Wisconsin Supreme Court Addresses Coverage for Water Damage Resulting from Alleged Construction Defects

In Cincinnati Insurance Co. v. Ropicky, 2026 WI 25, the Wisconsin Supreme Court issued an important decision addressing insurance coverage for water intrusion, mold damage, and alleged construction defects. The ruling is likely to have significant implications for property owners, contractors, developers, and insurers involved in construction-related claims.

The dispute arose after a severe storm in May 2018 caused substantial water intrusion into James Ropicky's home in Waukesha County. According to the homeowners, rainwater entered through an exterior wall and flowed through the residence, damaging drywall, windows, structural components, and other portions of the home. The homeowners maintained that they had never previously observed water intrusion of this nature.

Cincinnati Insurance investigated the loss and retained an engineering consultant who concluded that the water intrusion resulted from multiple construction defects, including an alleged gap in flashing and gutter components that had existed since the home was originally constructed. The insurer further concluded that rainwater had been entering the home for years, causing extensive deterioration and fungal growth. Based on those findings, Cincinnati relied on policy exclusions for construction defects and fungi to limit coverage and paid approximately $12,000, including the policy's $10,000 fungi coverage endorsement.

As repairs progressed, contractors uncovered substantially more damage than had been observed during the insurer's initial inspection. The homeowners’ experts disputed the insurer’s causation analysis, challenged the existence of the alleged construction defect, questioned the methodology employed by the insurer’s expert, and contended that much of the deterioration resulted from delamination and storm-related water intrusion rather than long-term fungal decay.

The litigation ultimately centered on whether the homeowners' losses were excluded as damages caused by defective construction and fungi, or whether policy exceptions restored coverage for some or all of the claimed damage.

The Court addressed the policy's Construction Defect Exclusion and accompanying Ensuing Loss Exception, which provided coverage for certain ensuing physical loss resulting from otherwise excluded defective construction. The Court reaffirmed the Wisconsin Court of Appeals' decision in Arnold v. Cincinnati Insurance Co. and held that rainwater damage may qualify as a covered "ensuing loss" even when the rain enters through an alleged construction defect. The Court distinguished between the cost of repairing the defect itself—which remains excluded—and the resulting property damage caused by rainwater intrusion.

The Court also addressed the policy's fungi provisions. It concluded that the policy's additional fungi endorsement operates as an exception to the fungi exclusion rather than eliminating the exclusion altogether. Under the policy, limited coverage remained available for fungi-related damage, subject to the endorsement's stated limits.

Importantly, the Supreme Court determined that numerous disputed issues of fact remained for a jury to resolve. Those disputes included:

• Whether the alleged construction defects actually existed;
• Whether the insurer's engineering conclusions were reliable;
• Whether the losses were caused by long-term water intrusion, a single storm event, fungi, or other mechanisms such as delamination;
• The extent of any resulting covered damage.

Because those factual disputes were material to coverage, the Court affirmed the court of appeals and reversed the circuit court's grant of summary judgment in favor of the insurer. The homeowners' bad-faith claim, which had been dismissed along with the coverage claims, was also reinstated.

The decision reinforces Wisconsin's relatively policyholder-friendly interpretation of ensuing-loss provisions. Insurers may remain responsible for resulting water damage even where a construction defect allegedly allowed the water to enter the structure. As a result, disputes over causation, damage allocation, and expert methodology will become increasingly important in first-party property claims involving construction issues and water intrusion.

Owners, contractors, developers, design professionals, and insurers should carefully evaluate how Ropicky may affect pending and future construction defect and insurance coverage disputes.

If you have questions about the impact of this decision on a construction defect claim, builder-risk dispute, or property insurance coverage matter, please contact a member of our Construction or Insurance Team.