moisture trapped behind the walls. Not sure how the moisture got there in the first place, but if it got sealed in, the wall will rot from the inside out. During the 1990s through early 2000s, there was a substantial amount of litigation concerning this very issue, although the claims were that the stucco (EIFs) systems themselves were defective. Since that time, manufacturers (and contractors) have changed the way that stucco is made. If you have an older home, however, you might still have defective stucco. Otherwise, it sounds like your prior owners goofed. Look at the disclosures they made to you in the sale agreement. Depending on the state and disclosure language, they could be liable for latent defects that could not have been discovered by a reasonable inspection, especially if they had knowledge of the moisture problems and just painted them over.

And no, you're not going to get insurance coverage for a variety of reasons, some of which have been stated in the thread.