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Insurance Coverage – Synthetic Stucco Exclusion

By: Derek Hawkins//August 9, 2017//

Insurance Coverage – Synthetic Stucco Exclusion

By: Derek Hawkins//August 9, 2017//

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WI Court of Appeals – District I

Case Name: Kaitlin Woods Condominium Associates, Inc. v. Nautilus Insurance Company, et al.

Case No.: 2015AP423

Officials: Higginbotham, Sherman and Blanchard, JJ

Focus: Insurance Coverage – Synthetic Stucco Exclusion

This is an insurance coverage dispute between a condominium association and the insurer of a general contractor involving the proper interpretation of a synthetic stucco exclusion in a commercial general liability (CGL) insurance policy. The contractor, Kaitlin Woods, LLC, held a CGL policy issued by Nautilus Insurance Company at a time when the LLC oversaw construction of condominiums now owned by members of the Kaitlin Woods Condominium Association. The Association sued the LLC and Nautilus, alleging that as a result of the LLC’s poor management of the construction projects, and defective work by the LLC’s subcontractors, water leaked through the exteriors of all of the condominium buildings, causing property damage, and therefore, the Association is entitled to recover damages under the policy as a third party.

Nautilus moved for summary judgment in the circuit court, arguing that it has no duty to defend and indemnify the LLC based on an endorsement in the CGL policy that excludes coverage for claims of defective work on any part of the exterior of a building on which an “exterior insulation and finish system” had been applied, as in this case. As shorthand, we refer to the “exterior insulation and finish system” at issue as “synthetic stucco” because the exclusion refers to this term, and we refer to the endorsement as the “synthetic stucco exclusion.” The court agreed with Nautilus in its interpretation of the synthetic stucco exclusion, rejecting the Association’s arguments to the contrary.

On appeal, the Association argues that the synthetic stucco exclusion does not bar coverage for the LLC against the Association’s damage claims. As it did in the circuit court, Nautilus argues that the exclusion bars the Association’s damage claims against the LLC and its subcontractors. We conclude that, under a plain language interpretation, the synthetic stucco exclusion bars coverage for the Association’s claims against the LLC. We therefore affirm.

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Attorney Derek A. Hawkins is the managing partner at Hawkins Law Offices LLC, where he heads up the firm’s startup law practice. He specializes in business formation, corporate governance, intellectual property protection, private equity and venture capital funding and mergers & acquisitions. Check out the website at www.hawkins-lawoffices.com or contact them at 262-737-8825.

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