Bryan Bros., Inc. v. Continental Casualty Co., No. 10-1439

Decided Mar. 24, 2011 – NOTE: This case was originally decided in March of 2011 by an unpublished opinion, but upon motion by the defendant was published September 6, 2011.

The accounting firm Bryan Brothers hired Continental to cover the firm against potential professional liability claims for July 2008–2009. One term of the agreement stipulated that no one at Bryan Brothers could have prior knowledge of an act that might be the basis of a claim. In February of 2009, it was discovered that one of the employees had been stealing money from clients account since 2002. When Bryan Brothers filed for coverage of the customers’ tort claims Continental denied the coverage based on the prior knowledge provision. Bryan Brothers argued that the employee’s crimes were a “bad act” but that the firm itself should still be covered by the innocent insured’s provision. The district court, however, agreed with Continental that the prior knowledge clause was a condition precedent to coverage and granted summary judgment in its favor.

The Fourth Circuit affirmed on appeal, finding that the “provided that” language in the prior knowledge provision showed unambiguously that it was a condition precedent that “precludes coverage if unsatisfied.” Because an insured employee of Bryan Brothers had prior knowledge of acts that gave rise to a claim before the policy came into effect, the insurer was able not only to deny coverage for the specific claims, but to avoid the policy completely.

Full Opinion

-C. Alexander Cable

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