Camico Mutual Insurance Company v. Hess, Stewart, & Campbell, P.L.L.C.

Filing 36

MEMORANDUM OPINION AND ORDER granting in part and denying in part the parties' 19 and 21 MOTIONS for Summary Judgment; granting summary judgment in favor of Defendant to the extent Defendant argues it is entitled to the sub-limit of $10 0,000 under the 'known claims' endorsement, but denying the remainder of its 21 Motion for Summary Judgment; granting Plaintiff's 19 Motion for Summary Judgment except to the extent Defendant is entitled to coverage under the endorsement. Signed by Judge Robert C. Chambers on 3/8/2017. (cc: counsel of record; any unrepresented parties) (jsa)

IN THE UNITED STATES DISTRICT COURT FOR
THE SOUTHERN DISTRICT OF WEST VIRGINIA
HUNTINGTON DIVISION

CAMICO MUTUAL INSURANCE COMPANY,
Plaintiff,
v.

CIVIL ACTION NO. 3:16-2357

HESS, STEWART & CAMPBELL, P.L.L.C.,
Defendant.
MEMORANDUM OPINION AND ORDER
Plaintiff CAMICO Mutual Insurance Company filed this declaratory action against
Defendant Hess, Stewart & Campbell, PLLC., asking this Court to find it has no obligation to
defend or indemnify Defendant for claims arising out of the activities of one of Defendant’s
employees beyond a single $100,000 sub-limit in the policy. In Defendant’s Amended Answer and
Counterclaim, Defendant opposes Plaintiff’s request and asks this Court to declare that Plaintiff
must pay Defendant “past and future general and special damages, aggravation, and inconvenience
as well as attorney’s fees, costs, and expenses, net economic loss occasioned by the delay, statutory
damages, and pre-judgment and post-judgment interest[.]” Am. Answer and Countercl., at 8, ECF
No. 9. The parties have filed cross-motions for summary judgment. ECF Nos. 19 & 21. For the
following reasons, the Court DENIES, IN PART, and GRANTS, IN PART, both motions.
I.
FACTUAL AND PROCEDURAL HISTORY
The underlying facts of this case are not in dispute. Defendant provides professional
bookkeeping, accounting, and tax-related services and operates as a Professional Limited Liability
Company (PLLC) under West Virginia law. In late 2015, Defendant became aware of

discrepancies in the accounts of some of its clients. An internal investigation was performed, and
it was discovered that one of Defendant’s employees (referred to as Jane Doe) misappropriated
assets from at least as early as October 2010 through September 2015. 1 Multiple clients have
claims against Defendant, and Defendant gave timely notice of the claims to Plaintiff, its insurer.
Plaintiff accepted notice of the claims, but issued Reservation of Rights Letters dated October 18,
2015, January 11, 2016, and March 11, 2016.

In the letter dated October 18, 2015, Plaintiff agreed to defend Defendant against
the potential claims, subject to limitations set forth in the letter and a “reservation of the right to
assert the $100,000 Sub-Limit of Liability applicable to Claims arising from misappropriation,
misuse, theft, or embezzlement of funds.” Letter from Elizabeth M. Cauldwell of CAMICO to Eli
Wilson of Hess, Stewart &Campbell, PLLC, at 4, ECF No. 20-2 (Oct. 18, 2015) (italics original).
In the letter dated January 11, 2016, Plaintiff renewed its reservation of rights, but agreed to
provide Defendant a $100,000 sub-limit as an aggregate maximum amount for both
indemnification and defense. Letter from Mark Aubrey of CAMICO to James D. Lamp on behalf
of Hess, Stewart & Campbell, PLLC at 4, ECF No. 20-3 (Jan. 11, 2016). Similarly, in the March
11, 2016 letter, Plaintiff agreed to pay up to $100,000, but reserved its right to contest any request
by Defendant for additional coverage for indemnification and/or defense under the policy. Letter
from Susan Snowden of behalf of CAMICO to James D. Lamp on behalf of Hess, Stewart &
Campbell, PLLC at 1, ECF No. 32-2 (Mar. 11, 2016). In their cross-motions, Plaintiff and
Defendant sharply disagree as to the amount of coverage, if any, that is available under the policy.

1

According to Plaintiff, Jane Doe has been charged with three hundred and two (302)
counts of embezzlement, three hundred and twenty-six (326) counts of forgery, and three hundred
and twenty-six (326) counts of uttering.
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II.
STANDARD OF REVIEW
To obtain summary judgment, the moving party must show that there is no genuine
issue as to any material fact and that the moving party is entitled to judgment as a matter of law.
Fed. R. Civ. P. 56(a). In considering a motion for summary judgment, the Court will not “weigh
the evidence and determine the truth of the matter[.]” Anderson v. Liberty Lobby, Inc., 477 U.S.
242, 249 (1986). Instead, the Court will draw any permissible inference from the underlying facts
in the light most favorable to the nonmoving party. Matsushita Elec. Indus. Co., Ltd. v. Zenith
Radio Corp., 475 U.S. 574, 587-88 (1986).

Although the Court will view all underlying facts and inferences in the light most
favorable to the nonmoving party, the nonmoving party nonetheless must offer some “concrete
evidence from which a reasonable juror could return a verdict in his [or her] favor[.]” Anderson,
477 U.S. at 256. Summary judgment is appropriate when the nonmoving party has the burden of
proof on an essential element of his or her case and does not make, after adequate time for
discovery, a showing sufficient to establish that element. Celotex Corp. v. Catrett, 477 U.S. 317,
322-23 (1986). The nonmoving party must satisfy this burden of proof by offering more than a
mere “scintilla of evidence” in support of his or her position. Anderson, 477 U.S. at 252.
III.
DISCUSSION
As this Court sits by virtue of diversity jurisdiction, state substantive law controls
the Court’s analysis of the insurance policy. Nationwide Prop. & Cas. v. Comer, 559 F. Supp.2d
685, 690 (Mar. 27, 2008) (citation omitted). Under West Virginia law, “insurance policies are
controlled by the rules of construction that are applicable to contracts generally.” Payne v. Weston,

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466 S.E.2d 161, 166 (W. Va. 1995). Thus, insurance policies should be given their “plain, ordinary
meaning.” Aluise v. Nationwide Mut. Fire Ins. Co., 625 S.E.2d 260, 268 (W. Va. 2005) (internal
quotation marks and citations omitted). If the provisions “‘are clear and unambiguous[,] they are
not subject to judicial construction or interpretation, but full effect will be given to the plain
meaning intended.’” Id. (quoting, Syl., Keffer v. Prudential Ins. Co., 172 S.E.2d 714 (1970); other
citation omitted). However, where ambiguous terms exist, those terms “are to be strictly construed
against the insurance company and in favor of the insured.” Syl. Pt. 4, Nat’l Mut. Ins. Co. v.
McMahon & Sons, Inc., 356 S.E2d 488 (W. Va. 1987). 2 If ambiguous language exists in an
exclusionary provision, the language “will be strictly construed against the insurer in order that
the purpose of providing indemnity not be defeated.” Syl. Pt. 5, id. An ambiguity exists
“[w]henever the language of an insurance policy provision is reasonably susceptible of two
different meanings or is of such doubtful meaning that reasonable minds might be uncertain or
disagree as to its meaning[.]” Syl. Pt. 1, Prete v. Merch. Prop. Ins. Co., 223 S.E.2d 441 (W. Va.
1976). “The mere fact that parties do not agree to the construction of a contract does not render it
ambiguous. The question as to whether a contract is ambiguous is a question of law to be
determined by the court.” Am. States Ins. Co. v. Surbaugh, 745 S.E.2d 179, 186 (W. Va. 2013)
(quoting Syl. pt. 1, Berkeley Cnty. Pub. Serv. Dist. v. Vitro Corp. of Am., 162 S.E.2d 189 (W. Va.
1968)).

In their brief, Plaintiff first argues that all claims arising from the criminal activities
of Jane Doe are outside the scope of the insurance policy it issued to Defendant because Defendant

2

Overruled on other grounds by Parsons v. Halliburton Energy Serv., Inc., 785 S.E.2d 844
(W. Va. 2016).
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has failed to fulfill a condition precedent to coverage. Specifically, Plaintiff points to Section 1.A.1
of the Insuring Agreement of the Policy that provides it will pay
those sums that an Insured becomes legally obligated to pay as
Damages because of a Claim arising out of an Insured’s negligent
act, error or omission in rendering or failing to render Professional
Services performed after the Retroactive Date and before the end of
the Policy Period, provided that:
*

*

*

(b) the Claim does not arise from circumstances
which, prior to the effective date of the Policy
Period, any Insured might reasonably expect would
be the basis for a Claim[.]
Accountants Prof’l Liab. Ins. Policy, at 1 (I.A.1(b)), ECF No. 20-4, at 7 (italics original). The
policy further defines “an insured,” in part, as “[a] current or former . . . employee of a Named
Insured.” Id. at 3-4 (II.(b)) (italics original). In light of these provisions, Plaintiff argues that Jane
Doe was an insured under the policy who was aware prior to the effective date of the policy period
that her activities might reasonably serve as the basis of a claim. Therefore, Plaintiff argues
coverage does not exist for any claims arising or resulting from Jane Doe’s actions.

In support of its argument, Plaintiff cites the Fourth Circuit in Bryan Brothers Inc.
v. Continental Casualty Co., 660 F.3d 827 (4th Cir. 2011). In Bryan Brothers, the Fourth Circuit
considered a substantially similar insurance provision under Virginia law. As here, Bryan Brothers
was an accounting firm that sought coverage under a professional liability policy for liability that
arose from the illegal activities of a former employee. 660 F.3d at 828. The employee stole funds
from client accounts prior to, and during, the policy period. Id. at 829. The insurer, Continental
Casualty Insurance Company, asserted the policy contained a condition precedent to coverage that
it would pay proceeds “‘provided that: . . . prior to the effective date of this policy, none of you
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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 . . . .’” Id. at 828 (quoting “prior knowledge
provision” in the policy). The insurer denied coverage under this provision by claiming the
employee “had reason to believe, before the effective date of the policy, that her thefts might
become the basis for claims.” Id. at 829.

In considering the issues presented in the case, the Fourth Circuit looked to Virginia
law which has long held that “if the insured fails to fulfill a condition of an insurance policy, the
insurer’s coverage obligation is not triggered.” Id. at 830 (citations omitted). However, if a claim
falls “within the scope of the insuring clause, but falls under a specific exclusion[,] . . . the policy
is not avoided and another policy provision, such as a savings clause, may preserve coverage.” Id.
(citation omitted). Although Bryan Brothers argued it was entitled to coverage by virtue of the
“innocent insureds provision,” the Fourth Circuit disagreed and found “[t]he plain language and
structure of the policy convince us that the prior knowledge provision is a condition precedent to
coverage.” Id.

In doing so, the Fourth Circuit noted that the language at issue was in the first
coverage agreement clause and expressly stated coverage was available “‘provided that’” there
was no prior knowledge of an “act or omission, or interrelated act or omission, [that] might
reasonably be expected to be the basis of a claim.” Id. at 830-31 (quoting policy; italics added in
Bryan Bros.). Given this clear and unambiguous language, the Fourth Circuit held a lack of prior
knowledge was a condition to coverage and, because an employee had such “prior knowledge,
‘[t]here has been a failure to fulfill a condition upon which [Continental Casualty Company’s]

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obligation is dependent.’” Id. at 831 (quoting State Farm Mut. Auto. Ins. Co. v. Arghyris, 55 S.E.2d
16, 21 (Va. 1949)). In other words, if prior knowledge exists, coverage is unavailable under the
terms of the policy. As the Fourth Circuit explained, it is a fundamental principle of insurance that
insurers do not typically agree “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.” Id. (citations omitted).

As coverage was denied because Bryan Brothers did not fulfill the condition
precedent, and there was no evidence the claim was denied under a bad acts exclusion in the policy,
the Fourth Circuit further determined that “innocent insureds provision, which appear[ed] to be an
exception to the bad acts exclusion, was not implicated.” Id. Even if it was considered as an
exception to the prior knowledge provision, the Fourth Circuit stated “exclusions and exceptions
in an insurance policy cannot expand the scope of agreed coverage.” Id. (citations omitted). Thus,
if there is no coverage by virtue of the plain language of the prior knowledge provision, the fact
Bryan Brothers may be “innocent,” cannot create coverage.

Comparing Bryan Brothers to the facts of this case, the Court first finds that the
language quoted above is very similar to the language in Bryan Brothers and also appears in the
first coverage agreement clause. As in Bryan Brothers, the insurer agrees to pay certain claims
“provided that: . . . the Claim does not arise from circumstances which, prior to the effective date
of the Policy Period, any Insured might reasonably expect would be the basis for a Claim[.]”
Accountants Prof’l Liab. Ins. Policy, at 1 (I.A.1(b)), ECF No. 20-4, at 7 (italics original). Upon
review, the Court finds this language clear and unambiguous and, as in Bryan Brothers, a lack of

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prior knowledge is clearly a condition precedent to coverage. However, the fact this language
establishes a condition precedent does not end the Court’s inquiry because the parties have raised
additional issues and policy provisions that must addressed.

First, Defendant argues that Plaintiff should be estopped from asserting that no
coverage exists because Plaintiff agreed in its letter dated January 11, 2016, to provide Defendant
with the $100,000 sub-limit under the policy, and Plaintiff never asserted Defendant failed to meet
a condition precedent in its Reservation of Rights letters. In addition, in the letter dated March 11,
2016, Plaintiff said it would provide reimbursement under the sub-limit “up to the uncontested
amount of $100,000.00” Letter from Susan R. Snowden to James D. Lamp, at 1. Defendant asserts
it directly and reasonably relied upon their agreement and this “uncontested amount” in resolving
four underlying claims by clients. Thus, Defendant argues Plaintiff should now be estopped from
changing its position.

Estoppel applies when “a party is induced to act or refrain from acting to her
detriment because of her reasonable reliance on another party’s misrepresentation[.]” Syl. Pt. 1, in
part, Potesta v. U.S. Fid. & Guar. Co., 504 S.E.2d 135 (W. Va. 1998) (internal quotation marks
and citation omitted). In its Response, Plaintiff asserts that Defendant cannot demonstrate any
detrimental reliance in this case because Plaintiff is not seeking reimbursement of any of the funds
it tendered to Defendant. Therefore, Defendant’s reliance upon the funds is not at jeopardy, and
there are no grounds for estoppel. Given Plaintiff’s position that it is not seeking reimbursement,
the Court agrees with Plaintiff that Defendant cannot show it relied upon those funds to its
detriment in settling the underlying cases.

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In addition, the Court finds no merit to Defendant’s argument that Plaintiff should
be estopped from arguing there is no coverage under the policy by virtue of the condition precedent
because Plaintiff already agreed to pay Defendant the $100,000 sub-limit. In the letter dated
January 11, 2016, Plaintiff clearly and unequivocally stated that its decision to make the $100,000
sub-limit available to Defendant “does not constitute a waiver of any policy or coverage defenses
otherwise available to [Plaintiff].” Letter from Mark Aubrey to James D. Lamp, at 4. Additionally,
the letter provides that Plaintiff “retains and reserves the right to . . . seek a judicial declaration as
to its rights and obligations under the policy[.]” Id. at 5. Similarly, in the March 11, 2016 letter,
Plaintiff agreed to provide Defendant reimbursement under the sub-limit “up to the uncontested
amount of $100,000.00” but “reserve[d] its right to contest that any additional indemnity and/or
defense are available under the policy of insurance and preserves all policy provisions and
defenses.” Letter from Susan R. Snowden to James D. Lamp, at 1. Plaintiff further stated that the
payment “shall not be deemed a waiver of any such rights.” Id.3 Given Plaintiff’s unequivocal
reservation of its right to raise “all policy provisions and defenses,” the Court finds estoppel
improper.

Nevertheless, despite the condition precedent language, the parties agreed to a
modification to provide limited coverage for “Known Claims.” Pursuant to a separate
endorsement, the parties agreed that the following language would be added as paragraph 4 to
Section I. INSURING AGREEMENTS, A. Coverage for Damages and Reporting Requirements
of the Policy:

3

In fact, Plaintiff attached to its letter a copy of the declaratory judgment action it filed with
this Court on that same day.
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4.
Notwithstanding section I. INSURING AGREEMENTS, A.
Coverage for Damages and Reporting Requirements, paragraph
1.(b):
(a) if any Insured became aware of a Claim or a
Potential Claim either after the Retroactive Date
[February 28, 1987] of this Policy or during the
twelve (12) months prior to the Effective Date
[February 28, 2015] of this Policy Period,
whichever is later, and reports that Claim or
Potential Claim to the Company during the
Policy Period, that Claim or Potential Claim
shall be deemed timely reported to the Company
during the Policy Period; and
(b) the Limits of Liability applicable to such Claim
or Potential Claim shall be limited to the amount
stated in section I. INSURING AGREEMENTS,
C. Limits of Liability, Sub-Limits and
Deductibles, paragraph 1.c.
The Sub-Limit of Liability provided by this endorsement for
a Claim or Potential Claim reported pursuant to this paragraph I.A.4
shall apply even if: . . . (ii) any Insured has failed to disclose
knowledge of a Claim or Potential Claim on the renewal application
or supplemental application submitted to the Company for the
Policy Period during which such Claim or Potential Claim is
reported. Section VI. POLICY CONDITIONS, B. Innocent Insured
does not apply to any Claim or Potential Claim reported pursuant to
this paragraph I.A.4.
Ltd. Coverage for “Known Claims” Endorsement, at 1, ECF No. 1-1. The endorsement also
provides that the following paragraph, referenced as paragraph 1.c in subparagraph 4(b), be added
to section I. INSURING AGREEMENTS, C. Limits of Liability, Sub-Limits and Deductibles, 1.
Limit of Liability—Per Claim and Sub-Limit:
(c)
The maximum amount payable by the Company for
Damages and Claims Expenses for each covered Claim reported
during this Policy Period pursuant to section I. INSURING
AGREEMENTS, A. Coverage for Damages and Reporting
Requirements, paragraph 4., shall be either $100,000 or 25% of the
Per Claim Limit of Liability stated on the Declarations, whichever
is less. Amounts paid on behalf of an Insured pursuant to this
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paragraph are chargeable against the applicable Deductible and the
Limits of Liability.
Id. Upon review of this endorsement, it appears clear to the Court that, despite the fact Defendant
did not fulfill the condition precedent under the basic policy, the parties otherwise agreed
Defendant would be afforded limited coverage in a situation exactly like occurred here. That is,
where Jane Doe engaged in activities after the Retroactive Date of the policy and she knew these
activities gave rise to a potential claim and the information was reported to Plaintiff during the
policy period, there is coverage up to the sub-limit in paragraph 1.c, which in this case is $100,000.
Given that the plain and conspicuous language of the endorsement clearly sets forth this sub-limit,
the Court further finds it implausible for Defendant, an experienced business entity, realistically
to believe it had purchased at least $1,000,000 worth of coverage for its “known claims.”

As stated above, Plaintiff paid Defendant $100,000. In doing so, however, none of
the letters discussed above reference the “Known Claims” endorsement. Instead, the October and
January letters reference, inter alia, other paragraphs, including I. INSURING AGREEMENTS C.
Limits of Liability, Sub-Limits and Deductibles 1.b, which also contain sub-limits of $100,000 for
the misappropriation, misuse, theft, or embezzlement of funds. Notwithstanding the fact that
Plaintiff cited the wrong paragraphs in paying the $100,000, the funds nevertheless were paid and
are consistent with the sub-limit contained within paragraph 1.c., which unmistakably applies
under the clear language of the “Known Claims” endorsement.

Despite the sub-limit caps, Defendant asserts it is entitled to full coverage under an
“Innocent Insured” provision in the policy contained in Section VI. POLICY CONDITIONS, B.
This provision provides, in part:
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B. Innocent Insured
*

*

*

2.
If any coverage for a Claim would be void, excluded,
suspended or lost by as a result of any Insured’s failure to comply
with the reporting requirements of section I. INSURING
AGREEMENTS, A. Coverage for Damages and Reporting
Requirements, and Section VI. POLICY CONDITIONS, A.
Insured’s Duties Upon Notice of Claim or Potential Claim, then this
policy’s coverage will continue to apply to any innocent Insured
who did not fail to comply with the reporting requirements of this
policy, provided that:
(a) the innocent Insured promptly gives notice to the
Company in accordance with the provision of
section I. INSURING AGREEMENTS, A.
Coverage for Damages and Reporting
Requirements, and section VI. POLICY
CONDITIONS, A. Insured’s Duties Upon
Notice of Claim or Potential Claim, and
(b) the Named Insured is continuously insured by the
Company through the date upon which notice is
received by the Company.
Accountants Prof’l Liab. Ins. Policy, at 9 (Policy Conditions) (VI.B.2) (italics original). Defendant
argues that this provision indicates an intent to provide coverage for innocent insureds, such as
itself, which is broader than a simple exception to a bad acts exclusion. However, the “Known
Claims” endorsement unambiguously provides that that the “Section VI. POLICY CONDITIONS,
B. Innocent Insured does not apply to any Claim or Potential Claim reported pursuant to this
paragraph I.A.4.” Ltd. Coverage for ‘Known Claims’ Endorsement, at 1. Thus, the Court finds no
merit to Defendant’s argument it is entitled to full coverage under the “Innocent Insured” provision
because it simply does not apply.

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Defendant next argues that an ambiguity exists in the policy as highlighted by a
separate page. This page entitled “NOTICE” is in bold print and appears between the cover page
and the Policy Table of Contents. In part, it provides “[t]his policy does not cover prior acts
unless specifically included. The Company will not indemnify or defend Claims arising from
acts, errors or omissions which occurred prior to the policy’s Retroactive Date.” Accountants
Prof’l Liab. Ins. Policy, Notice, at i, ECF No. 20-4, at 3 (italics and bold original). The Court fails
to see how these statements create an ambiguity in the policy language at issue in this case. In fact,
the “NOTICE” concludes by stating: “This policy contains additional restrictions on coverage.
Please review this policy carefully, including the Declarations and all endorsements.” Id.
Upon review, there is simply nothing in this language that could cast doubt on the clarity of the
provisions previously discussed.

Finally, Defendant argues that the policy language limiting the amount of coverage
to less than the mandatory minimum coverage required by West Virginia law is inoperable because
it violates public policy. Defendant points to the fact that in 1996 the West Virginia Legislature
enacted legislation to allow certain professions 4 to create a “Professional Limited Liability
Company” (PLLC) to offer professional services to the general public. W. Va. Code § 31B-131305 (1996). In doing so, the Legislature gave the members of PLLCs certain immunity from
personal liability,5 but with the caveat that the PLLC

“Professional Service” includes those services rendered by attorneys, physicians,
podiatrists, dentists, optometrists, accountants, veterinarians, architects, engineers, osteopathic
physicians and surgeons, chiropractors, psychologists, social workers, acupuncturists, and land
surveyors. W. Va. Code § 31B-13-1301(3) (2007).
4

5

West Virginia Code § 31B-13-1305(b) provides:
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shall carry at all times at least one million dollars of professional
liability insurance which shall insure the limited liability company
and its members against liability imposed upon the company or any
of its members arising out of the performance of professional
services to patients or clients of the company by any of the members
or professional or nonprofessional managers or employees of the
limited liability company.
W. Va. Code § 31B-13-1305(e).6 Defendant states that this provision is designed to protect the
public with a guaranteed source of compensation for damages, while shielding members of the
PLLC from personal liability. Defendant argues Plaintiff’s limitation of coverage is repugnant to
the mandatory minimum coverage required by the statute and, therefore, should be struck, as the
West Virginia Supreme Court has done with respect to policies that fail to meet the mandatory
minimum amounts of coverage for automobile insurance policies. See, e.g., Dotts v. Taressa, 390
S.E.2d 568, 574 (W. Va. 1990) (holding that “an intentional tort exclusion in a motor vehicle

A member, manager, agent or employee of a professional limited
liability company shall not, by reason of being a member, manager,
agent or employee of a professional limited liability company, be
personally liable for any debts or claims against, or the acts or
omissions of the professional limited liability company or of another
member, manager, agent or employee of the professional limited
liability company.
W. Va. Code § 31B-13-1305(b). However, liability may attach for a “negligent or wrongful act or
omission in which the individual personally participated to the same extent as if the individual
rendered the professional service as a sole practitioner.” W. Va. Code § 31B-13-1305(d).
6

West Virginia Code § 31B-13-1305(c) provides that the PLLC
shall be liable for the acts or omissions of its members, managers,
agents and employees to the same extent to which any other limited
liability company would be liable for the acts or omissions of its
members, managers, agents and employees while they are engaged
in carrying on the professional limited liability company business.

W. Va. Code § 31B-13-1305(c).
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liability insurance policy is precluded under our Safety Responsibility Law up to the minimum
insurance coverage required therein. The policy exclusion will operate as to any amount above the
statutory minimum.”).

In response, Plaintiff argues the authority of a court to refuse to enforce a contract
on public policy grounds is limited to those situations in which the contract violates “some explicit
public policy” that is “well defined and dominant, and [which] is to be ascertained by reference to
the laws and legal precedents and not from general considerations of supposed public interests.”
St. Paul Mercury Ins. Co. v. Duke Univ., 849 F.2d 133, 135 (4th Cir. 1988) (internal quotation
marks and citations omitted). “‘The usual and most important function of the courts of justice is
rather to maintain and enforce contracts, than to enable parties thereto to escape from their
obligations on the pretext of public policy, unless it clearly appears that they contravene public
right or the general welfare.’” Id. (quoting Smithy v. Braedon, 825 F.2d 787, 791 (1987). Plaintiff
asserts that the policy here does not violate any explicit or well-defined public policy.

Upon review, the Court agrees with Plaintiff. Here, Defendant purchased an
Accountants Professional Liability Insurance Policy with a $2,000,000 liability limit, well over
the $1,000,000 limit established by West Virginia Code § 31B-13-1305. Thus, the face of the
policy exceeds the requirements of the statute. Setting aside the “known claims” endorsement, the
fact the basic policy does not cover claims that were known to the insured before the effective date
of the policy does not violate the statute. There is simply nothing in the statute that requires insurers
to issue policies covering claims which “arise from circumstances which, prior to the effective
date of the Policy Period, any Insured might reasonably expect would be the basis for a Claim[.]”

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Accountants Prof’l Liab. Ins. Policy, at 1 (I.A.1(b)) (italics original). Likewise, such a limitation
does not violate public policy in general. As recognized by the Fourth Circuit in Bryan Brothers,
“[i]nsurers do not usually contract to cover preexisting risks and liabilities known by an insured.”
660 F.3d at 831.7

Additionally, the Court notes that the statutory language of § 31B-13-1305
regulates PLLCs and places the burden on PLLCs to obtain the appropriate level of insurance. The
statute does not regulate insurers. If Defendant wanted to fully cover the claims precluded by the
basic policy, it could have purchased an Employment Practices Liability Policy, but it did not.
Instead, Defendant purchased a separate endorsement expressly entitled “LIMITED COVERAGE
FOR ‘KNOWN CLAIMS’ ENDORSEMENT” as part of its Accountants Professional Liability
Insurance Policy. By providing for additional coverage beyond the basic policy for “known
claims,” this endorsement certainly violates no public policy. Thus, given that neither the basic
policy nor the endorsement violate any public policy, the Court finds the terms of the contract
should be enforced.
IV.
CONCLUSION
Accordingly, having resolved the issues before the Court and for the foregoing
reasons, the Court GRANTS summary judgment in favor of Defendant to the extent Defendant
argues it is entitled to the sub-limit of $100,000 under the “known claims” endorsement, but
DENIES the remainder of its Motion for Summary Judgment. ECF No. 21. Conversely, the Court

The fact the policy at issue here contained a condition precedent for “known claims”
makes this case completely distinguishable from mandatory minimum requirements for
automobile policies for events that occur while the policy is in effect.
7

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GRANTS Plaintiff’s Motion for Summary Judgment except to the extent Defendant is entitled to
coverage under the endorsement. ECF No. 19.

The Court DIRECTS the Clerk to send a copy of this Order to counsel of record
and any unrepresented parties.
ENTER:

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March 8, 2017