[s] on federal courts unique and substantial discretion in deciding

whether to declare the rights of litigants.” Wilton, 515 U.S. at 286. In passing the act, Congress

“created an opportunity, rather than a duty, to grant a new form of relief to qualifying litigants.” Id. at 288. District courts must be afforded substantial discretion to exercise jurisdiction “in the first

instance, because facts bearing on the usefulness of the declaratory judgment remedy, and fitness

of the case for resolution, are peculiarly within their grasp.” Id. at 289.

In considering whether a district court properly exercised this discretion, we have focused

on the five factors first articulated in Grand Trunk W. R.R. Co. v. Consol. Rail Co.:
Nos. 06-6385/6412 Scottsdale Ins. Co. v. Flowers, et al. Page 6

(1) whether the declaratory action would settle the controversy; 

(2) whether the declaratory action would serve a useful purpose in clarifying the

legal relations in issue; 

(3) whether the declaratory remedy is being used merely for the purpose of

“procedural fencing” or “to provide an arena for res judicata;” 

(4) whether the use of a declaratory action would increase friction between our

federal and state courts and improperly encroach upon state jurisdiction; and 

(5) whether there is an alternative remedy which is better or more effective.

746 F.2d 323, 326 (6th Cir. 1984) (formatting altered); see also Travelers, 495 F.3d at 271;

Bituminous Cas. Corp. v. J & L Lumber Co., 373 F.3d 807, 812-13 (6th Cir. 2004); Scottsdale Ins.

Co. v. Roumph, 211 F.3d 964, 968 (6th Cir. 2000). Applying these factors to this case demonstrates

that the district court did not abuse its discretion in exercising jurisdiction pursuant to the

Declaratory Judgment Act.

a. Settlement of the Controversy

The first factor to consider is whether the district court’s judgment would settle the

controversy. Burke argues that the district court’s decision would not settle the controversy because

of the ongoing discovery in the state court action and because the Morton Center, a non-party to the

action, would be affected by the judgment. See Def. Br. at 16-17. Scottsdale counters that the

district court’s decision did settle the specific controversy of the scope of its insurance coverage for

Flowers. See Pl. Br. at 33. The district court concluded that its “declaratory judgment [would]

settle[] the controversy about the extent of Scottsdale’s coverage for Flowers’s sexual affair with

Burke.” J.A. at 22. We find that the district court did not commit a clear error of judgment in

reaching this conclusion.

Two lines of precedent seem to have developed in our jurisprudence regarding consideration

of this first factor in the context of an insurance company’s suit to determine its policy liability. One

set of cases has concluded that a declaratory relief action can settle the insurance coverage

controversy not being addressed in state court, even though it will not help resolve the underlying

state court action. See West Am. Ins. Co. v. Prewitt, 208 F. App’x 393, 396 (6th Cir. 2006)

(unpublished); Northland Ins. Co. v. Stewart Title Guar. Co., 327 F.3d 448, 454 (6th Cir. 2003)

(“[W]hile the declaratory judgment would not end the dispute between Cailu and Stewart, it would

settle the controversy regarding the scope of insurance coverage issued by Northland to Cailu, and

whether Northland had a duty to defend the insureds.”); Allstate Ins. Co. v. Green, 825 F.2d 1061,

1066 (6th Cir. 1987) (“The grant of declaratory relief in insurance coverage cases undoubtedly

settles the controversy over the insurer’s liability to provide a defense for and/or indemnify its

insured, thus clarifying the legal relations in issue.”); State Farm Fire & Cas. Co. v. Odom, 799 F.2d

247, 250 n.1 (6th Cir. 1986). 

A different group of cases, however, has found that, while such declaratory actions might

clarify the legal relationship between the insurer and the insured, they do not settle the ultimate

controversy between the parties which is ongoing in state court. See Travelers, 495 F.3d at 272

(“Granting the declaratory relief sought by Evanston and Travelers settles the scope of the insurance

coverage under the respective policies and clarifies their obligation to defend Bowling Green in the

state court action, but it does nothing to ‘clarify the legal relationship’ between the other parties.”);

U.S. Fire Ins. Co. v. Abex Aluminum, Inc., 161 F. App’x 562, 565 (6th Cir. 2006) (unpublished);

Bituminous, 373 F.3d at 814; Omaha Prop. & Cas. Ins. Co. v. Johnson, 923 F.2d 446, 448 (6th Cir.

1991); Odom, 799 F.2d at 251 (Merritt, J., dissenting) (“[D]eclaratory judgment actions seeking an
Nos. 06-6385/6412 Scottsdale Ins. Co. v. Flowers, et al. Page 7

1

Burke contends that Scottsdale’s failure to make the Morton Center a party means that the insurance coverage

controversy could not be resolved by the district court. See Def. Br. at 17. However, the Morton Center, while the

purchaser of the policy, was not the insured whose scope of coverage was in controversy. The controversy regarding

Scottsdale’s coverage of Flowers was solely a controversy between Flowers, Scottsdale, and Burke. While the Morton

Center might have a financial interest in the resolution of this controversy, it was not a necessary party to include in the

declaratory judgment action. 

advance opinion on indemnity issues are rarely helpful when there is an ongoing action in another

court. . . . Such actions seldom resolve the entire dispute among the parties and they create confusion

among courts as to schedules, orderly resolution of factual disputes and res judicata.”); Grand

Trunk, 746 F.2d at 326 (“The instant action does not involve an independent dispute because it arises

from and affects a pending Illinois lawsuit. It would not clear up the legal issues in that case.”). 

The difference between these lines of cases appears to rest on the competing policy

considerations of consolidating litigation into one court versus permitting a party to determine its

legal obligations as quickly as possible. However, the contrary results in these cases might also be

explained by their different factual scenarios. In Bituminous, for example, the insurance company

sought a declaration that it was not required to defend or indemnify the defendant in a state court

action based on a logging accident which injured one of its employees. 373 F.3d at 808. In

evaluating this first discretionary factor, we focused on the fact that the insurance coverage

controversy rested on a fact-based question of state law regarding whether the plaintiff in the state

action was actually an employee of the defendant. Id. at 813. We noted that the question of

employment status was already being considered in two separate state court proceedings. Id. We

also registered our concern that the plaintiff in the state tort action “was not made a party to the

declaratory judgment action [and thus] any judgment in the federal court action would not be

binding as to him and could not be res judicata in the tort action.” Id. at 814. Considering these

facts, we found that “a declaration of insurance coverage would not resolve the controversy.” Id.

In Northland we did not face similarly troubling facts. The plaintiff in that case sought a

declaration of no duty to defend or indemnify the insured title company against a title insurance

underwriter’s state court claims for embezzlement and conversion. 327 F.3d at 449. In determining

that the exercise of jurisdiction was proper, we noted that the plaintiff “was not a party to the state

court action and neither the scope of the insurance coverage nor the obligation to defend was before

the state court.” Id. at 454. We relied on these facts to find that a declaratory judgment would

resolve the insurance coverage controversy and would clarify the legal relations at issue. Id.

In the instant case, we conclude that the district court’s declaratory judgment did settle the

controversy between the parties. The only issue addressed by the district court was whether

Scottsdale’s insurance policy for the Morton Center covered Flowers as an insured.1

 As in

Northland, this issue was not and could not be considered in the state court action because

Scottsdale was not a party to that action. Likewise, the issue involved a legal, not factual, dispute,

see infra section II.B.1, and thus, unlike the controversy in Bituminous, did not require the district

court to inquire into matters being developed through state court discovery. The resolution of this

issue by the district court resolved all controversies between Scottsdale, Flowers, and Burke because

the only controversy between them regarded the scope of the insurance policy. Thus, the first factor

points toward the exercise of jurisdiction.

b. Clarification of the Legal Relations at Issue

The second factor to consider is whether the district court’s judgment would clarify the legal

relations at issue. Burke argues that: (1) the district court’s order did little to clarify the legal

relations in the underlying state action because many issues of fact regarding these relations remain

to be decided by the state court; and (2) the district court’s decision has increased the risk of
Nos. 06-6385/6412 Scottsdale Ins. Co. v. Flowers, et al. Page 8

2

The state court’s resolution of the Morton Center’s liability for Flowers’ actions may rest on a consideration

of whether Flowers was acting within the scope of his employment. See Patterson v. Blair, 172 S.W.3d 361, 366 (Ky.

2005) (“[A]n employer’s liability is limited only to those employee actions committed in the scope of employment.”).

However, to the extent that the state court finds the district court’s decision to preclude its own consideration of whether

Flowers was acting within the scope of his employment by Morton Center, the district court would not have confused

the issues for the state court, but rather resolved them. 

confusion and inconsistent results because it decided the same issues of state law that are presented

in the state court action. See Def. Br. at 17-19. In response, Scottsdale contends that the record was

sufficient for the district court to clarify the one legal relationship at issue, namely that between

Scottsdale and Flowers. See Pl. Br. at 33-34. The district court found that its order would “serv[e]

‘a useful purpose in clarifying the legal relations at issue’ between Scottsdale and Flowers in

Burke’s suit.” J.A. at 22 (citing Bitumninous, 373 F.3d at 813). We are not convinced that the

district court committed a clear error of judgment in reaching this conclusion. 

The second factor in the Grand Trunk analysis is closely related to the first factor and is often

considered in connection with it. See, e.g., Travelers, 495 F.3d at 271-72. Indeed, it is almost

always the case that if a declaratory judgment will settle the controversy, then it will clarify the legal

relations in issue. See Bituminous, 373 F.3d at 814; Northland, 327 F.3d at 454. Moreover, as with

the jurisprudence concerning the first factor, a split has developed in our precedent concerning

whether the district court’s decision must only clarify the legal relations presented in the declaratory

judgment action or whether it must also clarify the legal relations in the underlying state action.

Compare Prewitt, 208 F. App’x at 397 (“This Court has held that declaratory relief was a proper

remedy in cases where the declaratory action would clarify only the legal relationship between the

insured and the insurer, and would not clarify the legal relationships in the state action.”), Northland, 327 F.3d at 454, Green, 825 F.2d at 1066, and Odom, 799 F.2d at 250 n.1, with Travelers, 495 F.3d

at 272, Abex, 161 F. App’x at 565, and Bituminous, 373 F.3d at 814 (“[A]lthough a declaratory

judgment would clarify the legal relationship between Bituminous and J & L pursuant to the

insurance contracts, the judgment would not clarify the legal relationship between Shields and J &

L in the underlying state action.”). We find the former line of precedent to be more persuasive than

the latter. The requirement that the judgment clarify the legal relationships of the parties is based

upon our desire for the declaratory judgment to provide a final resolution of the discrete dispute

presented. While the parties may have other tortious or contractual relationships to clarify in state

court, our concern in considering the second Grand Trunk factor in such cases is with the ability of

the federal declaratory judgment to resolve, once and finally, the question of the insurance indemnity

obligation of the insurer. Thus, we focus only on whether a federal declaratory judgment will clarify

the legal relationships presented to the district court.

In the instant case, we consider the district court’s order to have clarified the legal relations

at issue – namely, the contractual duties of indemnification owed by Scottsdale to Flowers. The

order clarified that Flowers was not an insured of Scottsdale and, thus, that Scottsdale had no duty

to pay Burke the amount of any state court judgment she might obtain against Flowers. The order

resolved all the issues regarding the legal relationships of the parties to the declaratory action.

While it did not clarify all of the legal relationships at issue in the state court action, the district

court’s decision did not create any confusion about the resolution of those issues. The state court

will still need to determine whether Flowers and the Morton Center are liable to Burke. The district

court’s determination of the legal relationships existing between Flowers, Scottsdale, and Burke will

not confuse the state court’s analysis of those liability issues.2

 Accordingly, the second factor

supports the district court’s exercise of jurisdiction.
Nos. 06-6385/6412 Scottsdale Ins. Co. v. Flowers, et al. Page 9

c. Race for Res Judicata 

The third factor to consider is whether the use of the declaratory judgment action is

motivated by “procedural fencing” or likely to create a race for res judicata. Burke argues that

procedural fencing exists because Scottsdale chose to have the issue of its liability determined by

the federal court in advance of the state court’s determination of the issue. See Def. Br. at 19. Burke

also contends that the Morton Center’s attempted use of the district court’s decision for issue

preclusion in the state court action further demonstrates that the exercise of jurisdiction was

improper. See id. at 20-21. In response, Scottsdale counters that its absence as a party to the state

court action as well as the timing of its complaint, three years after the start of the state court

litigation, indicate that the declaratory judgment action was not filed for procedural fencing. See

Pl. Br. at 34-36. Considering this factor, the district court found that “the case does not present the

appearance of ‘a race for res judicata.’” J.A. at 22 (citing Bituminous, 373 F.3d at 814). This finding

was not unsound.

The third factor is meant to preclude jurisdiction for “declaratory plaintiffs who file their

suits mere days or weeks before the coercive suits filed by a ‘natural plaintiff’ and who seem to have

done so for the purpose of acquiring a favorable forum.” Amsouth Bank v. Dale, 386 F.3d 763, 788

(6th Cir. 2004). “The question is . . . whether the declaratory plaintiff has filed in an attempt to get

her choice of forum by filing first.” Id. at 789. We are reluctant to impute an improper motive to

a plaintiff where there is no evidence of such in the record. See Travelers, 495 F.3d at 272;

Scottsdale, 211 F.3d at 968; Allstate Ins. Co. v. Mercier, 913 F.2d 273, 279 (6th Cir. 1990). But see

Abex, 161 F. App’x at 565 (agreeing with the district court’s conclusion that, while no evidence in

the record demonstrated bad faith in filing, the state court’s consideration of the issue raised in

federal court was inevitable and thus it was apparent that plaintiff was trying to secure a favorable

ruling in federal court rather than take the risk of an unfavorable one in state court). Indeed, when

the plaintiff has filed his claim after the state court litigation has begun, we have generally given the

plaintiff “the benefit of the doubt that no improper motive fueled the filing of [the] action.”

Bituminous, 373 F.3d at 814; see also Northland, 327 F.3d at 454 (finding no improper motive when

the facts demonstrated that plaintiff filed its action only after it became apparent that its insureds had

no colorable claim to coverage). A district court should not deny jurisdiction to a plaintiff who has

not “done any more than choose the jurisdiction of federal rather than state court, a choice given by

Congress.” Odom, 799 F.2d at 250 n.1. 

In the instant case, there is no evidence in the record that Scottsdale’s action was motivated

by procedural fencing. On the contrary, Scottsdale instituted this action several years after the state

court proceedings began. Moreover, as Scottsdale was not a party to the state court action, the issue

of its insurance coverage of Flowers was not before the state court. Thus, Scottsdale’s attempt to

clarify its legal obligations to Flowers in federal court cannot be construed as an attempt to create

a race to judgment. While this action may have been an attempt to preempt an issue which the state

court would eventually consider, the Declaratory Judgment Act gives Scottsdale the right to do

precisely that, especially when the state court litigation has been ongoing for several years without

resolving the issue. As we stated in American States Ins. Co. v. D’Atri:

Since the plaintiff is not, and could not be, under [state] law a party to the state court

action, it is powerless . . . presently to ascertain the scope of its liability. . . . We do

not believe that, considering the purposes of the Federal Declaratory Judgment Act,

the plaintiff should be forced into a waiting period of legal uncertainty respecting the

obligations it has incurred in its policy. . . . [A] declaration of rights and duties, such

as this plaintiff seeks, should not be refused ‘because of the pendency of another suit

if the controversy between the parties will not necessarily be determined in that suit.

A declaratory judgment proceeding which involves only the extent of the coverage

of an insurance policy and not the liability of the insured to the persons injured in the
Nos. 06-6385/6412 Scottsdale Ins. Co. v. Flowers, et al. Page 10

3

In her brief, Burke cites to Omaha Prop. & Cas. Ins. Co., 923 F.2d at 447, and Mercier, 913 F.2d at 278-79,

for the contention that misuse of a declaratory judgment need not be by a party to the declaratory action. See Def. Br.

at 20. These cases do not support that proposition.

accident, will be entertained in the Federal Court, and the insurer is entitled to have

the extent of the coverage of its policy declared in such a proceeding - other

essentials of jurisdiction being present.’

375 F.2d 761, 763 (6th Cir. 1967) (internal citations omitted). Accordingly, we find that

Scottsdale’s exercise of its right to choose a federal forum was not designed to precipitate a race for

res judicata. 

Burke’s contention that the Morton Center has used the district court’s judgment improperly

does not alter our conclusion. The concern articulated in the third factor is with the plaintiff’s use

of the judgment for procedural fencing.3 While it may be regrettable that the Morton Center has

attempted to use the district court’s order as a shield against liability in the state action, nothing in

the record suggests that Scottsdale acted improperly in seeking a declaratory judgment. Absent

some indication of an improper motive in the record, this third factor does not point toward denying

jurisdiction. 

d. Increased Friction Between Federal and State

Courts

The fourth factor to consider is whether accepting jurisdiction would increase friction

between federal and state courts. Burke argues that because the district court’s judgment presented

similar issues of law and fact as were present before the state court, its judgment encroached upon

the state court’s jurisdiction. See Def. Br. at 21-23. Scottsdale counters that the question of

insurance coverage was not going to be decided by the state court and, thus, there was nothing

improper about the district court’s exercise of jurisdiction. See Pl. Br. at 36-37. The district court

considered this factor in depth and found that “the court’s order does not require a ruling on a

previously undetermined question of state law [and,] [t]herefore, the court’s order does not

improperly encroach on state jurisdiction or create friction between state and federal courts.” J.A.

at 22. While this factor presents a much closer question, we do not find that the district court’s

conclusion in this regard demonstrates a manifest error of judgment. 

The Supreme Court has cautioned that “where another suit involving the same parties and

presenting opportunity for ventilation of the same state law issues is pending in state court, a district

court might be indulging in ‘[g]ratuitous interference,’ if it permitted the federal declaratory action

to proceed.” Wilton, 515 U.S. at 283 (quoting Brillhart, 316 U.S. at 495). However, “the mere

existence of a state court proceeding is not determinative of improper federal encroachment upon

state jurisdiction.” Green, 825 F.2d at 1067. Thus, to determine whether the exercise of jurisdiction

would increase friction between federal and state courts, we consider three additional sub-factors:

(1) whether the underlying factual issues are important to an informed resolution of

the case; 

(2) whether the state trial court is in a better position to evaluate those factual issues

than is the federal court; and 

(3) whether there is a close nexus between underlying factual and legal issues and

state law and/or public policy, or whether federal common or statutory law dictates

a resolution of the declaratory judgment action.
Nos. 06-6385/6412 Scottsdale Ins. Co. v. Flowers, et al. Page 11

Bituminous, 373 F.3d at 814-15 (citing Scottsdale, 211 F.3d at 968) (formatting altered).

The first of these sub-factors focuses on whether the state court’s resolution of the factual

issues in the case is necessary for the district court’s resolution of the declaratory judgment action.

In the context of actions seeking a declaration of the scope of insurance coverage, we have

recognized that such questions can sometimes be resolved as a matter of law and do not require

factual findings by a state court. See Northland, 327 F.3d at 454; Green, 825 F.3d at 1067. Indeed,

“the liability issues being determined in the state court proceeding may well be legally, if not

factually, distinct from the issues of policy interpretation which are central to the federal declaratory

judgment action.” Green, 825 F.3d at 1067. However, sometimes resolution of the issue raised in

federal court will require making factual findings that might conflict with similar findings made by

the state court. See Travelers, 495 F.3d at 272. In such cases, the exercise of jurisdiction would be

inappropriate. Id. 

The second sub-factor focuses on which court, federal or state, is in a better position to

resolve the issues in the declaratory action. We generally consider state courts to be in a better

position to evaluate novel questions of state law. See Travelers, 495 F.3d at 272 (“[T]he district

court held that the state court would not be in a significantly better position to evaluate the terms or

exclusions in the insurance contracts because both forums would apply Kentucky state law.

However because Kentucky law is controlling, we conclude that Kentucky courts are in the better

position to apply and interpret its law on these issues.”); Bituminous, 373 F.3d at 815-16 (“Where

as here, there are two potential unresolved questions of state law concerning state regulated

insurance contracts, this consideration weighs against exercising jurisdiction.”); Omaha Prop., 923

F.2d at 448 (“For the federal courts to preempt the right of the state court to rule on a previously

undetermined question of state law, more must be present than the desire of the insurance company

to avoid the possibility of an unfavorable ruling in state court by convincing a federal judge to rule

first.”). “This is not to say that a district court should always turn away a declaratory judgment

action when an undetermined question of state law is presented, but it is an appropriate consideration

for the court to weigh in the exercise of its discretion.” Scottsdale, 211 F.3d at 969. This

consideration appears to have less force when the state law is clear and when the state court is not

considering the issues. In particular, when an insurance company “[is] not a party to the state court

action, and neither the scope of insurance coverage nor the obligation to defend [is] before the state

court . . . a decision by the district court on these issues would not offend principles of comity.”

Northland, 327 F.3d at 454.

The final sub-factor focuses on whether the issue in the federal action implicates important

state policies and is, thus, more appropriately considered in state court. We have previously found

that “issues of ‘insurance contract interpretation are questions of state law with which the Kentucky

state courts are more familiar and, therefore, better able to resolve.’” Travelers, 495 F.3d at 273

(quoting Bituminous, 373 F.3d at 815). “The states regulate insurance companies for the protection

of their residents, and state courts are best situated to identify and enforce the public policies that

form the foundation of such regulation.” Bituminous, 373 F.3d at 815 (quoting Mercier, 913 F.2d

at 279). However, not all issues of insurance contract interpretation implicate such fundamental

state policies that federal courts are unfit to consider them. See Northland, 327 F.3d at 454 (finding

that, although the resolution of the declaratory judgment action seeking a determination of the scope

of an insurance policy was governed by state contract law, “no state law or policy would be

frustrated by the district court’s exercise of jurisdiction, which would require the application of

[state] law”). 

Applying these sub-factors to this case does not require a finding that the district court’s

exercise of jurisdiction was improper. Because the question of the scope of Scottsdale’s insurance

policy is an issue of law, see infra section II.B.1, and does not require factual findings by the state
Nos. 06-6385/6412 Scottsdale Ins. Co. v. Flowers, et al. Page 12

4

Burke erroneously contends that the issue of whether an employee’s acts fall within the scope of employment

is a question of fact. See Def. Br. at 22. Burke cites to a 1906 Kentucky case which does provide that for determinations

of an employer’s vicarious liability the question of whether the employee was acting within the scope of employment

is a question of fact for the jury. Willis v. Maysville & Big Sandy R.R. Co., 92 S.W. 604, 605 (Ky. 1906). However,

modern Kentucky case law is clear that the interpretation of the terms of an insurance contract is a matter of law. See

infra section II.B.1. 

court, the first sub-factor supports the district court’s exercise of jurisdiction in this case.4 While

a closer matter, the second sub-factor also supports hearing Scottsdale’s claim. The question of

whether a therapist acts outside of the scope of his employment when he engages in sexual activities

with his clients is not a novel issue of state law. See infra section II.B.3.b. While no case has

directly addressed this issue, the Kentucky courts’ resolution of this issue can be reasonably

predicted from existing case law. Finally, the third sub-factor does counsel against exercising

jurisdiction. Interpretation of Kentucky insurance contracts is guided by state public policy. See,

e.g., K.M.R. v. Foremost Ins. Group, 171 S.W.3d 751, 753 (Ky. App. 2005). Despite the clear

indications from the Kentucky courts regarding how such an issue should be resolved, Kentucky

courts are in a better position to resolve the insurance policy interpretation in this case. However,

given that only one of these three sub-factors counsels against exercising jurisdiction, we do not find

that this fourth Grand Trunk factor clearly indicates that the district court’s refusal to decline

jurisdiction was improper in this case.

e. Availability of Alternative Remedy

The final factor to consider is the availability of alternative remedies. Burke argues that a

better remedy would have been to stay or dismiss the federal proceedings so that the state court

could resolve the underlying factual issues. See Def. Br. at 23-25. Scottsdale maintains that its

intervention in the state court proceedings would not have been a more effective remedy. See Pl.

Br. at 37-38. The district court found that “the declaratory judgment is no less effective than any

potential alternative remedy.” J.A. at 22. We disagree with the district court’s conclusion on this

factor. 

A district court should “deny declaratory relief if an alternative remedy is better or more

effective.” Grand Trunk, 746 F.2d at 326. One of the alternative remedies available to the federal

declaratory plaintiff is to seek a declaratory judgment in state court. Kentucky law does provide

such a remedy for a party in Scottsdale’s position. See Ky. Rev. Stat. Ann. § 418.040 (2006) (“In

any action in a court of record of this Commonwealth having general jurisdiction wherein it is made

to appear that an actual controversy exists, the plaintiff may ask for a declaration of rights, either

alone or with other relief; and the court may make a binding declaration of rights, whether or not

consequential relief is or could be asked.”). Another possible remedy is for the federal declaratory

plaintiff to file an indemnity action at the conclusion of the state action.

However, it is not clear whether such alternative remedies are better or more effective than

a federal declaratory action. As with the first two factors, our precedent is split regarding whether

the possibility of seeking a declaratory judgment or an indemnity action in state court counsels

against the district court exercising jurisdiction. Compare Northland, 327 F.3d at 448

(“[I]ntervening in the state court action would not have necessarily provided a better or more

effective alternative remedy.”), and Green, 825 F.2d at 1067 (“[W]e are not convinced that an action

for indemnity, instituted only after the insurance company has provided a defense which it may not

have been obligated to render, is in every case a ‘superior remedy.’”), with Travelers, 495 F.3d at

273 (finding that the alternative remedies of a state declaratory judgment or indemnity action

“weighed against federal discretionary jurisdiction”), and Bituminous, 373 F.3d at 815 (finding that

plaintiff “could have presented its case to the same court that will decide the underlying tort action”

and that “a superior alternative remedy exists in the form of an indemnity action filed at the
Nos. 06-6385/6412 Scottsdale Ins. Co. v. Flowers, et al. Page 13

conclusion of the underlying state action”). We conclude that, rather than applying a general rule,

our inquiry on this factor must be fact specific, involving consideration of the whole package of

options available to the federal declaratory plaintiff. 

In this case, Scottsdale could have filed a declaratory action in the Kentucky courts. In many

ways, this alternative would have been better. The Kentucky courts are in a superior position to

resolve undecided questions of state law such as whether a therapist’s sexual activities with his

client are outside the scope of his employment. The Kentucky courts might also have been able to

combine the two actions so that all issues could be resolved by the same judge. However, given that

Kentucky precedent provides clear guidance as to the resolution of the legal issue presented, it

cannot be said that the district court was a clearly inferior forum to resolve the issue. 

The remedy of an indemnity action, on the other hand, would not have been a superior

alternative for Scottsdale. In order to take advantage of such a remedy, Scottsdale would have been

required to join the underlying state action, which it claims it was prevented from doing. Then,

Scottsdale would have had to wait until the liability issue in the case was resolved before

determining its obligations toward Flowers. Such a delayed alternative would be worse, not better,

than seeking a federal declaratory judgment.

In light of these options, we consider this final factor to counsel against exercising

jurisdiction in this case. However, it does not counsel so strongly against exercising jurisdiction that

we must conclude that the district court abused its discretion. 

f. Balancing the Factors

As with our other balancing tests, we have never indicated how these Grand Trunk factors

should be balanced when reviewing a district court’s decision for abuse of discretion. In this case,

the first three factors point toward exercising jurisdiction, the fourth factor is at worst neutral about

the exercise of jurisdiction, and the fifth factor counsels against exercising jurisdiction. In light of

the “unique and substantial” discretion which the Declaratory Judgment Act confers on district

courts, Wilton, 515 U.S. at 286, our consideration of all of the factors does not leave us with a

definite and firm conviction that the district court committed a clear error of judgment in declining

to refrain from exercising the jurisdiction granted it under the act. Accordingly, we find that the

district court did not abuse its discretion in exercising jurisdiction over Scottsdale’s declaratory

judgment action. 

B. SCOPE OF THERAPIST’S EMPLOYMENT ACTIVITIES UNDER

KENTUCKY LAW

1. Standard of Review

We review de novo the district court’s decision to grant a motion for declaratory judgment.

Daimler-Chrysler Corp. v. Cox, 447 F.3d 967, 971 (6th Cir. 2006). Under Kentucky law, “the

interpretation of a contract, including determining whether a contract is ambiguous, is a question of

law for the courts and is subject to de novo review.” Abney v. Nationwide Mut. Ins. Co., 215 S.W.3d

699, 703 (Ky. 2006). 

2. Applicable Law

We apply Kentucky law to determine the scope of Scottsdale’s insurance coverage of

Flowers. See Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78 (1938); Talley v. State Farm Fire & Cas.

Co., 223 F.3d 323, 326 (6th Cir. 2000) (“In a diversity action involving an insurance contract, a

federal court applies the substantive law of the forum state.”). In applying Kentucky law we “must

follow the decisions of the state’s highest court when that court has addressed the relevant issue.”
Nos. 06-6385/6412 Scottsdale Ins. Co. v. Flowers, et al. Page 14

Talley, 223 F.3d at 326. When the issue has not been directly addressed, we must “anticipate how

the relevant state’s highest court would rule in the case and are bound by controlling decisions of

that court.” In re Dow Corning Corp., 419 F.3d 543, 549 (6th Cir. 2005). “Intermediate state

appellate courts’ decisions are also viewed as persuasive unless it is shown that the state’s highest

court would decide the issue differently.” Id. 

3. Analysis

The district court concluded that Flowers’ sexual activities with Burke were not covered

under Scottsdale’s insurance policy because they were outside the scope of Flowers’ employment

as a matter of Kentucky law. Burke argues that the district court erred in reaching this conclusion

for two reasons. First, Burke maintains that because the contract term “scope of employment” is

inherently ambiguous, the district court should have considered the parties’ reasonable expectations

concerning the contract, construing all coverage doubts in favor of the insured. See Def. Br. at 27-

29. Second, Burke claims that the issue of whether sexual acts are excluded from the scope of

employment has not been settled by the Kentucky courts and it is likely that the Kentucky courts

would follow the jurisdictions which have found such acts to be within a therapist’s scope of

employment. See id. at 29-33. 

Scottsdale, on the other hand, argues that the district court’s conclusion was correct under

Kentucky law. First, Scottsdale contends that the terms of its policy are not ambiguous and thus

must be given their plain and ordinary meaning. See Pl. Br. at 21-24. In particular, Scottsdale

argues, the meaning of “scope of employment” has been clearly defined by the Kentucky Supreme

Court. See id. at 22-23. Second, Scottsdale claims that under Kentucky law, and in particular under

Osborne v. Payne, 31 S.W.3d 911 (Ky. 2000), a therapist’s sexual activities with his patients are

outside the scope of employment as a matter of law. See id. at 24-26. Finally, Scottsdale maintains

that Kentucky law on this issue is consistent with other jurisdictions. See id. at 27-30.

These arguments focus our attention on two main issues: (1) whether the term “scope of

employment” is ambiguous, thus necessitating a consideration of the reasonable expectations of

insurance coverage under Scottsdale’s policy; and (2) assuming that “scope of employment” is not

ambiguous, whether engaging in sexual activities with a patient is within the scope of employment

of a therapist at the Morton Center as a matter of Kentucky law. We consider each of these issues

in turn. 

a. The Insurance Policy Language Is Not Ambiguous

Kentucky statutory law provides:

Every insurance contract shall be construed according to the entirety of its terms and

conditions as set forth in the policy, and as amplified, extended, or modified by any

rider, indorsement, or application attached to and made a part of the policy.

Ky. Rev. Stat. Ann. § 304.14-360 (2006). In interpreting insurance contracts, Kentucky courts seek

to determine the intention of the parties according to the language of the contract. See Abney, 215

S.W.3d at 703; K.M.R. v. Foremost Ins. Group, 171 S.W.3d 751, 753 (Ky. App. 2005) (“Policies

should be interpreted according to the parties’ mutual understanding at the time they entered into

the contract and ‘[s]uch mutual intention is to be deduced, if possible, from the language of the

contract alone.’” (quoting Nationwide Mut. Ins. Co. v. Nolan, 10 S.W.3d 129, 132 (Ky. 1999)).

“When no ambiguity exists in the contract, [the court] look[s] only as far as the four corners of the

document to determine that intent.” Abney, 215 S.W.3d at 703. “The fact that one party may have

intended different results, however, is insufficient to construe a contract at variance with its plain

and unambiguous terms.” Id. (quoting Cantrell Supply, Inc. v. Liberty Mut. Ins. Co., 94 S.W.3d 381,

385 (Ky. App. 2002)). 
Nos. 06-6385/6412 Scottsdale Ins. Co. v. Flowers, et al. Page 15

Kentucky public policy with respect to insurance contracts dictates that “the contract should

be liberally construed and any doubts resolved in favor of the insured.” Dowell v. Safe Auto Ins. Co., 208 S.W.3d 872, 878 (Ky. 2006). “[E]xceptions and exclusions should be strictly construed to make

insurance effective.” K.M.R., 171 S.W.2d at 753; accord Eyler v. Nationwide Mut. Fire Ins. Co., 824 S.W.2d 855, 859 (Ky. 1992). “[W]here the provisions may conflict, the contract shall be

resolved to afford maximum coverage.” St. Paul Fire & Marine Ins. Co. v. Powell-Walton-Milward,

Inc., 870 S.W.2d 223, 227 (Ky. 1994). When a policy “is drafted in all details by the insurance

company, it [] must be held strictly accountable for the language used.” Id. 

Even in light of this policy favoring the insured, Kentucky courts have recognized that “a

liberal interpretation is not synonymous with a strained one.” K.M.R., 171 S.W.2d at 753.

“Insurance policies, like statutes, must receive a sensible construction.” Simpsonville Wrecker Serv.

Inc. v. Empire Fire & Marine Ins. Co., 793 S.W.2d 825, 829 (Ky. App. 1989). “The rule of strict

construction against an insurance company certainly does not mean that every doubt must be

resolved against it and does not interfere with the rule that the policy must receive a reasonable

interpretation consistent with the parties’ object and intent or narrowly expressed in the plain

meaning and/or language of the contract.” St. Paul, 870 S.W.2d at 226. The Kentucky Court of

Appeals has explained: 

[I]n the absence of ambiguities or a statute to the contrary, the terms of an insurance

policy will be enforced as drawn. Unless the terms contained in an insurance policy

have acquired a technical meaning in law, they “must be interpreted according to the

usage of the average man and as they would be read and understood by him in the

light of the prevailing rule that uncertainties and ambiguities must be resolved in

favor of the insured.”

Goodman v. Horace Mann Ins. Co., 100 S.W.3d 769, 772 (Ky. App. 2003) (internal citations

omitted) (emphasis added). “Neither should a non existent ambiguity be utilized to resolve a policy

against the company.” St. Paul, 870 S.W.2d at 226. “[W]here the language of an insurance policy

is clear and unambiguous, it cannot be construed to mean otherwise than what it says.” Simpsonville

Wrecker, 793 S.W.2d at 829. The “courts should not rewrite an insurance contract to enlarge the

risk to the insurer.” St. Paul, 870 S.W.2d at 226-27. 

“An ambiguity may either appear on the face of the policy or . . . when a provision is applied

to a particular claim.” Id. at 227. “However, ‘[t]he mere fact that [a party] attempt[s] to muddy the

water and create some question of interpretation does not necessarily create an ambiguity.” True

v. Raines, 99 S.W.3d 439, 443 (Ky. 2003) (quoting St. Paul, 870 S.W.2d at 226).

It is only in the case of ambiguous insurance contract language that Kentucky courts apply

the doctrine of reasonable expectations. See True, 99 S.W.3d at 443 (“Only actual ambiguities, not

fanciful ones, will trigger application of the doctrine.”). “Under the reasonable expectations

doctrine, when such an ambiguity exists, the ambiguous terms should be interpreted ‘in favor of the

insured’s reasonable expectations.’” Id. (citing Black’s Law Dictionary 1273 (7th ed. 1999)). “The

gist of the doctrine is that the insured is entitled to all the coverage he may reasonably expect to be

provided under the policy. Only an unequivocally conspicuous, plain and clear manifestation of the

company’s intent to exclude coverage will defeat that expectation.” Brown v. Indiana Ins. Co., 184

S.W.3d 528, 540 (Ky. 2005). 

We do not consider any of the language in Scottsdale’s insurance contract to be ambiguous.

Black’s Law Dictionary defines “ambiguous” as follows:

In ordinary language this term is often confined to situations in which the same word

is capable of meaning two different things, but, in relation to statutory interpretation,
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5

The Kentucky cases which have considered the meaning of the phrase “scope of employment” have done so

in the context of respondeat superior liability. However, as the legal meaning of this phrase was incorporated into the

insurance contract, it is appropriate to consider what Kentucky courts consider to be within the scope of employment,

even if those decisions did not occur in the context of insurance contract interpretation. 

judicial usage sanctions the application of the word “ambiguity” to describe any kind

of doubtful meaning of words, phrases or longer statutory provisions.

Black’s Law Dictionary 88 (8th ed. 2004). Scottsdale’s insurance contract provides that Morton

Center’s insureds will include its “employees and volunteers, but only for acts within the scope of

their employment by [Morton Center].” (J.A. at 53) (emphasis added). This language clearly

indicates that acts committed by employees that are not within the scope of their employment are

not covered by the policy. 

Contrary to Burke’s assertion, the phrase “scope of employment” is not ambiguous. Rather,

it has acquired a “technical meaning in law.” Goodman, 100 S.W.3d at 772. The term “scope of

employment” has been defined by Kentucky courts in their discussion of vicarious liability under

Kentucky tort law. See, e.g., Patterson v. Blair, 172 S.W.3d 361 (Ky. 2005). Black’s Law

Dictionary also defines scope of employment as “the field of action in which a servant is authorized

to act in the master servant relationship.” Black’s Law Dictionary 1374 (8th ed. 2004). In short,

the phrase “scope of employment” is a legal term of art which Scottsdale incorporated into its

contract with Morton Center. As such, the meaning of the term is not doubtful. While Burke might

legitimately contest whether the precise contours of the term’s legal meaning lead to the conclusion

that Flowers’ sexual activities with her were outside the scope of his employment, this “muddying

of the waters” does not create an ambiguity in the insurance contract, True, 99 S.W.3d at 443, but

rather raises the question of how the unambiguous language of the policy applies to this case. 

Because the insurance contract is not ambiguous, we do not need to inquire into the

reasonable expectations of the parties, but rather must construe the contract “according to the

entirety of its terms and conditions as set forth in the policy.” Ky. Rev. Stat. Ann. § 304.14-360.

These terms exclude from Scottsdale’s coverage of Flowers activities that are not within the scope

of Flowers’ employment by the Morton Center. Thus, we now turn to the question of whether

Flowers’ sexual activities with Burke were within the scope of his employment.

b. Engaging in Sexual Activities With a Patient Is Not

Within the Scope of Employment of a Therapist

In Patterson v. Blair, the Kentucky Supreme Court clarified that a court must “focus on the

motive of the employee in determining whether he or she acted within the scope of employment.”5

172 S.W.3d at 369. In general, the employee acts within the scope of his employment when his

“purpose, however misguided, is wholly or in part to further the master’s business.” Id. (quoting

W. Page Keeton et al., Prosser and Keeton on the Law of Torts 505 (5th ed. 1984)). However, when

the employee “acts from purely personal motives . . . which [are] in no way connected with the

employer’s interests, he is considered in the ordinary case to have departed from his employment.”

Id.

While Patterson provides a useful background definition of “scope of employment,”

Osbourne v. Payne demonstrates how Kentucky courts have applied this definition to determine

whether sexual activities are within the scope of employment of a counselor figure. 31 S.W.3d 911

(Ky. 2000). In Osbourne, a couple turned to a priest for marriage counseling. Id. at 913. However,

instead of providing the appropriate counseling, the priest began an affair with the wife. Id. After

learning of the affair, the husband sued the diocese under a theory of vicarious liability. Id. The

Kentucky Supreme Court found that the diocese was not liable because the priest was not acting in
Nos. 06-6385/6412 Scottsdale Ins. Co. v. Flowers, et al. Page 17

6

Unpublished opinions are generally not to be cited or used as authority in Kentucky courts. See Ky. R. Civ.

Proc. 76.28. However, decisions rendered after January 1, 2003, “may be cited for consideration by the court if there

is no published opinion that would adequately address the issues before the court.” Id. Regardless of their precedential

value in Kentucky courts, these opinions are useful for the purpose of predicting how a Kentucky court would resolve

a similar issue.

the scope of his employment. Id. at 915. The court reasoned that “the scope of employment of a

priest could include marriage counseling, but it clearly does not include adultery.” Id. The court

further explained that “to be within the scope of its employment, the conduct must be of the same

general nature as that authorized or incidental to the conduct authorized.” Id. The court thus found

it “beyond question that Osborne was not advancing any cause of the diocese or engaging in

behavior appropriate to the normal scope of his employment.” Id. In reaching this conclusion, the

court cited approvingly cases from other jurisdictions which had indicated that a therapist who

engages in sexual activities with his patients acts outside the scope of his employment. See id. (citing Amato v. Greenquist, 679 N.E.2d 446, 455 (Ill. App. 1997) (finding that a pastor was acting

only for his own benefit, and thus not within the scope of his employment, when he engaged in

sexual activities with plaintiff’s wife); L.L.N. v. Clauder, 552 N.W.2d 879, 888 (Wis. App. 1996)

(noting with approval a prior case which had held that “a therapist/counselor who initiated sexual

contact with a client in the course of her therapy, knowing that the clinic in which he was employed

forbade such conduct, was acting outside the scope of his employment as a matter of law”)).

Other Kentucky cases have also indicated that an employee acts outside the scope of his

employment when he is “not actuated by a purpose to serve the employer but motivated, as here,

solely by a desire to satisfy the employee’s own sexual proclivities.” Am. Gen. Life & Accident Ins.

Co. v. Hall, 74 S.W.3d 688, 692 (Ky. 2002). For example, in P.S. v. Meade County Baptist Temple, the Kentucky Court of Appeals found that a volunteer church employee’s sexual abuse of a child

during church youth activities was not within the scope of his employment. No. 2006-CA-000155-

MR, 2007 WL 491138, at *4 (Ky. App. Feb. 16, 2007) (unpublished). In Z.A. v. City of Louisville, the Kentucky Supreme Court likewise found that a library employee was acting outside of the scope

of his employment when he sexually molested a library patron. No. 2004-CA-001189-MR, 2005

WL 1491554, at *5 (Ky. June 24, 2005) (unpublished).6

In the instant case, the district court properly concluded that a therapist’s sexual affair with

his patient is outside the scope of his employment as a matter of law. While the Kentucky courts

have not explicitly addressed this issue, the Kentucky Supreme Court’s decision in Osborne strongly

suggests that it would find such sexual activities not to be within a therapist’s scope of employment.

A therapist’s counseling of patients is not fundamentally different than a priest’s counseling of

married couples. To the extent that such activities differ, those differences certainly would not

suggest that having sexual relations with a patient is within the therapist’s scope of employment, but

not within the priest’s. Indeed, it is hard to imagine any type of counseling position where having

a sexual affair with a patient would be within the scope of employment. We have been unable to

find any Kentucky case which has held that engaging in sexual activities with a client is within the

person’s scope of employment for purposes of insurance coverage. On the contrary, as discussed

above, many Kentucky cases have held that sexual affairs are not within an employee’s scope of

employment.

Burke attempts to distinguish Osborne and Patterson by asserting that those cases only deal

with intentional acts as opposed to Flowers’ negligent treatment of Burke. See Def. Br. at 29.

However, the facts in the record indicate that Flowers did not negligently have sex with Burke, but

rather that he intended to do so. See J.A. at 118-21. Moreover, Burke’s complaint in the state action

did not allege that Flowers’ negligently had sex with Burke, but rather that he was negligent in his

treatment of her because he engaged (presumably intentionally) in sexual activity with her. See J.A.

at 15. Engaging in sexual relations with a patient is not motivated by a desire to serve the interests
Nos. 06-6385/6412 Scottsdale Ins. Co. v. Flowers, et al. Page 18

7

Scottsdale directs our attention to several cases from other jurisdictions which “have found that a therapist is

acting outside the scope of his employment when he engages in a sexual relationship with a patient.” Pl. Br. at 27-29

(citing Birkner v. Salt Lake County, 771 P.2d 1053, 1058 (Utah 1989); Doe v. Swift, 570 So.2d 1209, 1213 (Ala. 1990);

East Alabama Behavioral Med. v. Chancey, 883 So.2d 162 (Ala. 2003); Amato, 679 N.E.2d at 446). However,

Scottsdale has provided no explanation of why Kentucky courts would follow the reasoning of such decisions. While

we agree with Scottsdale that these cases are more on point than the ones cited by Burke, we find no reason to conclude

that Kentucky courts would find them more persuasive than Burke’s cases, other than the fact that Osborne itself cited

favorably to one of these cases. 

of the therapist’s employer, but rather, is designed “to satisfy the employee’s own sexual

proclivities,” Hall, 74 S.W.3d at 692, and, thus, cannot be considered within the therapist’s scope

of employment under Kentucky law. 

Perhaps recognizing the weakness of this first argument, Burke next contends that Kentucky

courts would follow other jurisdictions that “have distinguished the therapist-patient relationship

from typical medical-doctor relationships and found therapists to have acted within the scope of

employment when they negligently mismanaged the patient relationship, resulting in a sexual

encounter.” See Def. Br. at 30. However, the cases Burke cites are distinguishable from this one.

The insurance policies interpreted by the courts in those cases were issued directly to the psychiatrist

and provided coverage for damages arising out of the performance of professional services. See St.

Paul Fire & Marine Ins. Co. v. Love, 459 N.W.2d 698, 699 (Minn. 1990); L.L. v. Med. Protective

Co., 362 N.W.2d 174, 175 (Wis. 1984); Zipkin v. Freedman, 436 S.W.2d 753, 754 (Mo. 1969); St.

Paul Fire & Marine Ins. Co v. Mitchell, 296 S.E.2d 126, 127 (Ga. 1982). Those courts were not

considering whether the therapists’ sexual activities with their patients were within the scope of their

employment. Burke offers no reason why the Kentucky courts would apply the reasoning of such

cases to a different legal question than the one they were confronting. 

Even if these cases were on point, nothing in the jurisprudence of the Kentucky courts

suggest that they would follow the reasoning of these jurisdictions. On the contrary, the Kentucky

Supreme Court in Osborne cited approvingly the decisions of other jurisdictions which have found

that a therapist acts outside the scope of his employment when he engages in sexual activities with

a patient.7

 31 S.W.3d at 915 (citing Amato, 679 N.E.2d at 455; L.L.N., 552 N.W.2d at 888). The

Kentucky courts’ approval of such cases further supports the district court’s conclusion that

Flowers’ sexual affair with Burke was outside the scope of his employment as a matter of Kentucky

law.

We find that the district court did not err in reaching this conclusion. The insurance contract

is not ambiguous in its limitation of its coverage of Flowers only for acts within the scope of his

employment. Accordingly, we agree with the district court that Flowers’ sexual affair with Burke

was not within the scope of Scottsdale’s coverage of Flowers under the insurance contract as a

matter of Kentucky law.

C. THE DISTRICT COURT’S AMENDMENT OF ITS OPINION AND ORDER

1. Standard of Review

We review a district court’s decision to alter or amend its judgment pursuant to Federal Rules

of Civil Procedure 59(e) and 60 for abuse of discretion. See National Ecological Found. v.

Alexander, 496 F.3d 466, 476 (6th Cir. 2007) (reviewing denial of motion to alter or amend

judgment under Rule 59(e) for abuse of discretion); Ford Motor Co. v. Mustangs Unlimited, Inc., 487 F.3d 465, 468 (6th Cir. 2007) (reviewing denial of Rule 60 motion for abuse of discretion).

“Abuse of discretion is defined as a definite and firm conviction that the trial court committed a clear

error of judgment.” Tahfs, 316 F.3d at 593 (quoting Amerinational Indus., 925 F.2d at 975).
Nos. 06-6385/6412 Scottsdale Ins. Co. v. Flowers, et al. Page 19

2. Analysis

In its original judgment, the district court ordered that “plaintiff, Scottsdale Insurance

Company, has no duty to extend coverage to Norman Flowers for any of the torts alleged in

Jefferson Circuit Court Civil Action No. 03-CI-02296.” J.A. at 709. In its amended opinion and

order, the district court, while adopting the same legal reasoning and reaching the same conclusions,

modified the language of the order to find that “plaintiff, Scottsdale Insurance Company, has no duty

to extend coverage to Norman Flowers for his sexual affair with Kathleen Burke.” J.A. at 25. 

Scottsdale argues that the district court should not have modified the language of its original

order because the original language was accurate and the modified language creates more confusion

regarding the scope of Scottsdale’s coverage of Flowers. See Pl. Br. at 40. In particular, Scottsdale

contends that it should not have to provide Flowers with coverage for any of the torts alleged in

Burke’s state action because: (1) Flowers’ sexual advances were so intertwined with his counseling

services that he was acting outside the scope of his employment when he engaged in the sexual affair

with Burke and when he counseled her; and (2) the only torts alleged by Burke in her state action

directly relate to the sexual affair. See id. at 41-46.

Burke defends the district court’s decision to modify the language of its order by arguing that

the language in the original order extended beyond the scope of the issue presented in Scottsdale’s

motion for declaratory judgment. See Def. Third Br. at 18-19. Burke contends that Flowers’

counseling of Burke should not be excluded from the scope of his employment because it was

distinct from his decision to seek a sexual relationship with Burke. See id. at 20-23. Burke further

argues that its state court action against Flowers and the Morton Center is not solely based on his

engagement in an improper sexual relationship with Burke, but also alleges that Flowers was

negligent in providing counseling services. See id. at 24-26. 

We agree with Burke that the district court did not abuse its discretion in granting

Defendant’s motion to amend its declaratory judgment. The district court appropriately modified

the language from its original order so as to narrowly address the issue presented and to avoid an

overly broad phrasing of its legal conclusions.

 The language of the district court’s amended order appropriately resolves the narrow issue

presented in the declaratory judgment action. In Scottsdale’s Motion for Declaratory Judgment, it

requested the district court “to determine, as a matter of law, that Flowers, a therapist who is alleged

to have engaged in a sexual affair with his client (Burke), was not acting within the scope of his

employment for purposes of determining insurance coverage.” J.A. at 31. In its Memorandum in

Support of Motion for Declaratory Judgment, Scottsdale likewise framed the issue presented as

“whether a therapist who engages in a sexual affair with a client is acting within the scope of his

employment for purposes of determining insurance coverage.” J.A. at 34. Guided by this

articulation of the legal issue, the only legal conclusion reached by the district court was that “in

Kentucky, participation in an affair is outside the scope of employment as a matter of law.” J.A. at

25. The district court was not asked to consider whether Flowers’ counseling of Burke was within

the scope of his employment. It therefore did not express an opinion on that question. By focusing

only on whether Scottsdale must extend coverage to Flowers for his sexual affair with Burke, the

district court’s amended order answers only the question presented to it. Amending the language

of an order to provide a narrow answer to the precise issue raised is not indicative of unsound

judgment. 

The district court’s modification of the order’s language was also appropriate because the

language of the previous order was too broad. The original order relieved Scottsdale of the duty to

provide coverage for any of the torts alleged in Burke’s state court action. However, Burke possibly

alleged torts in the state court action that were not based on Flowers’ sexual affair with Burke. The
Nos. 06-6385/6412 Scottsdale Ins. Co. v. Flowers, et al. Page 20

complaint in the Jefferson Circuit Court alleged that “Flowers . . . had the obligation to treat and

counsel Burke in a professional manner and he breached his professional and ethical duties to so

treat her.” J.A. at 14-15. The broad language of this general allegation of breach of professional

duties leaves room for Burke’s argument that Flowers breached these duties by negligently treating

her as well as by initiating and engaging in sexual activities with her. The district court did not find

that all of Flowers’ treatment of Burke was outside the scope of his employment, but rather only that

Flowers’s sexual affair with her exceeded this scope. Accordingly, its original order which found

no obligation to extend coverage for the matter pending in state court because “Flowers’ tortious

activity, if any, was outside the scope of his employment” was phrased too broadly. J.A. at 709.

The district court did not abuse its discretion in deciding to modify an overly broad order.

III. CONCLUSION

For the foregoing reasons, the district court’s amended opinion and order is AFFIRMED.