Summit Builders: Stucco Defect, Six Policy Years, and the Subcontractor Exception
Summit Builders completed a 12-unit townhome project in March 2019. In 2020, owners reported window leaks and Summit sent crews to caulk twice. In 2023, a forensic engineer found that Summit's stucco subcontractor had omitted the weather-resistive barrier behind three elevations, letting water in since occupancy. The estimate: $640,000 to remove and replace stucco and barrier, $90,000 for rotted sheathing, and $120,000 for mold remediation inside four units. The owners' association sued Summit in 2024. Summit has maintained an ISO occurrence-form CGL program continuously since 2019 - Policy A (2019-20) through Policy E (2023-24) - each $1 million each occurrence / $2 million general aggregate, each carrying the standard "your work" exclusion with the subcontractor exception. Coverage is disputed.
1. Which policy years are triggered, and why does the trigger theory change the answer for Summit?
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The defect is progressive, so the trigger theory drives both the number of responding policies and the money available.
- Injury-in-fact / continuous trigger. Water entered at occupancy in 2019 and continued. In continuous-trigger jurisdictions, Policies A through E are each triggered and share the loss, typically pro rata by time on the risk or jointly and severally with contribution rights. Five $2 million aggregates are in play.
- Manifestation trigger. Only the year the damage became reasonably apparent responds - arguably Policy B (2020, first reported leaks) or Policy E (2023, engineer's report). One aggregate, one deductible, far less capacity.
- Exposure trigger. Focuses on where the claimant was exposed, which fits poorly to a building defect and usually collapses into a continuous analysis.
Why it matters practically:
- Aggregate multiplication. Each triggered year brings a fresh $2 million aggregate; a single-year answer caps recovery.
- Erosion. If Policy B has already paid other claims, its aggregate may be partly consumed, making a multi-year answer essential.
- Known loss / prior knowledge. The 2020 caulking is the danger point. If Summit knew the barrier was missing, later policies may not respond under known-loss doctrine. The caulking supports Summit's argument that it believed the problem was window flashing, not a missing barrier - preserve that record.
Do not commit to one year until you know the forum's trigger rule.
2. How does the "your work" exclusion treat the three damage components - the stucco and barrier, the sheathing, and the mold?
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Split the loss by what was damaged, not by what caused it.
- Stucco and weather-resistive barrier, $640,000. This is the defective work itself. Exclusion j(5) bars damage to "that particular part" of real property on which the insured is performing operations; j(6) bars damage to "your work" included in the products-completed operations hazard. The cost of removing and replacing the omitted barrier is the cost of making Summit's work correct, and most courts hold that is not covered property damage regardless of who installed it.
- Rotted sheathing, $90,000. Damage to other property - the framing - caused by the subcontractor's faulty work. This is the classic "damage to other property" fact pattern and is generally covered.
- Mold remediation, $120,000. The mold is consequential damage to interior finishes and contents. Whether it is covered depends entirely on the fungi endorsement; check the form before promising anything.
- The subcontractor exception. It restores coverage that exclusion j(6) would otherwise remove because the work was performed by a subcontractor, not by Summit. It does not convert the cost of correcting the subcontractor's defective work into covered damages. Argue the exception for the sheathing and interior damage, not for the $640,000.
Expect the carrier to concede the sheathing and fight the stucco - then fight the mold on the endorsement.
3. What coverage issue does the mold raise, and what should you pull from the policy before responding to the carrier?
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Mold is a coverage question of its own, decided by endorsement rather than by the insuring agreement.
- Find the fungi endorsement. The ISO program offers both an absolute exclusion and a limited fungi-or-bacteria exclusion with a small sublimit, commonly $10,000 or $25,000, plus a separate aggregate. If the absolute exclusion is attached, the $120,000 mold item is gone and the remaining dispute shrinks to $730,000.
- Is the mold "property damage"? Yes, if it physically damages covered property. But property damage that the insured would not have suffered but for the defective work can still be excluded by the impaired-property and recall language.
- Watch the sublimit mechanics. A $25,000 fungi sublimit applies per policy period or per occurrence as the endorsement states, and it sits outside - or inside - the general aggregate depending on edition. With five triggered years, the sublimit may stack or may not.
- Remediation versus repair. Costs of accessing and removing moldy drywall can be characterized as repair of damaged property rather than cleanup; the carrier will argue the endorsement applies to all of it.
Before answering the carrier, obtain the declarations page, the fungi endorsement with its edition date, and the aggregate endorsement. The all-items answer may be worth less than the sheathing claim alone.