Court Opinion

ID: 2974274
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Date Created: 2015-09-22 17:15:19.28147+00
Date Added: 2024-06-11T11:41:13.743287
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                        UNITED STATES COURT OF APPEALS
                                         FOR THE SIXTH CIRCUIT
                                           _________________

                                                     X
                                                      -
 MELISSA RAWE; THOMAS J. RAWE; KIMBERLY

                             Plaintiffs-Appellants, -
 RAWE,
                                                      -
                                                      -
                                                          No. 05-5485

                                                      ,
          v.                                           >
                                                      -
                                                      -
                                                      -
 LIBERTY MUTUAL FIRE INSURANCE COMPANY;

                            Defendants-Appellees. -
 CYNTHIA HOLTCAMP,

                                                      -
                                                     N
                      Appeal from the United States District Court
                   for the Eastern District of Kentucky at Covington.
                   No. 04-00146—David L. Bunning, District Judge.
                                          Argued: January 26, 2006
                                  Decided and Filed: September 1, 2006
                   Before: SILER, BATCHELDER, and MOORE, Circuit Judges.
                                             _________________
                                                   COUNSEL
ARGUED: Milton S. Goff, Ft. Mitchell, Kentucky, for Appellants. Peter Matthew Cummins,
FROST BROWN TODD, Louisville, Kentucky, for Appellees. ON BRIEF: Milton S. Goff, Ft.
Mitchell, Kentucky, for Appellants. Peter Matthew Cummins, Robert L. Steinmetz, FROST
BROWN TODD, Louisville, Kentucky, for Appellees.
                                             _________________
                                                 OPINION
                                             _________________
         KAREN NELSON MOORE, Circuit Judge. Plaintiffs-Appellants Melissa Rawe, Thomas
Rawe, and Kimberly Rawe appeal the district court’s grant of defendants’ motion for judgment on
the pleadings under Federal Rule of Civil Procedure 12(c). After Melissa Rawe was severely injured
in a car accident, she sought to recover under two insurance policies issued by Defendants-Appellees
Liberty Mutual and Cynthia Holtkamp,1 (referred to collectively as “Liberty Mutual”), who is one

        1
           Holtkamp is the correct spelling of Defendant-Appellee Cynthia Holtkamp’s last name, which was incorrectly
spelled as Holtcamp by plaintiffs when they filed this case. Joint Appendix (“J.A.”) at 6 (Notice of Removal at 1).

                                                         1
No. 05-5485                Rawe et al. v. Liberty Mutual Fire Ins. Co. et al.                                      Page 2

of Liberty Mutual’s claims adjusters. When Liberty Mutual2 refused to pay the insurance claim
Rawe sought, she filed suit, alleging first- and third-party statutory and common law bad faith as
well as breach of contract and fraud claims against Liberty Mutual. Liberty Mutual filed a motion
for judgment on the pleadings, which the district court granted. For the reasons explained below,
we REVERSE the district court’s grant of judgment on the pleadings to Liberty Mutual on Rawe’s
first-party bad faith claims that are based upon defendant’s alleged actions that occurred after the
filing of Rawe’s complaint in the first suit in October 2003, as they are not barred by claim
preclusion. We also REVERSE the district court’s dismissal of Rawe’s third-party claims under
the Kentucky Unfair Claims Settlement Practices Act (“KUCSPA”). We AFFIRM the district
court’s grant of judgment on the pleadings to Liberty Mutual on Rawe’s other claims.
                                                I. BACKGROUND
        On September 22, 2000, Plaintiff-Appellant Melissa Rawe, then a minor, was a passenger
in an automobile driven by Benjamin Haggard. Joint Appendix (“J.A.”) at 16-17 (Compl. at ¶ 10).
Haggard lost control of the vehicle, crossed the median in the road, and struck an oncoming vehicle,
causing an accident in which Rawe sustained serious and permanent injuries. J.A. at 17 (Compl. at
¶ 10). Rawe’s head trauma included “an injury to the right occipital lobe of her brain resulting in
a 14% neuropsychiatric impairment and a permanent loss of a portion of her vision.” J.A. at 17
(Compl. at ¶ 13). When the accident occurred, Haggard held a bodily injury policy (“bodily injury
policy”) with a limit of $100,000 with Liberty Mutual. J.A. at 17 (Compl. at ¶ 11); J.A. at 52
(Answer at 1). Rawe and her parents, Thomas and Kimberly Rawe, were also insured by Liberty
Mutual pursuant to an underinsured motorist policy (“UIM policy”). J.A. at 17 (Compl. at ¶ 11);
J.A. at 52 (Answer at 1). The UIM policy covered three vehicles owned by the Rawes and had a
policy limit of $50,000/$100,000 per vehicle, per accident. J.A. at 117 (Oct. 2003 Compl. at ¶ 11).
        After more than two years of negotiating with Liberty Mutual and with the assistance of an
attorney, Rawe obtained a settlement for the full $100,000 available under Haggard’s bodily injury
policy in September 2002. J.A. at 19 (Compl. at ¶ 28); J.A. at 52 (Answer at 1). Rawe continued
to pursue a claim under her family’s personally held UIM policy, and when correspondence with
defendant Liberty Mutual did not produce a settlement offer, Rawe filed suit in October 2003 to
satisfy her claim under the UIM policy. J.A. at 115 (Oct. 2003 Compl.). Rawe brought her lawsuit
in state court (No. 03-CI-2809),   but Liberty Mutual removed the case to federal court, invoking
diversity jurisdiction.3 Docket Rep. in Case 2:03-CV-252-WOB at R.1. This case was mediated,
and in February 2004 Liberty Mutual made its first offer of $35,000, which Rawe rejected. J.A. at
24 (Compl. at ¶ 57). Liberty Mutual made a further offer of $45,000 later in February 2004, which
Rawe accepted. J.A. at 24 (Compl. at ¶¶ 59-60). On March 8, 2004, the district court entered a
judgment in favor of Rawe for $45,000 plus interest. Docket Rep. in Case 2:03-CV-252-WOB at
R.8. After this judgment was entered, defendant Liberty Mutual demanded that Rawe execute a
Release and Settlement Agreement releasing any and all future claims, including claims that were
not part of that action, before Liberty Mutual would comply with the judgment and render payment
of the $45,000. J.A. at 24 (Compl. at ¶ 60); J.A. at 211-18 (Mar. 5, 2004 Letter and Proposed
Release). Rawe refused to sign the release, J.A. at 225 (Mar. 17, 2004 Letter) and filed a motion

         2
          Although all three of the Rawes are plaintiffs-appellants in this case, and both Liberty Mutual and Holtkamp
are defendants-appellees, the issues raised in this appeal do not differ with respect to any of the individual parties. This
dispute can fairly be summarized as a dispute between Melissa Rawe (the injured passenger and insured) and Liberty
Mutual (the insurer). For the sake of convenience, we shall therefore refer to the two parties in the singular form — as
Rawe and Liberty Mutual — throughout this opinion.
         3
           Diversity exists between the Rawes, who are citizens of the Commonwealth of Kentucky, and Liberty Mutual,
which is incorporated in and has its principal place of business in the Commonwealth of Massachusetts. J.A. at 7 (Notice
of Removal at 2). Diversity also exists between plaintiffs and Holtkamp, as Holtkamp is a citizen of Ohio. Id.
No. 05-5485               Rawe et al. v. Liberty Mutual Fire Ins. Co. et al.                                      Page 3

for issuance of writ of execution to obtain the $45,000 judgment. J.A. at 226-27 (Mot. for Issuance
of Writ of Exec.). Defendant Liberty Mutual eventually satisfied its obligation under the March
2004 judgment, and the district court issued an order of satisfaction and dismissal with prejudice on
May 3, 2004. Docket Rep. in Case 2:03-CV-252-WOB at R.14.
         Rawe filed this lawsuit on June 18, 2004 in Kentucky state court (No. 04-CI-1573) alleging
that Liberty Mutual’s actions during the attempted settlement of both the bodily injury and UIM
claims violated the Kentucky Unfair Claims Settlement Practices Act (“KUCSPA”) (Count I),
constituted a breach of contract and the tort of first- and third-party common-law bad faith (Count
II), violated the Kentucky Consumer Protection Act (“KCPA”) (Count III), and constituted fraud
(Count IV). J.A. at 15-31 (Compl.). Liberty Mutual again sought removal, invoking diversity
jurisdiction. J.A. at 6-10 (Notice of Removal). On October 4, 2004, Liberty Mutual filed a motion
for judgment on the pleadings, J.A. at 97, 101 (Mot. and Mem. for Judgment on Pleadings), arguing
that all of Rawe’s claims failed as a matter of law. Liberty Mutual argued that Rawe’s claims based
upon alleged conduct occurring prior to the filing of the complaint in the first lawsuit in October
2003 are barred by the doctrine of res judicata, and that her claims that alleged conduct that occurred
after the filing of the first lawsuit are insufficient for relief under Kentucky law. J.A. at 104-05
(Mem. in Support of Mot. for Judgment on Pleadings). Rawe opposed this motion, arguing that the
claims based upon Liberty Mutual’s conduct allegedly occurring both before and after the filing of
the first lawsuit are not barred by res judicata, and that the alleged conduct after the filing of the first
suit can support her bad-faith claims. J.A. at 179 (Plaintiff’s Mot. in Opp. to Def. Mot. for Judgment
on Pleadings).
         In an order issued on March 3, 2005, the district court granted Liberty Mutual’s motion for
judgment on the pleadings, and dismissed all of Rawe’s claims. J.A. at 36-37 (Order at 1-2). The
district court dismissed Rawe’s claims based upon Liberty Mutual’s handling of her claim for
benefits under the UIM policy on res judicata grounds. J.A. at 46-47 (Order at 11-12). The district
court also dismissed Rawe’s third-party common-law bad-faith claim because of the lack of any
assignment of rights from Haggard to Rawe, J.A. at 41-42 (Order at 6-7), and found insufficient
evidence of Liberty Mutual’s outrageous conduct or Rawe’s resultant damages to substantiate her4
third-party KUCSPA claim. J.A. at 47-49 (Order at 12-14). Rawe filed a timely notice of appeal.
J.A. at 50 (Notice of Appeal).
                                                   II. ANALYSIS
A. Standard of Review
        We review de novo a judgment on the pleadings under Federal Rule of Civil Procedure 12(c).
Ziegler v. IBP Hog Market, Inc., 249 F.3d 509, 511-12 (6th Cir. 2001). “For purposes of a motion
for judgment on the pleadings, all well-pleaded material allegations of the pleadings of the opposing
party must be taken as true, and the motion may be granted only if the moving party is nevertheless
clearly entitled to judgment.” Southern Ohio Bank v. Merrill Lynch, Pierce, Fenner & Smith, Inc.,

         4
           In her complaint, Rawe also alleged that Liberty Mutual’s actions regarding her UIM claim constituted a
breach of contract, J.A. at 27 (Compl. at ¶¶ 77-78), and common-law fraud, J.A. at 30 (Compl. at ¶¶ 97-98). On appeal,
however, we consider only Rawe’s bad-faith claims under common law, as well as her claims under the KCPA and the
KUCSPA. While Rawe lists her fraud and contract claims in the “Statement of Issues for Revew” in her appellate brief
as claims erroneously dismissed by the district court, Appellant Br. at 2, and asserts the same statement at several points
in her brief, she does not advance any arguments in her appellate brief about the merits of her fraud and contract claims
and why they survive Liberty Mutual’s motion for judgment on the pleadings. Rawe has therefore forfeited her common-
law fraud and contract claims. See United States v. Reed, 167 F.3d 984, 993 (6th Cir. 1999) (stating that an issue that
is only mentioned in a cursory manner in an appellate brief and not developed may be deemed forfeited); Buziashvili v.
Inman, 106 F.3d 709, 719 (6th Cir. 1997) (stating that the court will not consider a claim on appeal that is merely
mentioned as an issue, but on which the party makes no argument).
No. 05-5485           Rawe et al. v. Liberty Mutual Fire Ins. Co. et al.                        Page 4

479 F.2d 478, 480 (6th Cir. 1973). A Rule 12(c) “motion is granted when no material issue of fact
exists and the party making the motion is entitled to judgment as a matter of law.” Paskvan v. City
of Cleveland Civil Serv. Comm’n, 946 F.2d 1233, 1235 (6th Cir. 1991). “In reviewing the motion,
we must construe the complaint in the light most favorable to the plaintiff, accept all of the
complaint’s factual allegations as true, and determine whether the plaintiff undoubtedly can prove
no set of facts in support of [her] claim that would entitle [her] to relief.” Ziegler, 249 F.3d at 512.
        As we are sitting in diversity, we apply the substantive law of Kentucky, the forum state.
Himmel v. Ford Motor Co., 342 F.3d 593, 598 (6th Cir. 2003). Where we confront an issue that “has
not yet been resolved by the [Kentucky] courts, we must attempt to predict what the [Kentucky]
Supreme Court would do if confronted with the same question.” Id. We review de novo the district
court’s applications and determinations of Kentucky law. Salve Regina Coll. v. Russell, 499 U.S.
225, 231 (1991).
B. Bad Faith Under Kentucky Law
         Rawe argues that Liberty Mutual violated its good faith obligations under Kentucky law in
its handling of her bodily injury and UIM claims. Rawe also argues that Liberty Mutual’s actions
“during the litigation [of these disputed claims] and post-litigation contributed to its violations” of
Kentucky law. Appellant Br. at 6. Because Rawe and her parents were insured by Liberty Mutual
under their UIM policy, Rawe’s claims stemming from Liberty Mutual’s handling of the UIM claim
are first-party bad-faith claims. Given that Haggard was the insured under the bodily injury claim,
Rawe’s claims pursuant to that policy are considered third-party bad-faith claims. See Motorists
Mut. Ins. Co. v. Glass, 996 S.W.2d 437, 441 (Ky. 1997).
        As the Supreme Court of Kentucky explained in Guaranty National Insurance Company v.
George, 953 S.W.2d 946, 950 (Ky. 1997) (Cooper, J., concurring), Kentucky law recognizes four
categories of bad-faith claims against insurance companies: (1) common-law third-party bad faith,
which “occurs when a liability insurer’s failure to settle a tort claim against its insured results in a
judgment in excess of the insured’s policy limits.” Id. (citing Eskridge v. Educator & Executive
Insurers, Inc., 677 S.W.2d 887 (Ky. 1984); (2) common-law first-party bad faith, which “arises
when an insurer refuses to pay the claim of its own insured under a first-party coverage provision
of its policy.” Id. (citing Curry v. Fireman’s Fund Ins. Co., 784 S.W.2d 176 (Ky. 1989); (3) first-
party bad faith in violation of the KCPA, which allows an insured to recover against her or his
insurer for an “unlawful act” as defined by the KCPA, see Davidson v. Amer. Freightways, Inc., 25
S.W.3d 94, 99 (Ky. 2000) (citing Stevens v. Motorists Mut. Ins. Co., 759 S.W.2d 819 (Ky. 1988));
and (4) first- and third-party bad faith in violation of the KUCSPA. See Guaranty, 953 S.W.2d at
950 (citing State Farm Mut. Auto. Ins. Co. v. Reeder, 763 S.W.2d 116, 117 (Ky. 1988)). Rawe
alleges bad-faith claims under all four categories. J.A. at 16-30 (Compl. at Counts I-III).
         A single test under Kentucky law exists for the merits of bad-faith claims, whether brought
by a first- or third-party claimant or brought under common law or statute. This test, established by
the Supreme Court of Kentucky in Wittmer v. Jones, 864 S.W.2d 885, 890 (Ky. 1993), is the
“leading case on ‘bad faith’ in Kentucky,” and “the culmination of the development of ‘bad faith’
liability in [Kentucky] jurisprudence.” Davidson, 25 S.W.3d at 99. Kentucky law dictates that:
       an insured must prove three elements in order to prevail against an insurance
       company for alleged refusal in bad faith to pay the insured’s claim: (1) the insurer
       must be obligated to pay the claim under the terms of the policy; (2) the insurer must
       lack a reasonable basis in law or fact for denying the claim; and (3) it must be shown
       that the insurer either knew there was no reasonable basis for denying the claim or
       acted with reckless disregard for whether such a basis existed.
No. 05-5485               Rawe et al. v. Liberty Mutual Fire Ins. Co. et al.                                  Page 5

Cobb King v. Liberty Mut. Ins. Co., 54 F. App’x 833, 836-37 (6th Cir. 2001) (unpublished opinion)
(quoting Wittmer, 864 S.W.2d at 890). The district court in this case properly identified the Wittmer
test as the critical Kentucky bad-faith standard, J.A. at 41 (Order at 6), but did not reach the merits
on any of plaintiff’s claims because it found that all of Rawe’s claims failed as a matter of law for
a variety of reasons. We now review the various categories of Rawe’s bad-faith claims in order to
determine whether the district court properly granted judgment on the pleadings to Liberty Mutual.
         1. Rawe’s First-Party Bad-Faith Claims Under Kentucky Common Law and the
            KCPA
        Rawe alleges that Liberty Mutual breached its first-party duty to act in good faith under
Kentucky common law and the KCPA by failing to satisfy its obligations to pay her claim under the
UIM policy. J.A. at 27-30 (Compl. at ¶¶ 77-83, 85-95). Liberty Mutual argued before the district
court that all of these claims are barred as a matter of law. J.A. at 102 (Mem. in Support of Mot. for
Judgment on Pleadings at 2). The district court agreed with Liberty Mutual, holding “that any
claims based upon [d]efendant’s conduct in handling [p]laintiff’s claim for UIM benefits are barred
under the doctrine of res judicata.” J.A. at 46-47 (Order at 11-12). Upon review, we conclude that
the district court’s reasoning in relation to plaintiff’s first-party bad-faith claims based upon Liberty
Mutual’s conduct allegedly occurring before Rawe filed her complaint in the first suit is sound, but
that the district court erred in dismissing without analysis Rawe’s claims based upon Liberty
Mutual’s alleged conduct that occurred after Rawe filed the complaint in the first suit.
                  a. Rawe’s First-Party Bad-Faith Claims Based Upon Pre-Complaint Conduct
                     are Barred by Claim Preclusion
        As this case involves successive diversity actions, federal res judicata principles apply.
J.Z.G. Res., Inc. v. Shelby Ins. Co., 84 F.3d 211, 214 (6th Cir. 1996). “A final judgment on the
merits of an action precludes the parties or their privies from relitigating issues that were or could
have been raised in that action.” Federated Dep’t Stores, Inc. v. Moitie, 452 U.S. 394, 398 (1981)
(emphasis added). We use a four-part test for determining whether a subsequent action is barred     by
the doctrine of res judicata, or to be more precise in this circumstance, claim preclusion.5 “[R]es
judicata has four elements: (1) a final decision on the merits by a court of competent jurisdiction;
(2) a subsequent action between the same parties or their privies; (3) an issue in the subsequent
action which was litigated or which should have been litigated in the prior action; and (4) an identity
of the causes of action.” Kane v. Magna Mixer Co., 71 F.3d 555, 560 (6th Cir. 1995).
        Relying upon one of our unpublished decisions, Hamilton v. State Farm Fire & Cas. Co.,
No. 96-4141, 1997 WL 664772 (6th Cir. Oct. 23, 1997) (unpublished opinion), the district court
concluded that Rawe’s previous suit to enforce her rights under the UIM policy, which ended with
the district court’s final order recognizing the $45,000 settlement agreement, precluded this
subsequent bad-faith action. J.A. at 43-45 (Order at 8-10). The facts of this case closely resemble
those in Hamilton, where a plaintiff sued his homeowner insurer because the insurer failed to pay
on the policy after the plaintiff’s home was destroyed by fire. Id. at *1. After the defendant in

         5
            The Supreme Court in Migra v. Warren City School District Board of Education, 465 U.S. 75, 77 n.1 (1984),
explained the difference between issue preclusion and claim preclusion, both of which are frequently referred to simply
as “res judicata.” Migra explained:
           Res judicata is often analyzed further to consist of two preclusion concepts: “issue preclusion” and
           “claim preclusion.” Issue preclusion refers to the effect of a judgment in foreclosing relitigation of
           a matter that has been litigated and decided. . . . This effect also is referred to as direct or collateral
           estoppel. Claim preclusion refers to the effect of a judgment in foreclosing litigation of a matter that
           never has been litigated, because of a determination that it should have been advanced in an earlier
           suit. Claim preclusion therefore encompasses the law of merger and bar.
Id. (citation omitted).
No. 05-5485           Rawe et al. v. Liberty Mutual Fire Ins. Co. et al.                         Page 6

Hamilton removed the case to federal court, the plaintiff prevailed in his action to enforce the
insurance agreement, and the insurer satisfied the judgment. The plaintiff then filed a subsequent
action in state court for bad faith and infliction of serious emotional distress for failing to honor the
homeowner policy. This case was also removed, and the district court concluded that the claims
were barred by res judicata because the court found “identity between the causes of action plaintiff
asserted in his second suit and that which he asserted in the first suit.” Id. We affirmed, stating that
claim preclusion barred the subsequent action because “the causes of action all arose from the
insurance policy issued to plaintiff by defendant, the fire which destroyed plaintiff’s home and
defendant’s nonpayment of the proceeds under the policy.” Id. at *2.
         We agree with the district court that our reasoning in Hamilton is instructive here. As in
Hamilton, the causes of action here all arose from the UIM policy issued to Rawe by Liberty Mutual,
the car accident that injured Rawe, and Liberty Mutual’s nonpayment of the proceeds under the
policy. Similar to Hamilton, all of the asserted causes of action stemming from Liberty Mutual’s
alleged actions occurring before the first suit was filed in October 2003 “arose from the same
transaction, or series of transactions,” and therefore “they should have been litigated in the earlier
action.” Id. “The fact that [Rawe] now asserts alternative theories of recovery and seeks a different
remedy does not allow [her] to avoid claim preclusion, when those other theories could have been
asserted and remedies could have been sought in the earlier action.” Id. Rawe’s allegations of bad
faith based upon Liberty Mutual’s alleged actions predating the filing of Rawe’s first suit do not
arise “from entirely separate and discrete events and wrongful acts by” Liberty Mutual than those
asserted in her first UIM suit. Black v. Ryder/P.I.E. Nationwide, Inc., 15 F.3d 573, 582 (6th Cir.
1994). We therefore affirm the district court’s dismissal of plaintiff’s first-party bad-faith claims
under Kentucky common law and the KCPA, because those claims based upon defendant’s conduct
that allegedly occured before Rawe filed her complaint in October 2003 are barred by the doctrine
of claim preclusion.
                b. Rawe’s First-Party Bad-Faith Claims Based Upon Post-Complaint Conduct
                   Are Not Barred by Claim Preclusion
        The district court did not analyze plaintiff’s first-party bad-faith claims based upon Liberty
Mutual’s alleged conduct that occurred after Rawe filed her complaint in the first lawsuit in October
2003, but nevertheless dismissed all of her first-party bad-faith claims about the handling of the UIM
policy on res judicata grounds. Upon review, we conclude that these claims are not barred by claim
preclusion, and so we reverse the district court’s dismissal of these claims.
          In Count II, Rawe’s common-law first-party bad-faith claim, and Count III, her first-party
bad-faith claim under the KCPA, Rawe alleges that Liberty Mutual’s actions after the October 2003
filing of her complaint in the first lawsuit constituted bad faith. Rawe cites primarily Liberty
Mutual’s failure to comply with the judgment for $45,000 that resulted from the first lawsuit until
Rawe agreed to sign a release of claims extraneous to her UIM policy claim as constituting bad faith.
J.A. at 28-30 (Compl. at ¶¶ 82-83, 90-91, 98); Appellant Br. at 38. Rawe argues that because she
had received the judgment, “no release was required and upon Liberty Mutual’s refusal to pay, a
cause of action arose.” Appellant Br. at 38. She further argues that “[u]ntil the claim is finally paid
in full, the processing of the claim is not final and the transaction is still covered” by Kentucky law
on bad faith under the KCPA and Kentucky common law. Id.
         We agree that Rawe’s first-party bad-faith claims that are based upon Liberty Mutual’s
actions after she filed the first lawsuit to enforce the UIM contract cannot be barred by res judicata,
because those alleged actions had not yet occurred at the time she filed the first UIM suit. The
district court’s dismissal of these claims on res judicata grounds was erroneous. “Simply put,
[Rawe] could not have asserted a claim that [she] did not have at the time.” Kane, 71 F.3d at 560.
Rawe argues persuasively that these claims were not yet ripe when she filed suit to enforce her rights
No. 05-5485            Rawe et al. v. Liberty Mutual Fire Ins. Co. et al.                         Page 7

under the UIM contract, Appellant Br. at 39-41, and she is correct that res judicata does not apply
to claims that were not ripe at the time of the first suit. Katt v. Dykhouse, 983 F.2d 690, 694 (6th
Cir. 1992). Rawe’s previous suit under the UIM policy does not prospectively immunize the
defendant from liability for future actionable conduct for bad faith.
        We also reject the argument that res judicata bars Rawe’s claims based upon Liberty
Mutual’s alleged conduct after Rawe filed the initial complaint on the theory that Rawe could have
amended her complaint to include this ongoing alleged wrongdoings. Instead, we follow the
majority rule articulated by the Wright and Miller treatise “that an action need include only the
portions of the claim due at the time of commencing that action,” because “the opportunity to file
a supplemental complaint is not an obligation.” 18 CHARLES ALAN WRIGHT, ARTHUR R. MILLER,
AND EDWARD H. COOPER, FEDERAL PRACTICE AND PROCEDURE § 4409 (2d ed. 2002). See also
Mitchell v. City of Moore, 218 F.3d 1190, 1202 (10th Cir. 2000) (“[W]e agree with those courts
holding the doctrine of claim preclusion does not necessarily bar plaintiffs from litigating claims
based on conduct that occurred after the initial complaint was filed.”); Manning v. City of Auburn,
953 F.2d 1355, 1360 (11th Cir. 1992) (“[W]e do not believe that the res judicata preclusion of claims
that ‘could have been brought’ in earlier litigation includes claims which arise after the original
pleading is filed in the earlier litigation.”); Spiegel v. Continental Ill.Nat’l Bank, 790 F.2d 638, 646
(7th Cir. 1986) (holding that res judicata does not bar new action based on alleged acts occurring
after the filing of the first law suit).
       As we have concluded that Rawe’s claims based upon Liberty Mutual’s alleged conduct
occurring after the filing of Rawe’s October 2003 complaint in first lawsuit are not barred by claim
preclusion, we now consider Liberty Mutual’s argument that it is entitled to judgment on the
pleadings on these claims. Whether Liberty Mutual’s actions demanding that Rawe sign a release
before it would comply with the judgment are sufficient to support Rawe’s first-party bad-faith
under Kentucky common law and the KCPA is a close question, and we can find no simple answers
in Kentucky case law. Because we conclude that Liberty Mutual is not entitled to judgment as a
matter of law and that issues of material fact remain, we reverse the district court’s grant of
judgment on the pleadings to Liberty Mutual with respect to the alleged post-complaint conduct.
         First, Rawe’s first-party bad-faith claims do not fail as a matter of law. While Liberty
Mutual encourages us to conclude that failure to comply with a judgment cannot constitute bad faith,
either under common law or the KCPA, it is unable to provide any legal authority to suggest that
it is entitled to judgment as a matter of law on this principle. The Supreme Court of Kentucky has
stated the acts complained of in a KCPA claim, like a common-law tort claim for bad faith, must be
“substantial wrongs,” and that mere “irritations injuring pride” are insufficient. Capitol Cadillac
Olds, Inc. v. Roberts, 813 S.W.2d 287, 291 (Ky. 1991). While it is unclear whether a jury would
view these actions as “substantial wrongs,” a reasonable jury could so view Liberty Mutual’s
actions. The insurance company’s demand that the release be executed was certainly more than an
irritation of Rawe’s pride, as it stood in the way of her “clearly protected interest[s] and rights”
under the court’s judgment and required her, through her attorney, to take further action to collect
under the judgment. Id.
        Furthermore, the Supreme Court of Kentucky appears to view the question of whether an
insurer’s actions rise to the level of unlawful conduct under the KCPA to be a question of fact,
therefore rending the inquiry inappropriate for resolution on a Rule 12(c) motion. See Paskvan, 946
F.2d at 1235. In Stevens v. Motorists Mutual Insurance Co., which established that a first-party bad-
faith claim against an insurer is actionable under the KCPA, the Supreme Court of Kentucky
reversed a directed verdict on a KCPA claim for the insurer, stating that “when the evidence creates
an issue of fact, that any particular action is unfair, false, misleading or deceptive it is to be decided
by a jury.” Stevens, 759 S.W.2d at 820. Similarly, here it seems that the Supreme Court of Kentucky
would view the question of whether Liberty Mutual’s actions – its failure to comply with the
No. 05-5485           Rawe et al. v. Liberty Mutual Fire Ins. Co. et al.                         Page 8

judgment, its demand that Rawe sign a complete release of all potential claims, and its compliance
with the judgment only after Rawe sought a writ to enforce the judgment – constituted unfair
conduct under the KCPA to be a question of fact. As this material issue of fact remains, we reverse
the grant of judgment on the pleadings to Liberty Mutual on plaintiff’s first-party bad-faith claims
based upon Liberty Mutual’s alleged actions occurring after the filing of the first lawsuit in October
2003, and remand these claims to the district court for further consideration.
       2. Rawe’s Third-Party Common-Law Bad-Faith Claim
         The district court correctly dismissed Rawe’s third-party common-law bad-faith claim as a
matter of law, because the pleadings do not allege that Haggard, who was the insured under the
bodily injury policy, ever assigned his rights under the policy to Rawe. J.A. at 41 (Order at 6). It
is settled law in Kentucky that insurers do not have any common-law duty of good faith to third-
party claimants. Manchester Ins. & Indem. Co. v. Grundy, 531 S.W.2d 493, 498 (Ky. 1975) (“There
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 look only to the insured for satisfaction of the judgment
unless the insured makes an assignment to the claimant.”), cert. denied, 429 U.S. 821 (1976); see
also Glass, 996 S.W.2d at 451 (citing Manchester as establishing that a cause of action for common-
law bad faith belongs only to the liability insured). In Glass, the Supreme Court of Kentucky
explained that a third-party common-law bad-faith claim arises only when the insured has assigned
her contractual rights to the third-party plaintiff.
       [U]nder the principle of privity of contract, the [common-law bad-faith] cause of action
       belonged only to the liability insured; but . . . the insured could assign it to the liability
       plaintiff in consideration for a release of the insured from any liability in excess of the policy
       limits. As assignee of the insured, the successful plaintiff could then bring the “bad faith”
       action in a derivative capacity against the insurer to recover the excess amount of the verdict.
       Punitive damages were not recoverable, because the action was considered to be one for
       breach of contract. This type of action is referred to as a “third-party bad faith” action.
Id. In Count II of her complaint, Rawe does not allege that Haggard assigned rights to her, but
merely states that she was “a third party beneficiary” to Haggard’s bodily injury insurance contract
with Liberty Mutual, and that Liberty Mutual owed her a duty in that capacity. J.A. at 27 (Compl.
at ¶ 80). This is insufficient under Kentucky law. We therefore affirm the district court’s dismissal
of Rawe’s third-party bad-faith claim because Rawe has not alleged privity of contract between
herself and Haggard.
       3. Rawe’s Claims under the Kentucky Unfair Claims Settlement Practices Act
        We next consider Rawe’s allegations that Liberty Mutual’s actions in response to her
attempts to recover under Haggard’s bodily injury policy as well as her parents’ UIM policy violated
the KUCSPA. Rawe argues that the district court erred in granting judgment as a matter of law to
Liberty Mutual on Count I of her complaint, which contains her claims under the KUCSPA. Upon
review, we reverse the grant of judgment on the pleadings to Liberty Mutual on Rawe’s third-party
KUCSPA claims, and affirm the grant of judgment on the pleadings on Rawe’s first-party KUCSPA
claims.
        The KUCSPA creates both first- and third-party obligations to settle insurance claims in
good faith. The KUCSPA “imposes what is generally known as the duty of good faith and fair
dealing owed by an insurer to an insured or to another person bringing a claim under an insurance
policy.” Knotts v. Zurich Ins. Co., --- S.W.3d --- , No. 2004-SC-0400-DG, 2006 WL 1358718, at
*2 (Ky. May 18, 2006) (citing KY. REV. STAT. ANN. § 304.12-230). The KUCSPA “is intended to
protect the public from unfair trade practices and fraud. It should be liberally construed so as to
No. 05-5485           Rawe et al. v. Liberty Mutual Fire Ins. Co. et al.                                 Page 9

effectuate its purpose.” Reeder, 763 S.W.2d at 118. The KUCSPA “proscribes a list of [fifteen]
particular acts and practices” that it deems unfair claims settlement practices. Knotts, 2006 WL
1358718, at *2. Rawe alleges in her complaint that Liberty Mutual violated five subsections of the
Act by:
       (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; . . .
       (6) Not attempting in good faith to effectuate prompt, fair and equitable settlements
           of claims in which liability has become reasonably clear; and
       (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.
See KY. REV. STAT. ANN. § 304.12-230(2)-(4), (6)-(7); J.A. at 25-26 (Compl. at ¶¶ 62-74) (citing
these particular provisions of the KUCSPA). In order to prove either a first- or third-party bad-faith
claim under the KUCSPA, Rawe must establish three elements demonstrating that Liberty Mutual
refused in bad faith to pay her claim:
       (1) the insurer must be obligated to pay the claim under the terms of the policy;
       (2) the insurer must lack a reasonable basis in law or fact for denying the claim; and
       (3) it must be shown that the insurer either knew there was no reasonable basis for
       denying the claim or acted with reckless disregard for whether such a basis
       existed. . . . [A]n insurer is . . . entitled to challenge a claim and litigate it if the claim
       is debatable on the law or facts.
Glass, 996 S.W.2d at 452 (internal quotation marks omitted). Because Rawe is seeking punitive
damages for Liberty Mutual’s alleged violation of the KUCSPA in addition to compensatory
damages, J.A. at 30-31 (Compl. at ¶¶ 96-100), she must plead “sufficient evidence of intentional
misconduct or reckless disregard of the rights of an insured claimant to warrant submitting the right
to award punitive damages to the jury.” Cobb King, 54 F. App’x at 837 (quoting Wittmer, 864
S.W.2d at 890). Regardless of which type of damages is sought, a plaintiff cannot bring a private
cause of action “for a mere ‘technical violation’ of the [K]UCSPA,” but rather “a condition
precedent to bringing a statutory bad faith action is that the claimant was damaged by reason of the
violation of the statute.” Glass, 996 S.W.2d at 452 (quoting Wittmer, 864 S.W.2d at 890).
               a. Rawe’s Third-Party KUCSPA Claims
        Rawe’s third-party KUCSPA claims allege that Liberty Mutual’s unwillingness promptly
to pay her claim of $100,000, the policy limit under Haggard’s bodily injury policy, violated the
KUCSPA. J.A. at 17-21 (Compl. at ¶¶ 11-37). The Supreme Court of Kentucky first held in Reeder
that the KUCSPA created a private right of action for a third-party plaintiff harmed as a result of
violations of the Act. Reeder, 763 S.W.2d at 118. In considering Rawe’s third-party KUCSPA
claim, the district court correctly recognized the validity of a third-party bad-faith claim as
established in Reeder, but concluded that Rawe could not maintain a cause of action because, even
assuming Rawe’s factual allegations to be true, the pleadings do not support the conclusion that
Liberty Mutual acted with the necessary level of culpability. J.A. at 47-48 (Order at 12-13).
No. 05-5485           Rawe et al. v. Liberty Mutual Fire Ins. Co. et al.                        Page 10

        Upon review, we cannot conclude that Liberty Mutual was entitled to judgment as a matter
of law on Rawe’s third-party KUCSPA claims. When considering Liberty Mutual’s motion for
judgment on the pleadings, we must “construe the complaint in the light most favorable to the
plaintiff,” and “accept all of the complaint’s factual allegations as true.” Ziegler, 249 F.3d at 512.
Under this standard, Liberty Mutual has failed to show that Rawe “undoubtedly can prove no set of
facts in support of [her] claim that would entitle [her] to relief.” Id. On the contrary, Rawe’s
complaint alleges violations of several subsections of the KUCSPA, as well as factual allegations
about lengthy delays in paying the bodily-injury-policy limits and additional demands for further
documentation of Rawe’s injuries that had previously been provided, such that a reasonable jury
could conclude that Liberty Mutual’s settlement behavior during the negotiation of the bodily-
injury-policy claim constituted unfair claims settlement practices. Rawe has also alleged that she
was harmed as a result of Liberty Mutual’s alleged violations of the KUCSPA. J.A. at 30-31
(Compl. at ¶¶ 99-100).
        We further conclude that a reasonable jury could find that the facts as alleged by Rawe,
which include having to wait nearly two years to receive an offer of the bodily-injury-policy limit
despite having provided Liberty Mutual with documentation of her permanent brain injuries and
medical expenses, constituted reckless indifference to her rights to recover as a claimant who both
parties agreed was harmed by Haggard, whom Liberty Mutual insured. See Glass, 996 S.W.2d at
452. We therefore cannot conclude that Liberty Mutual is entitled to judgment on the pleadings on
Rawe’s third-party KUCSPA claims. As we read Wittmer, Glass, and the Supreme Court of
Kentucky’s most recent decision in Knotts, Rawe’s pleadings are sufficient to defeat Liberty
Mutual’s motion for judgment on the pleadings. We reverse the district court’s dismissal of Rawe’s
third-party KUCSPA claims and remand these claims to the district court for further consideration.
                b. Rawe’s First-Party KUCSPA Claims
        Rawe’s first-party bad-faith claims stem from her allegations that Liberty Mutual’s refusal
to pay promptly her the policy limits under the UIM policy violated the KUCSPA. For the
reasoning expressed in section (II)(B)(1)(a) of this opinion, we affirm the district court’s grant of
judgment to Liberty Mutual on Rawe’s first-party KUCSPA claims based upon Liberty Mutual’s
alleged conduct pertaining to the UIM policy that predate the filing of her complaint in her first
lawsuit to recover under the UIM policy in October 2003. As explained above, our analysis in Kane
counsels us to conclude that these claims are barred by claim preclusion. Rawe could have brought
her KUCSPA claims based upon Liberty Mutual’s alleged settlement behavior occurring before she
filed her initial complaint when she filed suit to enforce the terms of the UIM policy. The final
judgment on the merits in that case “precludes the parties or their privies from relitigating issues that
were or could have been raised in that action.” Federated Dep’t Stores, 452 U.S. at 398.
         Rawe alleges additional first-party KUCSPA claims against Liberty Mutual, however, based
upon its alleged conduct that occurred after she filed her first lawsuit in October 2003. J.A. at 23-26
(Compl. at ¶¶ 53-75). For the reasons we explained in (II)(B)(1)(b), these claims are not barred by
claim preclusion. The Supreme Court of Kentucky’s recent decision in Knotts also breathes new
life into Rawe’s claims based upon Liberty Mutual’s alleged settlement misconduct occurring after
she instigated litigation. Knotts held that the KUCSPA “continues to apply to an insurer so long as
a[n] [insurance] claim is in play. As such, we hold that [the KUCSPA] applies both before and
during litigation.” Knotts, 2006 WL 1358718, at *4. The Supreme Court of Kentucky explained
that if the KUCSPA:
        were not applicable once litigation commenced, insurance companies would have the
        perverse incentive to spur injured parties toward litigation, whereupon the insurance
        company would be shielded from any claim of bad faith. Such a reading would undermine
        the statute’s fundamental purpose by allowing insurance companies to engage in whatever
No. 05-5485              Rawe et al. v. Liberty Mutual Fire Ins. Co. et al.                                 Page 11

         sort of practice – fair or unfair – they see fit to employ. The remedial nature of the statute
         requires that we attempt to effectuate its purpose, which, in a situation like this one, requires
         applying the statute to conduct occurring after the commencement of litigation of a tort
         action.
Id. We note that our previous resolution of this issue in Torres v. American Employers Insurance
Co., 151 F. App’x 402, 409 (6th Cir. 2005) (unpublished opinion), which relied upon the now-
reversed decision of Kentucky Court of Appeals in Knotts v. Zurich Insurance Co., No.2002-CA-
001846-MR, 2004 Ky.App. LEXIS 22, at *14 (Ky. Ct. App. 2004), to conclude that the KUCSPA
does not apply to alleged settlement misconduct after litigation has commenced, is no longer good
law after the Kentucky Supreme Court’s decision in Knotts.
         Despite the Supreme Court of Kentucky’s holding in Knotts, Liberty Mutual urges us to
affirm the district court’s grant of judgment on the pleadings because Liberty Mutual argues that its
actions occurring after litigation commenced that Rawe alleges violated the KUCSPA are
inadmissible to prove bad faith because that complained-of conduct is litigation conduct. Liberty
Mutual is correct that the Supreme Court of Kentucky’s recent decision in Knotts also adopted “an
absolute prohibition on the introduction” of evidence of litigation conduct as proof of an insurer’s
bad faith, as the Supreme Court of Kentucky reasoned that the Rules of Civil Procedure provide
adequate remedies “for any wrongdoing that may occur within the context of the litigation itself.”
Knotts, 2006 WL 1358718, at *9. Knotts, however, was careful to distinguish the evidence of an
insurer’s settlement behavior during litigation, which it held was permitted as evidence of bad faith,
from an insurer’s other litigation conduct. The court explained  that the distinguishing feature is that
the Rules of Civil Procedure provide remedies for the latter.6 In reasoning that the KUCSPA was
unnecessary to remedy litigation conduct, the Supreme Court of Kentucky stated in Knotts that “[w]e
are confident that the remedies provided by the Rules of Civil Procedure for any wrongdoing that
may occur within the context of the litigation itself render unnecessary the introduction of evidence
of litigation conduct.” Id.
         We must now determine whether Liberty Mutual’s alleged conduct after Rawe initiated
litigation that Rawe complains violated the KUCSPA constitutes improper settlement behavior, in
which case it may be considered evidence to support her KUCSPA claim, or whether it is improper
litigation conduct inadmissible to prove bad faith under the KUCSPA. We may grant Liberty
Mutual’s Rule 12(c) motion only if, taking all of Rawe’s well-pleaded allegations as true, Liberty
Mutual “is nevertheless clearly entitled to judgment” on these claims. Southern Ohio Bank, 479
F.2d at 480. For the following reasons, we conclude that Liberty Mutual is entitled to judgment on
the pleadings on Rawe’s first-party KUCSPA claims based upon Liberty Mutual’s failure to comply
with the March 2004 judgment until Rawe signed an additional release of all future claims.
        While at first glance this complained-of conduct may appear to be settlement behavior akin
to offering an unreasonably low settlement amount, Knotts’s requirement that we use the Rules of
Civil Procedure as the litmus test for inadmissible litigation conduct counsels us to conclude that
Liberty Mutual’s failure to pay the March 2004 judgment amount in the first lawsuit unless Rawe
waived additional claims is litigation conduct, which Knotts deems inadmissible to prove bad faith.
When confronted by Liberty Mutual’s inequitable and illegal refusal to pay Rawe the $45,000 as due
under the March 2004 judgment, Rawe turned, as she should have, to Federal Rule of Civil
Procedure 69 to force Liberty Mutual to execute the judgment. J.A. at 226-27 (Mot. for Issuance
of Writ of Exec.). The Federal Rules of Civil Procedure provided Rawe with a remedy, as Liberty
Mutual then complied with the judgment. These circumstances are therefore a quintessential

         6
          Knotts also explained that when deciding which evidence of an insurer’s settlement behavior is admissible to
prove bad faith, “courts must be careful to weigh the probativeness of the proposed evidence against its potential for
prejudice.” Id. at *10.
No. 05-5485           Rawe et al. v. Liberty Mutual Fire Ins. Co. et al.                    Page 12

example of the sort of bad litigation conduct that the Rules of Civil Procedure adequately remedy,
and that Knotts therefore deems inadmissible to prove bad faith. Knotts, 2006 WL 1358718, at *9.
         As it appears from the complaint that Rawe has not alleged any additional settlement
behavior to support her first-party bad-faith claim under the KUCSPA, we affirm the district court’s
grant of judgment to Liberty Mutual on Rawe’s first-party bad-faith claims under the KUCSPA.
Rawe’s claims based upon Liberty Mutual’s alleged settlement conducted that occurred prior the
filing of Rawe’s complaint in the first lawsuit are barred by claim preclusion. Liberty Mutual’s
failure to comply with the March 2004 judgment was remedied by Rawe’s reliance on the Federal
Rules of Civil Procedure, and therefore under Knotts, Rawe’s KUCSPA claims based upon this
behavior are insufficient as a matter of law to prove her bad-faith claim under the KUCSPA. We
affirm the dismissal of Rawe’s first-party bad-faith claims under the KUCSPA.
       4. Rawe’s Third-Party Bad-Faith Claim under the Kentucky Consumer Protection
          Act
        The district court was also correct in dismissing as a matter of law Rawe’s third-party claim
under the KCPA, because it is settled law in Kentucky that the KCPA does not apply to such claims.
According to the Supreme Court of Kentucky, “[t]he Consumer Protection Act has no application
to third-party claims.” Glass, 996 S.W.2d at 447. We affirm the district court’s dismissal of Rawe’s
third-party claim under the KCPA.
                                       III. CONCLUSION
         For the reasons discussed above, we REVERSE the grant of judgment on the pleadings to
Liberty Mutual on Rawe’s first-party bad-faith claims under Kentucky common law and the KCPA
based upon Liberty Mutual’s alleged conduct occurring after the filing of the complaint in the first
lawsuit in October 2003. We also REVERSE the grant of judgment on the pleadings to Liberty
Mutual on Rawe’s third-party bad-faith claims under the KUCSPA. We remand these claims to the
district court for further consideration consistent with this opinion. We AFFIRM the district court’s
grant of judgment on the pleadings to Liberty Mutual on Rawe’s remaining claims, as they are either
precluded by the final judgment in her first lawsuit or insufficient as a matter of law.