The Wisconsin Supreme Court Interprets Causes of Loss and Fungi Exclusion Policy Language

On July 7, 2026, the Wisconsin Supreme Court provided two important insurance coverage holdings in its decision, Cincinnati Ins. Co. v. Ropicky, 2026 WI 25. First, it held that the entry of rainwater into a building constituted a separate cause of loss than the construction defect through which it entered, and was therefore covered under a homeowner’s insurance policy as an “ensuing loss.” Second, it clarified that a Fungi Additional Coverage endorsement serves as an exception to the Fungi Exclusion under the anti-concurrent cause of loss clause, rather than negating the Fungi Exclusion in its entirety.

Facts

Ropicky’s home was built in 2005. In 2018, he discovered that his home had suffered years of substantial water intrusion through a construction defect in the wall, causing damage and fungal growth.

Ropicky had a homeowner’s insurance policy with Cincinnati. Upon notice and investigation of the claim, Cincinnati paid $10,000 based on the Fungi Additional Coverage endorsement, but denied any remaining coverage based on the Construction Defect Exclusion and the Fungi Exclusion.

The Circuit Court granted Cincinnati’s motion for summary judgment. On appeal, the Wisconsin Court of Appeals reversed, denying summary judgment and holding that the rainwater was an ensuing loss and that the Fungi Additional Coverage endorsement entirely nullified the Fungi Exclusion. Cincinnati appealed, and the Wisconsin Supreme Court (1) affirmed the Court of Appeals on the Construction Defect issue; (2) reversed the court of appeals on the Fungi Exclusion issue, and (3) denied summary judgment.

The Construction Defect Exclusion

The policy contained the following exclusion, which the Court referred to as the Construction Defect Exclusion:

 “We” do not insure “physical loss” caused by . . . Faulty, inadequate or defective . . . Design,       specifications, workmanship, repair, construction, renovation, remodeling, grading, compaction . . . Materials used in repair, construction, renovation or remodeling.

The policy also stated that “any ensuing ‘physical loss’ to Covered Property . . . not precluded by any other provision in this policy is covered.” As such, the first question before the Court was whether a “physical loss caused by rainwater constitutes an ensuing loss within the meaning of the policy.”

Examining the dictionary definition of “ensuing,” the Wisconsin Supreme Court adopted Arnold v. Cincinnati Ins. Co., 2004 WI App 195, and held that the rainwater itself was an ensuing loss from the construction defect. Therefore, coverage was reinstated. The court explained:

 In our case, rainwater leaked in allegedly due to defective construction, causing significant damage.  This rain, just like in Arnold, was an additional cause. . . . Thus, just as in Arnold, the Ensuing Loss Exception operates to reinstate coverage to the extent the loss is established by the facts. While the cost of repairing the construction defect itself would not be covered, the ensuing loss caused by the rainwater that came as a consequence of the construction defect would be an ensuing loss. Therefore, it would be covered under the policy as long as other limits do not apply.”

In deciding as much, the court rejected Cincinnati’s argument that such an interpretation would “kill the initial defect exclusion” and there needed to be a more meaningful break in the causal chain more proximately leading to the claimed damages.

The Fungi Exclusion and Fungi Additional Coverage Endorsement

The Court also examined the interplay between the Fungi Exclusion and the Fungi Additional Coverage sections, departing from the court of appeals by adopting a more conventional interpretation.

The policy contained several provisions relating to fungi. First, it contained an anti-concurrent cause of loss clause, which stated that:

“We” will not pay for “physical loss” resulting directly or indirectly by any of the following. Such “physical loss” is excluded regardless of any other cause or event contributing concurrently or in any sequence to the “physical loss”. These exclusions apply whether or not the “physical loss” event results in widespread damage or affects a substantial area.

Under this section was the Fungi Exclusion, which stated that a physical loss caused by “‘Fungi,’ wet or dry rot, or bacteria meaning the presence, growth, proliferation, spread or any activity of fungi, wet or dry rot, or bacteria” was not covered.

However, the Fungi Exclusion also stated that the exclusion “does not apply” if the insured had purchased the Fungi Additional Coverage endorsement. The Fungi Additional Coverage endorsement stated that there was coverage for damage caused by fungi up to the $10,000 additional coverage limit. Ropicky had purchased the endorsement.

The Wisconsin Supreme Court boiled down the language of the Exclusion and Additional Coverage endorsement and explained:

Translating this into English, when this additional coverage is purchased, Cincinnati promises to cover an amount of the “physical loss” caused by fungi rather than excluding all of it under the Fungi Exclusion. The policy then states that the amount of fungal damage that Cincinnati will cover under the Fungi Additional Coverage is $10,000.

This reading of the policy should be non-controversial; however, the Court of Appeals had given a somewhat novel reading of this language, holding that the Fungi Exclusion “does not apply” at all when an insured purchases the Additional Coverage based on the specific wording of the policy. Rather than reading the Additional Coverage section as an exception to the exclusion, it held “that the Fungi Exclusion was inapplicable and that the Fungi Additional coverage limited the amount of damage Cincinnati is required to pay to $10,000.” However, it also concluded that covered losses could not be excluded based on the application of the Fungi Exclusion section of the anti-concurrent cause of loss clause. However, Judge Neubauer disagreed with this reasoning.

The Wisconsin Supreme Court sided with Judge Neubauer and restored the traditional understanding of the Fungi Additional Coverage’s effect. It did not serve to wipe out the Fungi Exclusion’s application under the anti-concurrent cause of loss clause; it rather served as an exception to the exclusion, which was still otherwise applicable.

Takeaways

The main takeaway from this case is the adoption of Arnold by the Wisconsin Supreme Court and the conclusion that rainwater intrusion constitutes a separate cause of loss other than a potentially excluded cause of loss, such as a construction defect or faulty maintenance or design.  Furthermore, no meaningful break in the causal chain is required between a potentially excluded loss and a subsequent “ensuing” loss, although the ensuing loss may be the cause of much more damage than the excluded loss.

However, it is worth noting that insurers are not left defenseless under these circumstances. First, insurers have already updated some policy forms to provide more specific language requiring a covered cause of loss before damage from rainwater will be covered. For instance, a policy may now contain a limitation requiring a covered cause of loss to damage the roof or exterior walls before water damage due to rain is covered.

Second, other coverage defenses, such as failure to mitigate, may apply. For example, if an insured knows about a hole in its roof, the insured’s failure to mitigate the potential entry of rainwater into the property may preclude coverage.

Finally, as it relates to the Fungi Exclusion, this case demonstrates that the Fungi Additional Coverage endorsement, which may at first glance conflict with the Fungi Exclusion, operates as exceptions to the exclusion—it does not wholly nullify the exclusion.