Homeowners Challenge Nautilus Insurance Over Denied Montana Defect
In a significant development in Gallatin County, Montana, eight homeowners have filed a lawsuit against Nautilus Insurance Company, an Arizona-based insurer, alleging wrongful denial of coverage for multi-million dollar construction defect claims. The complaint, filed on August 19, 2025, centers on four homes built by TCToo, LLC, which the homeowners claim suffered property damage due to negligent acts, omissions, and misrepresentations by the builder and its subcontractors. The case highlights ongoing tensions in the insurance industry regarding policy exclusions and coverage disputes in construction defect lawsuits.
The homeowners allege that when they sued TCToo, the builder sought coverage under a commercial general liability policy issued by Nautilus, effective from July 2022. Nautilus, however, denied both defense and indemnity, citing two policy exclusions: the “Prior Work Exclusion,” which bars coverage for property damage from work completed before July 11, 2022, and the “Tract Home Exclusion,” which excludes coverage for work on multiple similarly designed homes in a development project. The homeowners argue that their claims involved negligent repairs and resultant damage occurring within the policy period, rendering the Prior Work Exclusion inapplicable. They also contend that their properties do not meet the definition of “tract homes,” and that Nautilus lacked sufficient evidence to justify applying either exclusion.
Faced with Nautilus’s denial, TCToo consented to judgments totaling over $9 million to avoid financial collapse, with amounts including $2,359,488 for Richard and Davene Tuininga, $2,340,017 for Seth and Amber Gibson, $2,240,315 for Frederick Nyquist and Bridgette Larin, and $2,341,779 for Jeffrey and Kendall Edwards. TCToo then assigned its rights under the Nautilus policy to the homeowners, who are now seeking to collect these judgments directly from the insurer. The complaint argues that Nautilus’s reliance on the exclusions is unenforceable, as it conflicts with TCToo’s reasonable expectations of coverage under the policy, which included $1 million per occurrence and $2 million in aggregate for products/completed operations coverage. The homeowners are requesting a court declaration that Nautilus was obligated to defend and indemnify TCToo, along with payment for the judgments, defense costs, attorney fees, and interest.
Broader Implications for the Insurance Industry
This case underscores the complexities of insurance coverage in construction defect disputes, a growing issue as homeowners face rising costs and insurers grapple with financial pressures from catastrophic losses. Industry experts note that construction defect lawsuits often involve intricate policy language, making it challenging to determine coverage. In Montana, where wildfires and severe storms exacerbate property damage risks, insurers like Nautilus are increasingly scrutinizing claims to limit exposure. The outcome of this lawsuit could set a precedent for how insurers apply exclusions like the Prior Work and Tract Home clauses, potentially influencing future coverage decisions.
Montana’s insurance regulations require insurers to conduct reasonable investigations and affirm or deny claims promptly. The homeowners’ complaint suggests Nautilus failed to meet these standards by denying coverage without adequate evidence. If the court finds in favor of the homeowners, it could prompt insurers to reevaluate their claims handling processes, particularly in high-stakes construction defect cases. For now, Nautilus has not filed a response, and the allegations remain unproven in court.
Rising Challenges for Montana Homeowners
The lawsuit comes at a time when Montana homeowners are facing broader insurance challenges, including non-renewals and premium hikes driven by wildfire risks and rising construction costs. A recent report highlighted that Montana insurers have faced underwriting losses in three of the five years from 2018 to 2022, contributing to a tightening market. Homeowners in high-risk areas are increasingly turning to state-run or surplus-lines insurers, which often come with higher costs and limited coverage options. This case against Nautilus may further highlight the need for clearer policy language and fair claims practices to protect policyholders in the state.
As this legal battle unfolds, it serves as a reminder for homeowners to carefully review their insurance policies and understand coverage limits and exclusions. For insurance professionals, the case emphasizes the importance of transparent communication and thorough investigations to avoid costly disputes. The court’s decision could have far-reaching implications for how construction defect claims are handled in Montana and beyond.