The Wisconsin Supreme Court’s decision in Cincinnati Insurance Company v. Ropicky 1 is important because it frames the legal dispute correctly. This was not simply a “construction defect” and “fungi” case. It was a causation, allocation, ensuing loss, policy language, and proof case. The case matters a great deal for policyholders facing water damage claims where insurers try to turn every leak, gap, flashing issue, or construction allegation into a wholesale coverage denial.
The facts read like many significant residential water damage claims. A storm occurred. Rainwater poured into the home. Cincinnati investigated and concluded that the water entered through alleged construction defects that had existed since the home was built. Cincinnati also contended that years of water intrusion allowed fungi and rot to develop. Based on those conclusions, Cincinnati paid a small amount for water damage and $10,000 under the fungi additional coverage, then refused to pay the much larger claimed loss.
The policy had a common construction defect exclusion. Insurers do not want to be guarantors of poor construction. But the policy also had an ensuing loss exception. The Wisconsin Supreme Court held that physical loss caused by rainwater could constitute an ensuing loss. The cost to repair the defect itself may not be covered. But damage caused by rainwater entering the home as a consequence of the defect may be covered unless another policy provision clearly excludes it.
Cincinnati tried to frame the loss as excluded because defective construction allegedly allowed the rainwater to enter. The policyholders framed the issue differently: even if there was a defect, the resulting rainwater damage was an ensuing physical loss. The majority agreed with the policyholders’ framing.
In many property insurance disputes, the party who frames the issue often controls the outcome. Insurers frequently frame these claims as “defect causes water intrusion, therefore excluded.” Policyholders must frame them as “defect may be excluded, but resulting rainwater damage is a separate ensuing loss unless clearly excluded.” From my perspective, this is not wordplay but how the policy is written and the benefits intended to be paid.
The court relied on Wisconsin’s prior Arnold decision 2 and refused to adopt Cincinnati’s narrower view that an ensuing loss requires a break in the causal chain or some independent intervening event. The court essentially said that rainwater was an additional cause of loss. Rain was not the construction defect. Rain was the peril that came through the alleged defect and damaged the home.
The dissent raised the predictable insurer-side concern: if rainwater entering through defective construction is covered as an ensuing loss, the exception may swallow the exclusion. This is a legitimate concern in some cases. However, if an insurer wants to exclude all rainwater damage that naturally flows from defective construction, it can draft language to do so.
The fungi portion of the decision is more nuanced. The court held that the fungi additional coverage was an exception to the fungi exclusion, capped at $10,000. The court did not accept the broader argument that buying fungi additional coverage made the fungi exclusion disappear entirely. Still, the policyholders won an important point because there were factual disputes about whether fungi caused the damage at all, when fungi appeared, and how much of the loss was truly fungal damage as opposed to sudden water saturation, delamination, or other water-related damage.
The factual record also shows why summary judgment was inappropriate. Cincinnati’s engineer did not perform standard diagnostic testing during the early inspections. He did not take mold samples at the time. The alleged one-inch gap was disputed. Later samples came from debris that had been exposed to the elements and then stored in a garbage bag in a garage for months. That is hardly the gold standard of forensic investigation. When a million-dollar property claim turns on causation, allocation, and expert reliability, those are issues for a fact finder, not something to be swept aside on summary judgment.
The basic lesson is not to let the carrier collapse the entire claim into the words “construction defect” or “fungi.” The real questions are more precise. What was the defective condition? What damage was caused solely by that excluded condition? What damage was caused by rainwater as an ensuing physical loss? What damage, if any, was caused by fungi? And, can the insurer prove its allocation with reliable evidence?
This decision is a strong reminder that exclusions are not magic wands. They have to be applied to facts. Exceptions have to be given meaning. Causation has to be proven. Finally, where the evidence is disputed, the courthouse door should not be slammed shut before trial.
Thought For The Day
“Forward.”
—Wisconsin state motto
1 Cincinnati Ins. Co. v. Ropicky, 2026 WI 25, — N.W.3d —, 2026 WL 1954292 (Wis. July 7, 2026).
2 Arnold v. Cincinnati Ins. Co., 688 N.W.2d 708 (Wis. App. 2004).