Opinion ID: 613203
Heading Depth: 3
Heading Rank: 1

Heading: In accordance with all the terms and conditions

Text: of this policy, we will pay on your behalf all BRYAN BROTHERS INC. v. CONTINENTAL CASUALTY 3 sums in excess of the deductible, up to our lim- its of liability, that you become legally obli- gated 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 omis- sion 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 dishon- est, 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: 4 BRYAN BROTHERS INC. v. CONTINENTAL CASUALTY L. Innocent Insureds If coverage under this Policy would be excluded as a result of any criminal, dis- honest, 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 BRYAN BROTHERS INC. v. CONTINENTAL CASUALTY 5 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. 1 The 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. 6 BRYAN BROTHERS INC. v. CONTINENTAL CASUALTY