April 24, 2024 – Damage caused by a company’s intentional failure to repair a condominium complex can constitute an accidental “occurrence” that is covered by a commercial general liability (CGL) insurance policy, the Wisconsin Court of Appeals (District II) has held in McLaughlin v. Gaslight Pointe Condominium Association, Ltd., 2023AP1011 (April 17, 2024).
In 2021, John and Nancy McLaughlin, William Faust, and Jan Kielp (Owners) bought townhouses in a Racine condominium complex owned by Gaslight Pointe Condominium Association, Ltd. (Gaslight).
In February 2022, the Owners sued Gaslight in Racine County Circuit Court. They alleged that rotting exteriors and problems with siding, flashing, sheathing, and framing had allowed water to penetrate the interior of the buildings and moisture to become trapped behind the siding.
Damages and an Injunction
The Owners also alleged that Gaslight’s board of directors repeatedly neglected reports of structural damage to the buildings and failed to supervise repair work.
Jeff M. Brown , Willamette Univ. School of Law 1997, is a legal writer for the State Bar of Wisconsin, Madison. He can be reached by
email or by phone at (608) 250-6126.
The Owners claimed that Gaslight’s actions had caused the deterioration of their units, causing the units to lose value, and forced them to hire contractors to conduct inspections and make repairs.
The Owners sought damages, attorney fees, and an injunction that would require Gaslight to repair the defects to their units.
Enter the Insurer
After the Owners filed their lawsuit, Gaslight’s insurer, Auto-Owners Insurance Company (Auto-Owners) agreed to defend Gaslight.
Auto-Owners intervened in the case and filed a motion for summary judgment on the grounds that it had no duty to defend or indemnify Gaslight.
The circuit court granted Auto-Owners’ motion. Gaslight appealed.
‘Occurrence’ from Intentional Conduct
Judge Lisa Neubauer began her opinion for a three-judge panel by noting that the policies issued by Auto-Owners to Gaslight covered “bodily injury” and “property damage” caused by an “occurrence,” with “occurrence” defined as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.”
Auto-Owners argued that Gaslight’s decisions about how to maintain the complex were not an “occurrence” because they were not accidental.
But Judge Neubauer explained that under Wisconsin Supreme Court and Wisconsin Court of Appeals caselaw, an insured’s intentional conduct may spark a series of events that includes an accident that constitutes a covered occurrence, which in turn causes property damage.
She cited the following examples:
faulty installation of windows allowed water to leak into a building (Kalcthaler v. Keller Construction Co., 224 Wis. 2d 387, 591 N.W. 2d 169 (Ct. App. 1999);
engineer gave faulty advice which, when followed, allowed soil to settle around a warehouse (American Fam. Mut. Ins. Co. v. American Girl, Inc., 2004 WI 2, 268 Wis. 2d 16, 673 N.W.2d 65); and
faulty installation of in-ground pool caused the pool to crack (5 Walworth, LLC v. Engerman Contracting, Inc., 2023 WI 51, 408 Wis. 2d. 39, 992 N.W. 2d 31).
The facts set out in the Owners’ complaint were analogous to the facts in those cases, Judge Neubauer concluded.
“As a result of Gaslight’s decisions, the Owners allege, water continued to leak into the Owners’ units, causing damage to the units and their contents … The continued water intrusion is akin to the events that were occurrences in our prior cases,” Neubauer wrote.
The circuit court concluded that the continued water intrusion was not an occurrence under the Auto-Owners policies because it wasn’t accidental or unforeseen.
But Judge Neubauer pointed out that: 1) the Owners alleged that Gaslight took some action to remedy the water intrusion; and 2) there was no direct evidence Gaslight intended or expected the water intrusion to continue.
“To the contrary, as Gaslight notes, the fact that it took some steps to address the damage suggests that ‘it did not expect or intend to cause damage to [the Owners’] units,’” Neubauer wrote.
Consequently, Judge Neubauer reasoned, a jury could conclude that Gaslight didn’t foresee or expect the damage that the Owners suffered after it attempted to repair the buildings, in which case the continued water intrusion would count as an “occurrence” under the Auto-Owners policies.
Exclusions Don’t Apply
Auto-Owners argued that two damage-to-property exclusions applied to the damages asserted by the Owners.
The circuit court concluded the exclusions didn’t apply because the exclusions applied only to claims for damage to common areas in the condominium complex.
On appeal, Auto-Owners argued the following:
the preamble to the policy agreement stated that ‘insured’ included any person who qualified as an insured under Section II;
an endorsement to the CGL Coverage Form amended Section II included within insureds “each individual unit owner of the insured condominium, but only with respect to liability arising out of the ownership, maintenance or repair of that portion of the premises which is not reserved for that unit owner’s exclusive use or occupancy.”
Neubauer concluded that under the wording of the endorsement, the Owners were only “insureds” for purposes of the common areas.
While the Owners had alleged defects in some of the common areas, Judge Neubauer pointed out that they were only seeking damages for damage to their individual units.
“The Owners are not ‘insureds’ with respect to such liability, and thus, the exclusion does not bar coverage for their claims,” Neubauer claimed.
Fungi or Bacteria?
Auto-Owners also argued that coverage was barred by an exclusion for damage that would not have occurred without fungi or bacteria.
Judge Neubauer concluded that it was too soon to determine whether that exclusion applied.
Evidence suggested that there was mold in the Owners’ units. But it wasn’t clear how much of the alleged damage would not have occurred without fungi or bacteria.
“Further factual development on these issues is necessary before a determination can be made as to whether and to what extent the exclusion bars coverage for the Owners’ damages,” Neubauer wrote.
The Court of Appeals affirmed in part and reversed in part and remanded the case.
