Filed: September 6, 2011 

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

No. 10-1439

(3:09-cv-00675-HEH)

BRYAN BROTHERS INCORPORATED, a Virginia corporation; JOSEPH 

KOBER; DORIS LANSING; KARL SCHOELLER; MILDRED SCHOELLER,

Plaintiffs - Appellants,

v.

CONTINENTAL CASUALTY COMPANY, an Illinois corporation,

Defendant - Appellee.

O R D E R

Upon Appellee’s motion for publication of the Court’s 

opinion,

IT IS ORDERED that the motion to publish is granted.

The Court amends its opinion filed March 24, 2011, as 

follows:

On the cover sheet, section 1 -- the status is changed from 

“UNPUBLISHED” to “PUBLISHED.”

On the cover sheet, section 6 -- the status line is changed 

to read “Affirmed by published opinion.”
2

On page 2 -– the reference to the use of unpublished 

opinions as precedent is deleted.

For the Court – By Direction

/s/ Patricia S. Connor

Clerk
PUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

BRYAN BROTHERS INCORPORATED, a 

VIRGINIA corporation; JOSEPH

KOBER; DORIS LANSING; KARL

SCHOELLER; MILDRED SCHOELLER,

Plaintiffs-Appellants,  No. 10-1439

v.

CONTINENTAL CASUALTY COMPANY,

an Illinois corporation,

Defendant-Appellee. 

Appeal from the United States District Court

for the Eastern District of Virginia, at Richmond.

Henry E. Hudson, District Judge.

(3:09-cv-00675-HEH)

Argued: January 25, 2011

Decided: March 24, 2011

Before MOTZ and WYNN, Circuit Judges, and

Irene C. BERGER, United States District Judge for the

Southern District of West Virginia, sitting by designation.

Affirmed by published opinion. Judge Wynn wrote the opinion, in which Judge Motz and Judge Berger concurred.
COUNSEL

ARGUED: Collin Jefferson Hite, MCGUIREWOODS, LLP,

Richmond, Virginia, for Appellants. Richard A. Simpson,

WILEY REIN, LLP, Washington, D.C., for Appellee. ON

BRIEF: Kenneth W. Abrams, MCGUIREWOODS, LLP,

Richmond, Virginia, for Appellants. Charles C. Lemley, Kimberly A. Ashmore, WILEY REIN, LLP, Washington, D.C.,

for Appellee.

OPINION

WYNN, Circuit Judge:

In this appeal, accounting firm Bryan Brothers, Incorporated, seeks coverage under a professional liability insurance

policy issued by Continental Casualty Company for liability

arising from illegal acts of a former Bryan Brothers’s

employee. Under the policy, it is a condition precedent to coverage that no insured has knowledge, prior to the inception of

the policy, of an act that is reasonably likely to become the

basis for a claim. Because Bryan Brothers had such knowledge, we conclude that the claims at issue are not covered.

Therefore, we affirm the district court’s grant of summary

judgment to Continental Casualty Company. 

I.

The parties stipulated all material facts. Continental Casualty Company issued a professional liability insurance policy

effective from July 1, 2008 to July 1, 2009 to cover certain

liabilities arising from Bryan Brothers’s accounting services.

In pertinent part, the "Coverage Agreements" provide:

A. In accordance with all the terms and conditions

of this policy, we will pay on your behalf all

2 BRYAN BROTHERS INC. v. CONTINENTAL CASUALTY
sums in excess of the deductible, up to our limits of liability, that you become legally obligated to pay as damages and claim expenses

because of a claim that is both first made

against you and reported in writing to us during

the policy period by reason of an act or omission in the performance of professional services

by you or by any person for whom you are

legally liable provided that:

. . .

2. prior to the effective date of this policy, none of

you had a basis to believe that any such act or

omission, or interrelated act or omission, might

reasonably be expected to be the basis of a claim

. . . .

("prior knowledge provision"). 

The policy also contains the following "Exclusion":

This Policy does not apply to:

. . .

D. any claim based on or arising out of a dishonest,

illegal, fraudulent, criminal or malicious act by

any of you. We shall provide you with a

defense of such claim unless or until the dishonest, illegal, fraudulent, criminal or malicious act

has been determined by any trial verdict, court

ruling, regulatory ruling or legal admission,

whether appealed or not . . . .

("bad acts exclusion"). Finally, the following appears under

the "Policy Conditions" heading:

BRYAN BROTHERS INC. v. CONTINENTAL CASUALTY 3
L. Innocent Insureds

If coverage under this Policy would be

excluded as a result of any criminal, dishonest, illegal, fraudulent, or malicious acts

of any of you, we agree that the insurance

coverage that would otherwise be afforded

under this Policy will continue to apply to

any of you who did not personally commit,

have knowledge of, or participate in such

criminal, dishonest, illegal, fraudulent or

malicious acts or in the concealment thereof

from us.

("innocent insureds provision"). The policy defines "you" as

the named insured (Bryan Brothers) and "any person who is

or becomes a partner, officer, director, associate, or employee

of the named insured, but only for professional services performed on behalf of the named insured." 

In February 2009, Bryan Brothers discovered that Deborah

Whitworth, the firm’s account clerk from 1999 to 2009, had

stolen funds from eight clients’ accounts. Whitworth’s thefts

began in 2002 and the last theft occurred sometime after July

1, 2008, during the policy period. The victims asserted tort

claims against Bryan Brothers.

In turn, Bryan Brothers filed for insurance coverage of the

victims’ claims but Continental Casualty Company denied

Bryan Brothers’s claim for coverage by letter dated March 16,

2009. Continental Casualty Company indicated that Whitworth fit within the policy’s definition of "you" because she

committed the thefts as an employee performing professional

services for Bryan Brothers. Because Whitworth "had reason

to believe as early as 2002, before the inception of the policy

on [7]-1-08, that her acts might be the basis of a claim, the

terms of the coverage agreements are not met and coverage is

precluded on that basis." In other words, Continental Casualty

4 BRYAN BROTHERS INC. v. CONTINENTAL CASUALTY
Company denied coverage under the prior knowledge provision because Whitworth had reason to believe, before the

effective date of the policy, that her thefts might become the

basis for claims. Bryan Brothers later settled with its affected

clients and brought this suit for coverage under the policy.

The parties filed cross-motions for summary judgment.

Bryan Brothers argued that the prior knowledge provision was

an exclusion from, as opposed to a condition precedent to,

coverage. Bryan Bros. Inc. v. Cont’l Cas. Co., 704 F. Supp.

2d 537, 540-41 (E.D. Va. 2010). And because Whitworth was

the only person with prior knowledge of her thefts, the innocent insureds provision saved coverage for any insured other

than Whitworth. Id. Continental Casualty Company, on the

other hand, argued that the prior knowledge provision was a

condition precedent that precluded coverage if unfulfilled. Id.

at 540. Further, Continental Casualty Company argued that

coverage was not denied because Whitworth’s acts were "illegal" under the bad acts exclusion; consequently, the innocent

insureds provision was not triggered to save coverage otherwise precluded by the prior knowledge provision. Id. at 541.

The district court granted summary judgment to Continental Casualty Company based on Whitworth’s prior knowledge. The bad acts exclusion and the innocent insureds

provision were therefore not applicable.1 The court also found

these provisions to be unambiguous, rejecting Bryan Brothers’s argument that they were ambiguous and must be construed in favor of coverage. Id. at 542. Bryan Brothers

appeals. 

1The district court also held that Whitworth’s thefts during the policy

period were "interrelated" to her pre-policy thefts. Therefore, the district

court determined that claims based on thefts during the policy period were

also precluded because of Whitworth’s prior knowledge. Id. at 542-43.

Bryan Brothers does not challenge that ruling on appeal. 

BRYAN BROTHERS INC. v. CONTINENTAL CASUALTY 5
II.

We review a grant of summary judgment de novo, viewing

all facts and inferences in favor of the nonmoving party.

Providence Square Assocs., L.L.C. v. G.D.F., Inc., 211 F.3d

846, 850 (4th Cir. 2000). Summary judgment is appropriate

if "there is no genuine dispute as to any material fact and the

movant is entitled to judgment as a matter of law." Fed. R.

Civ. P. 56(a). 

Virginia law governs this insurance dispute. Virginia courts

"‘interpret insurance policies, like other contracts, in accordance with the intention of the parties gleaned from the words

they have used in the document.’" Transcon. Ins. Co. v.

RBMW, Inc., 262 Va. 502, 512, 551 S.E.2d 313, 318 (2001)

(quoting Floyd v. N. Neck Ins. Co., 245 Va. 153, 158, 427

S.E.2d 193, 196 (1993)). "Because insurance policies usually

are drafted by insurers, [Virginia courts] construe ambiguous

policy language purporting to exclude certain occurrences

from coverage most strongly against the insurer." Va. Farm

Bureau Mut. Ins. Co. v. Williams, 278 Va. 75, 81, 677 S.E.2d

299, 302 (2009).

Virginia has long followed the rule that if the insured fails

to fulfill a condition of an insurance policy, the insurer’s coverage obligation is not triggered. See State Farm Mut. Auto.

Ins. Co. v. Arghyris, 189 Va. 913, 924-25, 55 S.E.2d 16, 21

(1949); Combs v. Hunt, 140 Va. 627, 643, 125 S.E. 661, 666

(1924); Va. Fire & Marine Ins. Co. v. J.I. Case Threshing

Mach. Co., 107 Va. 588, 590-91, 59 S.E. 369, 369-70 (1907).

"[I]f the condition is broken the policy is terminated, if the

insurer so elects." Arghyris, 189 Va. at 927, 55 S.E.2d at 22;

accord Fidelity-Phenix Fire Ins. Co. of N.Y. v. Pilot Freight

Carriers, Inc., 193 F.2d 812, 815-16 (4th Cir. 1952) (discussing the operation of conditions precedent to coverage under

North Carolina law).

On the other hand, an insured may seek coverage for an

event that is within the scope of the insuring clause but falls

6 BRYAN BROTHERS INC. v. CONTINENTAL CASUALTY
under a specific exclusion. In that scenario, the policy is not

avoided and another policy provision, such as a savings

clause, may preserve coverage. See Copp v. Nationwide Mut.

Ins. Co., 279 Va. 675, 683-84, 692 S.E.2d 220, 225 (2010)

(holding that insurer had a duty to defend insured for a claim

excluded by a homeowner’s policy but covered by an exception to the exclusion in an umbrella policy); see also Calmar

S.S. Corp. v. Scott, 345 U.S. 427, 433-35 (1953) (discussing

exclusions from coverage and exceptions in a war-risk maritime policy).

III.

Bryan Brothers argues that it is entitled to coverage under

the innocent insureds provision because it did not share prior

knowledge of Whitworth’s thefts. Bryan Brothers insists that

the prior knowledge provision is an exclusion from coverage

and that the innocent insureds provision saves coverage for

the firm. Conversely, Continental Casualty Company maintains that the prior knowledge provision is a condition precedent that precludes coverage if unsatisfied.

The plain language and structure of the policy convince us

that the prior knowledge provision is a condition precedent to

coverage. In the first coverage agreement clause, Continental

Casualty Company agrees to cover Bryan Brothers’s liability

on claims made during the policy period "provided that . . .

prior to the effective date of this policy, none of you had a

basis to believe that any such act or omission, or interrelated

act or omission, might reasonably be expected to be the basis

of a claim" (emphasis added). This language may be

rephrased to say that if any defined "you" knew prior to the

effective date of the policy that an act or omission might

become the basis for a claim, any claims arising from such

acts or omissions are not covered. Here, Bryan Brothers’s

lack of prior knowledge is a condition of Continental Casualty

Company’s agreement to cover Bryan Brothers’s liability

from acts predating the policy. Because Whitworth had prior

BRYAN BROTHERS INC. v. CONTINENTAL CASUALTY 7
knowledge, "[t]here has been a failure to fulfill a condition

upon which [Continental Casualty Company’s] obligation is

dependent." Arghyris, 189 Va. at 925, 55 S.E.2d at 21. 

This interpretation melds with the concept of fortuity, a

fundamental premise of insurance law. Insurers do not usually

contract to cover preexisting risks and liabilities known by the

insured. Thus, it is generally the insured’s duty to provide

truthful and complete information so the insurer can fairly

evaluate the risk it is contracting to cover. See, e.g., Combs v.

Equitable Life Ins. Co. of Iowa, 120 F.2d 432, 437 (4th Cir.

1941) (holding that an insured’s failure to disclose a heart

condition breached a condition precedent to coverage on a life

insurance policy); Arghyris, 189 Va. at 929, 55 S.E.2d at 23

(holding that an insured’s failure to provide complete and

timely information breached the policy’s cooperation clause,

a condition precedent to coverage); Va. Fire & Marine Ins.

Co. v. J.I. Case Threshing Mach. Co., 107 Va. 588, 590-91,

59 S.E. 369, 369-70 (1907) (stating that the insured’s failure

to disclose an encumbrance on his property breached the condition precedent that the insured property be unencumbered).

If the insured fails to comply with a clear condition required

by the insurer, it is typically not liable on the policy.

Here, the prior knowledge provision essentially makes fortuity a condition of coverage. The prior knowledge provision

indicates in clear and unambiguous language Continental

Casualty Company’s unwillingness to cover liability arising

from prior acts or omissions that any insured might reasonably expect to result in a claim. 

Because Continental Casualty Company denied Bryan

Brothers’s claim for failure of a condition precedent to coverage, we are not persuaded by Bryan Brothers’s argument for

coverage pursuant to the innocent insureds provision.

Although the facts of this case might have supported a denial

of coverage under the bad acts exclusion, there is no indication that coverage was denied on that basis. Thus, the inno8 BRYAN BROTHERS INC. v. CONTINENTAL CASUALTY
cent insureds provision, which appears to be an exception to

the bad acts exclusion, was not implicated. 

Even assuming arguendo that the innocent insureds provision could be considered an exception to the prior knowledge

provision, it is elemental that exclusions and exceptions in an

insurance policy cannot expand the scope of agreed coverage.

See Scott, 345 U.S. at 435 (explaining that overlapping exclusions and exceptions were plainly intended "to make certain

and doubly certain that the coverage of the policy as a whole

is in no event enlarged"); Stanley Martin Cos., Inc. v. Ohio

Cas. Grp., 313 F. App’x 609, 613 n.2 (4th Cir. 2009) (unpublished) (explaining that exclusions, and certain exceptions,

could not expand the scope of the insuring clause in a general

contractor’s liability policy) (citing Nationwide Mut. Ins. Co.

v. Wenger, 222 Va. 263, 267, 278 S.E.2d 874, 876 (1981)).

Therefore, the innocent insureds provision cannot provide

coverage that is precluded by the plain language of the prior

knowledge provision.

We reached a similar decision in TIG Insurance Co. v. Robertson, Cecil, King & Pruitt, 116 F. App’x 423 (4th Cir.

2004) (unpublished). There, a partner at a law firm represented on a written application for professional liability insurance that the firm was unaware of any act or omission that

might reasonably be expected to become the basis for a claim.

Prior to the application, the applicant-partner had misappropriated client funds without the firm’s knowledge. Id. at 424-

25. The affected clients sued the firm, which sought coverage

for liability on the clients’ claims. Id. Applying Virginia law,

we held that the insurer could rescind the policy based on the

applicant-partner’s misrepresentations. Id. at 426. We rejected

the argument that coverage was saved for partners innocent of

the misrepresentation because they did not "contract for additional protection in the case of a partner making misrepresentations on behalf of the partnership on the application form."

Id. at 427. The same is true here because Bryan Brothers was

BRYAN BROTHERS INC. v. CONTINENTAL CASUALTY 9
free to bargain for additional coverage against acts of its

employees.

Likewise, other courts have made the same interpretation of

identical policy language. In Professional Asset Strategies v.

Continental Casualty Co., No. 2:09-cv-1238-AKK, 2010 WL

4284991, at *1 (E.D. Ark. Aug. 27, 2010), an investment

firm’s employee stole money from client accounts without the

firm’s knowledge. The firm acquired professional liability

insurance after the thefts. When the firm discovered the

employee’s misconduct and its clients sued, the firm sought

coverage, which was denied because the employee had prior

knowledge of his thefts. Id. at *2. The court observed that

"coverage exists only if this [prior knowledge] precondition

is met, and is denied if anyone meeting the definition of ‘you’

has knowledge of what might reasonably be a potential

claim." Id. at *5 (first underline added). 

In other words, no coverage exists if any ‘you’ had

prior knowledge of the existence of a claim. Where

there is no prior knowledge and coverage exists, the

policy provides various exclusions, including [the

bad acts exclusion]. However, in cases where the

exclusion is because of ‘criminal, dishonest, illegal,

fraudulent or malicious’ acts of a ‘you,’ then the

‘innocent insured’ provision kicks in to restore coverage.

Id. at *7; accord Cont’l Cas. Co. v. Walker, No. 4:07cv00298

SWW, 2008 WL 8101840, at *4 (E.D. Ark. July 7, 2008)

(rejecting contention that an innocent insured clause provided

coverage for a claim not first made and reported during the

policy period).

Finally, we decline Bryan Brothers’s request to find the

pertinent language ambiguous and construe the policy in favor

of coverage. Williams, 278 Va. at 81, 677 S.E.2d at 302 ("[I]f

disputed policy language is ambiguous and can be understood

10 BRYAN BROTHERS INC. v. CONTINENTAL CASUALTY
to have more than one meaning, we construe the language in

favor of coverage and against the insurer."). But a plain reading of the pertinent policy language reveals that it is not susceptible to more than one meaning. Because the language of

the prior knowledge provision is unambiguous and structured

as a condition precedent to the coverage agreement, we will

not contort the language to find an ambiguity.

IV.

In sum, we hold that the prior knowledge provision is a

clear and unambiguous condition precedent to recovery on the

policy. Because Whitworth had prior knowledge of her thefts,

a condition precedent was unfulfilled, and the coverage agreement was not triggered. Additionally, exclusions and exceptions in the policy cannot provide coverage that is precluded

by the prior knowledge condition. Accordingly, we affirm the

grant of summary judgment for Continental Casualty Company.

AFFIRMED

BRYAN BROTHERS INC. v. CONTINENTAL CASUALTY 11