John McLaughlin v. Gaslight Pointe Condominium Association, LTD

2024 WI App 30

COURT OF APPEALS OF WISCONSIN
PUBLISHED OPINION

Case No.: 2023AP1011

Complete Title of Case:

JOHN MCLAUGHLIN, NANCY MCLAUGHLIN, WILLIAM FAUST
AND JAN KIELP,

PLAINTIFFS,

V.

GASLIGHT POINTE CONDOMINIUM ASSOCIATION, LTD,

DEFENDANT-APPELLANT,

V.

AUTO-OWNERS INSURANCE COMPANY,

INTERVENOR-RESPONDENT.

Opinion Filed: April 17, 2024
Submitted on Briefs: January 26, 2024
Oral Argument:

JUDGES: Gundrum, P.J., Neubauer and Lazar, JJ.
Concurred:
Dissented:

Appellant
ATTORNEYS: On behalf of the defendant-appellant, the cause was submitted on the
briefs of Anthony J. Anzelmo and Douglas M. Raines, of Husch
Blackwell LLP, Milwaukee.

Respondent
ATTORNEYS: On behalf of the intervenor-respondent, the cause was submitted on the
brief of William R. Wick and Patrick M. McDonald, of Nash, Spindler,
Grimstad & McCracken LLP, Waukesha.

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2024 WI App 30

COURT OF APPEALS
DECISION NOTICE
DATED AND FILED This opinion is subject to further editing. If
published, the official version will appear in
the bound volume of the Official Reports.
April 17, 2024
A party may file with the Supreme Court a
Samuel A. Christensen petition to review an adverse decision by the
Clerk of Court of Appeals Court of Appeals. See WIS. STAT. § 808.10 and
RULE 809.62.

Appeal No. 2023AP1011 Cir. Ct. No. 2022CV120

STATE OF WISCONSIN IN COURT OF APPEALS

JOHN MCLAUGHLIN, NANCY MCLAUGHLIN, WILLIAM FAUST AND
JAN KIELP,

PLAINTIFFS,

V.

GASLIGHT POINTE CONDOMINIUM ASSOCIATION, LTD,

DEFENDANT-APPELLANT,

V.

AUTO-OWNERS INSURANCE COMPANY,

INTERVENOR-RESPONDENT.

APPEAL from an order of the circuit court for Racine County:
DAVID W. PAULSON, Judge. Affirmed in part; reversed in part and cause
remanded.
No. 2023AP1011

Before Gundrum, P.J., Neubauer and Lazar, JJ.

¶1 NEUBAUER, J. Gaslight Pointe Condominium Association, Ltd.
(Gaslight) appeals from an order of the circuit court granting a motion for
declaratory/summary judgment filed by Auto-Owners Insurance Company (Auto-
Owners). The circuit court concluded that Auto-Owners does not owe duties to
defend or indemnify Gaslight against claims asserted by the owners of two
condominium units at the Gaslight Pointe condominium development which were
allegedly damaged as the result of water intrusion. Gaslight appeals, arguing that
coverage exists under both a Commercial General Liability (CGL) Coverage Form
and a Directors and Officers Errors and Omissions (E&O) Coverage Endorsement
in Auto-Owners’ policy.

¶2 As explained in greater detail below, we conclude that the CGL
Coverage Form potentially covers some of the Owners’ claimed damages. The form
provides coverage for “property damage” caused by an “occurrence” or accident.
As our supreme court recently recognized, an intentional act by an insured can lead
to an occurrence—an accident—that causes property damage.
5 Walworth, LLC v. Engerman Contracting, Inc., 2023 WI 51, ¶35, 408 Wis. 2d
39, 992 N.W.2d 31. Here, while Gaslight allegedly made certain decisions
regarding building maintenance and repairs, a reasonable jury could conclude that
those decisions were not made to intentionally allow water to continue to infiltrate
the buildings. That continued water intrusion could be an accident and constitute
an “occurrence” that caused “property damage”—physical injury to the Owners’
tangible property. Moreover, Auto-Owners has failed to persuade us that several
exclusions in the CGL Coverage Form preclude coverage for all of the Owners’
claimed damages.

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No. 2023AP1011

¶3 However, we agree with the circuit court that coverage is not available
under the E&O Coverage Endorsement. The endorsement’s insuring agreement
applies to a limited category of compensatory damages and is also subject to an
exclusion for “property damage.” Gaslight has not shown that its claimed damages
could be covered under the limited definition and exclusion. Nonetheless, because
we conclude that coverage for some of the claimed damages is available under the
CGL Coverage Form, Auto-Owners must continue to defend Gaslight in this case.
Based upon these conclusions, we affirm the court’s order in part, reverse in part,
and remand this case for further proceedings consistent with this opinion.

BACKGROUND

I. The Claims Against Gaslight

¶4 John McLaughlin, Nancy McLaughlin, William Faust, and Jan Kielp
(collectively, Owners) filed a complaint against Gaslight in February 2022 seeking
damages and injunctive relief in connection with alleged defects and damages in
their townhome condominium units at Gaslight Pointe, a condominium
development in Racine, Wisconsin. Gaslight, a non-stock Wisconsin corporation,
serves as the condominium association for Gaslight Pointe under Gaslight Pointe’s
governing documents and WIS. STAT. ch. 703 (2021-22).1

¶5 According to the complaint, the McLaughlins and Faust/Kielp are
couples who purchased townhome units at Gaslight Pointe in 2021. Their claims
arise out of “serious and widespread water infiltration and associated issues”
throughout Gaslight Pointe. The Owners allege that “the common areas on or

1
All references to the Wisconsin Statutes are to the 2021-22 version unless otherwise
noted.

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No. 2023AP1011

around [their] respective units are in disrepair and in need of major repairs, and have
caused and continue to cause damage to [Owners’] properties.” A report attached
to the complaint documenting observations made during a May 2018 inspection at
Gaslight Pointe discusses rotted exterior components and issues with siding,
flashing, sheathing, and framing that, according to the report, likely allowed water
to intrude into the interior of the buildings and moisture to be trapped behind the
siding.

¶6 The Owners allege that Gaslight’s board of directors “has established
a pattern of neglecting reports of structural damage to the buildings[,] engaging
unqualified contractors[,] and failing to supervise work.” For example, the Owners
allege that one “small company” was brought in to “replac[e] wood on some units
where infiltration was too bad to ignore,” but this work “was never supervised or
re-inspected[,] … does not appear to be permitted, was clearly incomplete, and in
many cases ineffective given the amount of issues remaining” in the Owners’ units.
The Owners also allege that the board “established a practice of denying
responsibility for the maintenance of certain common elements[,] e.g.[,] garage
doors.”

¶7 The Owners allege that Gaslight’s board of directors knew
deficiencies in the condominium buildings needed to be addressed years before the
Owners purchased their units but have not taken the steps necessary to fully resolve
these issues. The Owners assert that Gaslight’s failure in this regard is a breach of
Gaslight Pointe’s governing declaration and bylaws, which require Gaslight to
maintain and repair common areas and elements of the condominium. They allege
that this breach has caused their units to deteriorate physically and lose value and
has forced them to hire contractors to inspect and repair the defects. The Owners
seek damages “including but not limited to out-of-pocket expenses incurred in

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No. 2023AP1011

investigating and repairing various defects and damages,” attorney’s fees, and an
injunction compelling Gaslight to complete the maintenance and repairs necessary
to address the defects damaging the Owners’ units.

¶8 The specific defects at issue and damages sought by the Owners were
further itemized in discovery. The Owners describe the McLaughlins’ unit as being
“in an advancing state of disrepair” due to: (1) leaky, nonfunctional, and rotting
windows, siding, soffits, fascia, and gutters that allow water and rodents into the
unit; (2) water intrusion through the roof which led to “significant water damage”
in the office and garage, including a partial collapse of the garage ceiling;
(3) “widespread mold” in the unit; and (4) water staining and discoloration of
carpets within the unit. The Owners allege that Gaslight “suggested certain
contractors address discrete issues within the McLaughlins’ unit [but] never
suggested an appropriate response to the systemic problems.” In addition to the
costs to repair this damage, the McLaughlins seek to recover certain “out-of-pocket
losses due to [Gaslight]’s breach of its obligation to maintain the common elements
at the Townhomes,” including costs for environmental testing, consulting, structural
engineering, furniture storage, legal fees, homeowner’s association fees, property
taxes, homeowner’s insurance premiums, supplies, and a co-pay for a “CT
Diagnostic Scan” for Mr. McLaughlin.2

¶9 The Faust/Kielp unit is alleged to have “similar defects and damages,
although [it] is not in the advanced state of disrepair as the McLaughlins’ unit.” In
written discovery responses, Faust and Kielp identified the following defects in their

2
The Owners stated in discovery that they were not currently making any claims for
personal injury but reserved their right to do so “for example, if [Gaslight] fails to remediate the
mold and poor air quality and Mr. McLaughlin’s breathing issues fail to improve.” We assume this
is still the Owners’ position.

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No. 2023AP1011

unit: (1) “roof leaks”; (2) “mold and air quality issues”; (3) “rotting wood and mold
around sliding glass door trim”; (4) “staining”; and (5) “a leak through the ceiling
vent in the loft area.” In addition to repair costs, Faust/Kielp seek recovery of the
following “out-of-pocket losses”: (1) “Inability to move in fully upstairs/mold
study/moving costs upstairs increased by 20%, $1,000”; (2) legal fees; and
(3) consulting costs.

¶10 After the Owners commenced this lawsuit, Auto-Owners agreed to
defend Gaslight while reserving its rights to contest coverage. Thereafter, Auto-
Owners intervened in the case and filed a motion for declaratory/summary
judgment, arguing that it had no duty to defend or indemnify Gaslight with respect
to the Owners’ claims.

II. The Auto-Owners Policy

¶11 Auto-Owners issued three Tailored Protection Insurance policies to
Gaslight covering a total policy period June 27, 2020, to June 27, 2023. The parties
agree that the language in the three policies is identical or substantially similar in all
material respects. Accordingly, we follow the parties’ lead in referring to only one
“policy.”

¶12 Although Gaslight is a non-stock corporation, the named insured
listed on the Declarations page of the policy is “Gaslight Pointe Condo Assoc LLC,”
which the policy identifies as a “Limited Liab Corp.” Gaslight contends that it is
the named insured and that the policy mistakenly identifies it as a limited liability
company. Auto-Owners does not appear to dispute the point but argues that the
policy’s identification of Gaslight as an LLC bears on the application of several
exclusions. At this point, we note only what appears on the Declarations page. We
address the legal implications of that language below.

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No. 2023AP1011

A. The CGL Coverage Form

¶13 The CGL Coverage Form contains an insuring agreement requiring
Auto-Owners to “pay those sums that the insured becomes legally obligated to pay
as damages because of ‘bodily injury’ or ‘property damage’ to which this insurance
applies.” The insuring agreement provides further that the policy applies to “‘bodily
injury’ or ‘property damage’ [that] is caused by an ‘occurrence.’” “Property
damage” is defined in part to mean “[p]hysical injury to tangible property, including
all resulting loss of use of that property.” An occurrence under the policy is “an
accident, including continuous or repeated exposure to substantially the same
general harmful conditions.”

¶14 The insuring agreement is subject to multiple exclusions, two of
which are relevant here. First, the CGL Coverage Form excludes coverage for
“Damage to Property” as follows:

This insurance does not apply to:

….

j. Damage To Property

“Property Damage” to:

(1) Property you own, rent, or occupy, including any costs
or expenses incurred by you, or any other person,
organization or entity, for repair, replacement,
enhancement, restoration or maintenance of such
property for any reason, including prevention of injury
to a person or damage to another’s property;

….

(4) Personal property in the care, custody or control of the
insured[.]

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No. 2023AP1011

The word “you” in the CGL Coverage Form “refer[s] to the Named Insured shown
in the Declarations, and any other person or organization qualifying as a Named
Insured under this policy.” The CGL Coverage Form states further that “[i]f you
are designated in the Declarations as … [a] limited liability company, you are an
insured. Your members are also insureds, but only with respect to the conduct of
your business.” The scope of who is an insured under the CGL Coverage Form is
also expanded by an endorsement to include “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.”

¶15 The second exclusion pertains to damage caused by fungi or bacteria.
In relevant part, that exclusion states as follows:

This insurance does not apply to:

Fungi Or Bacteria

a. “Bodily injury” or “property damage” which would not
have occurred, in whole or in part, but for the actual,
alleged or threatened inhalation of, ingestion of, contact
with, exposure to, existence of, or presence of, any
“fungi” or bacteria on or within a building or structure,
including its contents, regardless of whether any other
cause, event, material or product contributed
concurrently or in any sequence to such injury or
damage.

b. Any loss, cost or expenses arising out of the abating,
testing for, monitoring, cleaning up, removing,
containing, treating, detoxifying, neutralizing,
remediating or disposing of, or in any way responding
to, or assessing the effects of, “fungi” or bacteria, by any
insured or by any other person or entity.

The exclusion defines “fungi” to include mold.

B. The E&O Coverage Endorsement

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¶16 The E&O Coverage Endorsement begins with an insuring agreement
that obligates Auto-Owners to “pay those sums the insured becomes legally
obligated to pay as ‘damages’ because of any negligent act, error, omission or
breach of duty directly related to the management of the premises, shown in the
Declarations, which occurs during the policy period.” The term “damages” in the
endorsement is limited to “actual compensatory damages for loss suffered but does
not include fines, taxes or any other cost or expense assessed against any insured.”
The endorsement excludes coverage for, among other things, “‘[b]odily injury’,
‘property damage’ or ‘personal and advertising injury[.]’”

III. The Circuit Court’s Ruling

¶17 The circuit court held a hearing on Auto-Owners’ motion in May
2023. After hearing arguments from the parties, the court concluded that the policy
did not cover the Owners’ claimed damages. With respect to the CGL Coverage
Form, the court concluded that although the claimed damage to the Owners’ units
constituted property damage, it had not been caused by an occurrence but instead
by Gaslight’s “reasoned decisions” to delay making repairs to the buildings, which
meant that the resulting water intrusion was “not something that happened
accidentally, happened suddenly, or was unforeseen.” To the extent there was an
occurrence, however, the circuit court concluded that the “Damage To Property”
exclusion would not bar coverage because “that exclusion applies to common
elements and does not apply to the individual element of the insured’s inside
property.” In addition, the court declined to consider whether the “Fungi Or
Bacteria” exclusion applied “because we don’t know the extent of [the Owners’
claimed] damages that might occur or how.”

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No. 2023AP1011

¶18 Turning to the E&O Coverage Endorsement, the circuit court
determined that “there is an initial grant of coverage” under that portion of the policy
but that the exclusions for “property damage” and “bodily injury” barred coverage.
Based on its conclusions, the court entered an order granting Auto-Owners’ motion
and declaring that it had no duty to defend or indemnify Gaslight against the
Owners’ claims.

STANDARD OF REVIEW

¶19 Insurers may seek determinations of their obligations to their insureds
through summary judgment or declaratory judgment. Young v. West Bend Mut.
Ins. Co., 2008 WI App 147, ¶6, 314 Wis. 2d 246, 758 N.W.2d 196. “Under either
procedural vehicle, our standard of review is de novo because we must interpret and
apply the terms of [Auto-Owners’] policy.” See Wiegert v. TM Carpentry, LLC,
2022 WI App 28, ¶19, 403 Wis. 2d 519, 978 N.W.2d 207.

¶20 “The methodology governing summary judgment is well-established
and we need not repeat it in its entirety.” Progressive N. Ins. Co. v. Jacobson, 2011
WI App 140, ¶7, 337 Wis. 2d 533, 804 N.W.2d 838. Summary judgment is
appropriate only if “there is no genuine issue as to any material fact and … the
moving party is entitled to a judgment as a matter of law.” WIS. STAT. § 802.08(2).

DISCUSSION

¶21 Liability insurance policies typically impose two main duties—the
duty to defend an insured against claims for damages and the duty to indemnify, or
“cover,” the insured if it is found liable. Johnson Controls, Inc. v. London Mkt.,
2010 WI 52, ¶28, 325 Wis. 2d 176, 784 N.W.2d 579. “The duty to indemnify and
the duty to defend are separate contractual obligations.” Id. Ordinarily, whether an

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insurer has a duty to defend is determined through application of the four corners
rule, which limits this court’s analysis to the allegations in the complaint and the
terms of the policy. Water Well Sols. Serv. Grp., Inc. v. Consolidated Ins. Co.,
2016 WI 54, ¶15, 369 Wis. 2d 607, 881 N.W.2d 285. However, where an insurer
provides a defense and seeks a determination of its coverage obligation, a circuit
court may look beyond the complaint and consider relevant extrinsic evidence in
making that determination. 5 Walworth, 408 Wis. 2d 39, ¶13 (stating that where
insurer tenders a defense and seeks summary judgment as to coverage, courts base
their analysis “on the full record, not just the complaint”). If the record forecloses
any possibility of coverage, the insurer no longer has a duty to defend the insured.
Pamperin Rentals II, LLC v. R.G. Hendricks & Sons Constr., Inc., 2012 WI App
125, ¶5, 344 Wis. 2d 669, 825 N.W.2d 297.

¶22 Thus, we review the pleadings and submissions provided on summary
judgment to determine whether coverage exists, or may exist, if Gaslight is
ultimately found liable to the Owners. See Riverback Farms, LLC v. Saukville
Feed Supplies, Inc., 2023 WI App 40, ¶9, 409 Wis. 2d 14, 995 N.W.2d 257, review
denied (WI Dec. 12, 2023) (No. 2021AP670).

¶23 Our analysis proceeds in three steps. “First, we determine if the policy
‘makes an initial grant of coverage.’” 5 Walworth, 408 Wis. 2d 39, ¶16 (quoting
American Fam. Mut. Ins. Co. v. American Girl, Inc., 2004 WI 2, ¶24, 268 Wis. 2d
16, 673 N.W.2d 65). If it does not, our analysis ends; if it does, we then analyze
whether any exclusions preclude coverage. 5 Walworth, 408 Wis. 2d 39, ¶16.
Finally, if an exclusion applies, we consider “whether any exception to that
exclusion reinstates coverage.” Id. (citation omitted). In interpreting policy
language and applying it to the particular facts presented, we aim to give effect to
the contracting parties’ intent and construe the language “as it would be understood

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No. 2023AP1011

by a reasonable person in the position of the insured.” Barrows v. American Fam.
Ins. Co., 2014 WI App 11, ¶6, 352 Wis. 2d 436, 842 N.W.2d 508 (2013).

I. The CGL Policy

A. The Insuring Agreement

¶24 The CGL Coverage Form’s insuring agreement provides coverage for
“property damage” that is caused by an “occurrence.” The circuit court concluded
that the alleged damage to the Owners’ units constitutes “property damage” because
“there is physical injury to tangible property.” Auto-Owners does not challenge this
conclusion on appeal. Thus, we focus on whether that property damage was caused
by an occurrence.

¶25 An “occurrence” under the policy is “an accident, including
continuous or repeated exposure to substantially the same general harmful
conditions.” Although the policy does not define the word “accident,” “Wisconsin
courts have interpreted identical policy language many times.” 5 Walworth, 408
Wis. 2d 39, ¶34. “Generally, an ‘accident’ is ‘an event or condition occurring by
chance or arising from unknown or remote causes,’ or ‘an event which takes place
without one’s foresight or expectation.’” Id. (quoting American Girl, 268 Wis. 2d
16, ¶37).

¶26 Auto-Owners contends that Gaslight’s “reasoned decisions regarding
how to (or how not to) maintain the premises” are not a covered occurrence because
they were not an accident. Gaslight argues that even if its decisions regarding
maintenance and repairs “could be viewed as deliberate,” Wisconsin courts have
recognized that such decisions can still lead to an occurrence.

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No. 2023AP1011

¶27 We agree with Gaslight’s argument concerning whether there is an
“occurrence” here. In a line of decisions, Wisconsin courts have explained that
although an insured’s deliberate or intentional conduct may not itself constitute an
occurrence, it may “set in motion a chain of events that includes an accident, a
covered occurrence, causing property damage.” Riverback Farms, 409 Wis. 2d 14,
¶17. For example, in Kalchthaler v. Keller Construction Co., 224 Wis. 2d 387,
397, 591 N.W.2d 169 (Ct. App. 1999), we concluded that a similar insuring
agreement covered allegations that faulty installation of windows at a residential
facility allowed water to leak into the building, damaging its interior and contents,
because the leaks were an accident. In American Girl, a soils engineer provided
faulty advice that led to the settlement of soil surrounding a warehouse, which in
turn damaged the building. 268 Wis. 2d 16, ¶¶13-14. Relying on Kalchthaler, our
supreme court concluded that the “inadequate site-preparation advice,” though
presumably given volitionally, led to an occurrence—the soil settlement—which
caused property damage. American Girl, 268 Wis. 2d 16, ¶¶38, 48.

¶28 More recently, 5 Walworth involved claims arising from the allegedly
faulty installation of an in-ground swimming pool, which caused the pool to crack
and allowed water to leak into the surrounding soil. 408 Wis. 2d 39, ¶9. Our
supreme court held that although the contractor’s faulty work was not itself an
occurrence, the resulting “cracks, leakage, and soil damage could constitute
accidents—unexpected and unforeseen events—caused by improper installation.”
Id., ¶36. Finally, in Riverback Farms, we concluded that an insured’s intentional
substitution of one ingredient for another in a cattle feed mixture could have caused
an unforeseen or unexpected magnesium deficiency in the cattle that consumed the
feed, which would be an occurrence. 409 Wis. 2d 14, ¶¶5, 18.

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No. 2023AP1011

¶29 The fact pattern in the present case follows the same path as the cases
discussed above: (1) an insured’s conduct leads to (2) an event that (3) causes
damage. Here, Gaslight allegedly made certain decisions regarding maintenance
and repair work to the condominium buildings. The Owners allege that Gaslight
“neglect[ed] reports of structural damage to the buildings; engag[ed] unqualified
contractors” to fix the defects; “and fail[ed] to supervise [the repair] work.” They
allege that Gaslight has “suggested certain contractors [to] address discrete issues
within the McLaughlins’ unit, [but] never suggested an appropriate response to the
systemic problems.” The complaint provides several examples of Gaslight’s alleged
approach to these issues. It alleges that Gaslight “previously replaced the gutters
near the living room windows, however, two separate contractors … believe that
the current design will cause repeated window and mold damage.” The Owners also
allege that Gaslight’s “proposed solution to the widespread water infiltration issues
was caulking, which does not resolve the underlying defects and will only
temporarily ‘band aid’ the problem.”3 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.

¶30 Auto-Owners’ (and the circuit court’s) focus on Gaslight’s
“volitional” decisions as the occurrence is out-of-step with Kalchthaler, American

3
In addition to the attempts referenced in the complaint to address the water intrusion and
other issues, Gaslight points to evidence in the record documenting its retention of contractors in
2022 to repair the roof over the Owners’ units and perform sealing work on the units’ chimneys.
These efforts post-date the filing of this lawsuit, and evidence documenting them was not filed with
the circuit court until after its coverage ruling, so we do not base our decision upon them.

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No. 2023AP1011

Girl, 5 Walworth, and Riverback Farms.4 “The focus is on whether the injury or
damages was foreseeable or expected, not on whether the action that caused the
damages was intended.” Riverback Farms, 409 Wis. 2d 14, ¶17. Though
Gaslight’s decisions regarding maintenance and repair are alleged to have been
intentional, the record indicates those decisions led to the continued water intrusion,
which caused alleged property damage. The continued water intrusion is akin to the
events that were occurrences in our prior cases—the water intrusion in Kalchthaler,
the soil settlement in American Girl, the cracking and leaking of the pool in 5
Walworth, and the magnesium deficiency in Riverback Farms.

¶31 We must next determine whether the continued water intrusion could
be an occurrence under the policy. The circuit court concluded it could not be
because it “is not something that happened accidentally, happened suddenly, or was
unforeseen.” We do not agree that that is the only conclusion that can reasonably
be drawn from the record. For example, the Owners allege that Gaslight undertook
some steps to address the water intrusion issues in their units, such as replacing
gutters and caulking areas in need of repair. And there is no direct evidence that
Gaslight intended or expected the water intrusion into the Owners’ units to continue.
To the contrary, as Gaslight notes, the fact that it took some steps to address the
damage suggests it “did not expect or intend to cause damage to [the Owners’]
units.” Drawing reasonable inferences in Gaslight’s favor, as we must at this stage

4
We reject Auto-Owners’ reliance on cases involving misrepresentations because those
acts did not lead to intervening events that constituted occurrences. See Stuart v. Weisflog’s
Showroom Gallery, Inc., 2008 WI 86, 311 Wis. 2d 492, 753 N.W.2d 448; Everson v. Lorenz, 2005
WI 51, ¶3, 280 Wis. 2d 1, 695 N.W.2d 298. We similarly reject Auto-Owners’ reliance on
Schinner v. Gundrum, 2013 WI 71, ¶68, 349 Wis. 2d 529, 833 N.W.2d 685, because that case
involved intentional acts by an insured to host an underage drinking party that foreseeably led to
one party guest intentionally assaulting another. The supreme court determined that neither the
insured’s conduct nor the intervening event were accidental and the injuries to the victim were
foreseeable. Id., ¶¶67-70. The facts in Schinner are materially distinguishable from those in the
present case.

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No. 2023AP1011

of proceedings, a jury could conclude that Gaslight neither foresaw nor expected the
damage to the Owners’ units that followed its attempts to repair its buildings. See
Pum v. Wisconsin Phys. Serv. Ins. Corp., 2007 WI App 10, ¶6, 298 Wis. 2d 497,
727 N.W.2d 346 (2006) (“[W]e draw all reasonable inferences from the evidence in
the light most favorable to the non-moving party.”). In that event, the continued
water intrusion would constitute an occurrence under the policy. Accordingly, we
conclude that the circuit court erred in concluding that the CGL Coverage Form
could not, as a matter of law, provide an initial grant of coverage.

B. The “Damage to Property” Exclusion

¶32 Auto-Owners argues that two exclusions bar coverage for some or all
of the Owners’ claimed damages. The first is the “Damage To Property” exclusion,
which, as relevant here, bars coverage for property damage to:

 “[p]roperty you own, rent, or occupy, including any costs or expenses
incurred by you, or any other person, organization or entity, for
repair, replacement, enhancement, restoration or maintenance of such
property for any reason” and

 “[p]ersonal property in the care, custody or control of the insured[.]”

The circuit court agreed with Gaslight that this exclusion did not bar coverage for
the Owners’ claimed damages because these provisions apply only to damage to
common areas or elements in the condominium buildings, whereas the property
damage for which the Owners seek monetary relief is to their individual units and
personal property.

¶33 Auto-Owners disagrees, arguing that the Owners are insureds under
the CGL endorsement, and thus, the “Damage To Property” exclusion bars coverage

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No. 2023AP1011

for their claimed damages. It grounds this argument in several policy provisions
and Gaslight’s governing documents.

¶34 In the policy, Auto-Owners focuses on the definitions of “you” and
“insured.” The word “you” in the CGL Coverage Form “refer[s] to the Named
Insured shown in the Declarations, and any other person or organization qualifying
as a Named Insured under this policy.” The Named Insured in the policy is
“Gaslight Pointe Condo Assoc LLC,” which the policy identifies as a limited
liability company. Auto-Owners then points to language in the CGL Coverage
Form stating that where a limited liability company is identified in the Declarations,
its members “are also insureds, but only with respect to the conduct of your
business.” Auto-Owners notes that Gaslight’s Declaration and By-Laws: (1) state
that each unit owner also “own[s] an undivided interest in all common elements and
facilities” at Gaslight; and (2) make each unit owner a “member” of Gaslight, which
is exclusively responsible for “management and control” of the common elements.

¶35 Auto-Owners also notes that the preamble to the insuring agreement
states that “[t]he word ‘insured’ means any person or organization qualifying as
such under Section II – Who is An Insured.” It then points to an endorsement to the
CGL Coverage Form that amends Section II to include as 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.” Auto-Owners contends
that these provisions make the Owners “you” and an “insured” for the purpose of
the exclusion, and thus that the exclusion bars coverage for property damage to their
property.

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No. 2023AP1011

¶36 We do not agree with Auto-Owners’ arguments. First, we reject its
reliance on provisions in the policy that turn on Gaslight’s status as a limited liability
company. There appears to be no dispute that Gaslight is a non-stock corporation,
not an LLC. Gaslight’s Declaration and By-Laws, as well as records from the
Wisconsin Department of Financial Institutions filed in the circuit court, specifically
identify Gaslight as a corporation. Thus, the identification of Gaslight as a limited
liability company in the policy appears to be a scrivener’s error, which courts may
overlook where necessary to carry out the parties’ intent. See, e.g., Lardner v.
Williams, 98 Wis. 514, 521, 74 N.W. 346 (1898) (stating that if “by mistake or
ignorance of the scrivener” a written memorialization of the parties’ agreement is
“not made in the proper form to carry out the agreement, then a court of equity has
power to reform and enforce [it] as contemplated and agreed by the parties”);
American States Ins. Co. v. First Fin. Ins. Co.,
No. C05-2098RSL, 2007 WL 4615503, at **3-4 (W.D. Wash. Dec. 28, 2007)
(reforming insurance policy to reflect that limited liability company was the only
insured where declarations page mistakenly identified a partnership as the insured).
It would be illogical to conclude that the policy was intended by the parties to insure
an LLC that, so far as we know, has never existed.

¶37 Auto-Owner’s conduct in this lawsuit also undermines its argument.
Auto-Owners has provided a defense to Gaslight notwithstanding the fact that the
policy identifies Gaslight as an LLC. Moreover, it specifically acknowledged in
both its brief supporting its motion to intervene and its intervenor complaint that it
issued the policy to “Gaslight Pointe Condominium Association, Ltd.” Having
taken these steps, Auto-Owners cannot now seek to avoid its coverage obligations
through the application of policy language that incorrectly treats Gaslight as an

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No. 2023AP1011

LLC. Thus, we conclude that the Owners are not “you” for the purpose of the
“Damage To Property” exclusion.5

¶38 We also disagree with Auto-Owners’ contention that the Owners are
“insureds” for the purpose of the exclusion. The endorsement upon which Auto-
Owners relies makes the Owners insureds “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.” As Gaslight notes, the
portion of the premises “not reserved for [a] unit owner’s exclusive use or
occupancy” is the common areas. Thus, the Owners are insureds only with respect
to “liability arising out of the ownership, maintenance or repair” of the common
areas. Here, although the Owners have alleged defects in certain common areas,
they do not seek to hold Gaslight liable for damage to those areas. Instead, they
seek damages for the property 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.

C. The “Fungi Or Bacteria” Exclusion

¶39 The second exclusion Auto-Owners invokes is the “Fungi Or
Bacteria” exclusion, which precludes coverage for property damage

which would not have occurred, in whole or in part, but for
the actual, alleged or threatened … existence of, or presence
of, any “fungi” or bacteria on or within a building or
structure, including its contents, regardless of whether any

5
Even if we were to treat Gaslight as an LLC, and the Owners as members of that LLC,
we would not find the “Damage To Property” exclusion applicable because the Owners would be
insureds under the policy “only with respect to the conduct of [Gaslight’s] business.” Auto-Owners
points to no evidence suggesting that the Owners were involved in any of the decisions Gaslight
made regarding maintenance and repairs to its condominium buildings.

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No. 2023AP1011

other cause, event, material or product contributed
concurrently or in any sequence to such injury or damage.

The exclusion also bars coverage for “loss, cost or expenses arising out of the
abating, … cleaning up, removing, containing, treating, detoxifying, neutralizing,
remediating or disposing of, or in any way responding to, or assessing the effects
of, ‘fungi’ or bacteria.”

¶40 Gaslight contends that the exclusion would completely bar coverage
only if all of its claimed damages were attributable, at least in part, to mold. We
agree; if some of the damage in the units is attributable to water infiltration or other
causes besides mold, the exclusion would not bar coverage for that damage.

¶41 Beyond that, it is premature to assess the applicability of the exclusion
given the state of the record. Evidence in the record indicates mold is present in
both of the Owners’ units. However, the evidence does not indicate what portion,
if any, of the property damage in the units “would not have occurred, in whole or in
part, but for the … existence of, or presence of” mold. Nor is it clear what portion,
if any, of the monetary damages the Owners seek arises out of their efforts to assess,
clean up, or otherwise respond to the mold. 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.

¶42 In sum, under the CGL policies, the continued water intrusion could
be an accident and constitute an “occurrence” that caused “property damage”—
physical injury to the Owners’ tangible property. The “Damage To Property”
exclusion does not apply, and the fungi/bacteria exclusion does not preclude
coverage for all of the Owners’ claimed damages. Because we conclude that
coverage for some of the claimed damages is potentially available under the CGL

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No. 2023AP1011

Coverage Form if Gaslight is ultimately found liable to the Owners, Auto-Owners
must continue to defend Gaslight in this case.

II. The E&O Coverage Endorsement

¶43 The E&O Coverage Endorsement provides a separate potential source
of coverage in the policy. Like the CGL Coverage Form, the E&O Coverage
Endorsement begins with an insuring agreement, which is followed by a list of
exclusions. The insuring agreement states that Auto-Owners “will pay those sums
the insured becomes legally obligated to pay as ‘damages’ because of any negligent
act, error, omission or breach of duty directly related to the management of the
premises[.]” The word “damages” in the insuring agreement is limited to “actual
compensatory damages for loss suffered but does not include fines, taxes or any
other cost or expense assessed against any insured.”

¶44 The circuit court concluded that the Owners’ claims triggered this
initial grant of coverage. Auto-Owners concedes that the insuring agreement
“suggests that there is a grant of coverage for ‘loss’ caused by Gaslight’s failure to
properly manage the condominium premises.” We construe this statement as a
concession that at least some of the Owners’ claimed damages fall within the
insuring agreement.

¶45 The circuit court also concluded that the coverage under the
endorsement was barred by the exclusion for “property damage.”6 Gaslight
disagrees, arguing that the exclusion does not bar coverage for at least some of the

6
The definition of “property damage” in the CGL Coverage Form also applies in the E&O
Coverage Endorsement. Thus, “property damage” in the endorsement means “physical injury to
tangible property, including all resulting loss of use of that property” and “[l]oss of use of tangible
property that is not physically injured.”

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No. 2023AP1011

damages the Owners seek. It contends that the Owners seek “‘actual compensatory
damages’ in the form of ‘out-of-pocket expenses incurred in investigating and
repairing various defects and damages.’” Gaslight identifies three such “out-of-
pocket expenses” that the Owners seek to recover—attorney’s fees, homeowner’s
association fees, and homeowner’s insurance—that, in its view, are “unrelated to
repair of property” and thus beyond the scope of the exclusion.

¶46 The parties do not direct us to any legal authority interpreting these
policy provisions, nor has our research uncovered any. Nonetheless, construing the
insuring agreement and the “[p]roperty damage” exclusion as a reasonable person
in Gaslight’s shoes would, we agree with the circuit court that the E&O Coverage
Endorsement does not provide coverage for the Owners’ claimed damages.

¶47 First, the “property damage” exclusion bars coverage for any damages
that Gaslight may be found liable to pay to compensate the Owners for the “property
damage” in their units. Gaslight does not appear to contest that proposition. In
addition, Gaslight has failed to show that the attorney’s fees, homeowner’s
association fees, and homeowner’s insurance that it describes as “unrelated to repair
of property” would be covered “damages” as that term is defined in the insuring
agreement.

¶48 “In Wisconsin, attorney’s fees are not an element of damages absent
a statutory or contractual provision to the contrary.” Oakley v. Fireman’s Fund of
Wis., 162 Wis. 2d 821, 830, 470 N.W.2d 882 (1991). Gaslight does not identify a
statute or contractual provision that would entitle the Owners to an award of
attorney’s fees. Nor does this case involve claims of bad faith, in which attorney’s
fees can be transformed into an element of compensatory damages. See Stewart v.
Farmers Ins. Grp., 2009 WI App 130, ¶14, 321 Wis. 2d 391, 773 N.W.2d 513.

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No. 2023AP1011

Instead, an award of attorney’s fees to the Owners would constitute a “cost or
expense assessed against” Gaslight that is specifically excluded from the definition
of “damages.”

¶49 Gaslight has failed to show how the homeowner’s association fees and
homeowner’s insurance are compensation for any loss the McLaughlins suffered
and, thus, “damages.” Gaslight has failed to explain why the McLaughlins were
forced to pay homeowner’s association fees and homeowner’s insurance as the
result of its alleged breach of the condominium documents. Presumably, the
obligation to pay those expenses arose out of the McLaughlins’ status as owners of
a unit at Gaslight Pointe. Thus, we fail to see how an award of those expenses would
be “actual compensatory damages for loss suffered.”7

CONCLUSION

¶50 For the reasons explained above, we affirm the circuit court’s order
with respect to the issue of coverage under the E&O Coverage Endorsement, reverse
the order with respect to the issue of coverage under the CGL Coverage Form, and
remand this case to the circuit court for further proceedings consistent with this
opinion.

By the Court.—Order affirmed in part; reversed in part and cause
remanded.

.

7
Because we conclude that the exclusion for “property damage” bars coverage under the
E&O Coverage Endorsement, we need not address the two other exclusions upon which Auto-
Owners relies—an exclusion for “transactions of any insured from which any insured gained any
personal profit or advantage not shared equitably by the members of the association” and an
exclusion for claims “made by you, your officers or your directors.”

23