In a recent case from the Wisconsin Court of Appeals, Cincinnati Insurance Company v. Ropicky, 1 the court held that insurers may not deny legitimate claims based on policy exclusions that the insurer has broadly applied. The court emphasized that when policy language includes exceptions that restore coverage, insurers may not broadly deny coverage and ignore these exceptions.
Here, Cincinnati Insurance Company denied coverage to the insured based on the popular policy exclusions for construction defects and fungi, and the trial court granted summary judgment in favor of the insurer. The appellate court reversed and remanded the case to the trial court and restored the insured’s bad faith claim, stating that the lower court improperly granted summary judgment in favor of the insurer based on the following:
Ensuing Loss Exception
The Wisconsin Court of Appeals ruled that the ensuing loss exception to the Construction Defect Exclusion reinstated coverage for the insured for damage caused by rainwater infiltration caused by a defective condition in the home, as the rainwater was a distinct cause of the loss. In making its findings, the appellate court cited a previous case, Arnold v. Cincinnati Insurance Company, 2 in which they made a similar ruling. In that case, the court, faced with similar policy language, held that that policy language was also intended to cover losses resulting from a construction defect if said damage was not directly excluded.
Merlin Law Group has written extensively about ensuing loss exceptions. Chip Merlin referred to “ensuing loss” provisions as “Lazurus” clauses in property insurance policies in Water Loss Denied? Ensuing Loss Provisions May Provide Coverage, and Whipped Cream, Honey and Covered Ensuing Loss Delights.
“Ensuing loss” provisions are the “Lazarus” clauses in property insurance policies. Property damage claims otherwise excluded from coverage, are raised from the dead and paid as a result of them. They are difficult to understand, and the court decisions seem inconsistent. However, when there seems to be an event that is excluded, many times a water damage event, these clauses are often the only means of recovery.”
My Chicago-based colleague, Ed Eshoo, also noted that these clauses are sometimes referred to and written as “resulting loss” exceptions in Where There Is Smoke, There Is… A Denial, where he explained:
[T]he faulty workmanship exclusion contains a ‘resulting loss’ exception, in that if faulty workmanship results in a covered cause of loss, then coverage is afforded for the resulting loss or damage caused by the covered cause of loss, though coverage is not afforded for the cost of correcting the fault or defect itself. In my opinion, a resulting loss is covered even if faulty workmanship is a ‘but for’ cause of the loss. In that regard, the intent of the exclusion and exception is to exclude only that portion of the loss attributable to the faulty workmanship. The exclusion and exception, read together, operate to eliminate the conduct or defect from consideration in analyzing the cause of resulting damage; unless, of course, there is no resulting damage and the loss consists solely of the conduct or defect itself, in which case coverage does not apply. Put another way, only the actual physical peril causing the resulting damage is subject to the coverage analysis.
Fungi Exclusion
The Wisconsin Court of Appeals also ruled that the language in “Fungi Additional Coverage,” which says,“[t]o the extent coverage is provided for,” is not limited by the separate Fungi Exclusion. Instead, the language should be interpreted as “if” or “as long as” coverage is provided and not seen as a bar to the amount of coverage for an insured. The court reasoned that this was the commonsense interpretation, as Fungi Additional Coverage and the Fungi Exclusion are separate in the policy. Therefore, the exclusion does not apply when coverage is available.
Overall, this decision is a win for policyholder rights, as the court reaffirmed its stance on insurers applying exclusions too broadly in order to limit coverage, especially when the policy includes exceptions to exclusions that are intended to restore coverage for policyholders in certain circumstances. It follows prior reasoning noted in Overbroad Denial Letters Are Deceptive and Not in Good Faith.
Thought For The Day
“There’s nothing like autumn in Wisconsin, with the leaves turning, the Packers winning, and the brats grilling.”
—Brett Favre
1 Cincinnati Ins. Co. v. Ropicky, No. 2023AP588, 2025 WL 5220615 (Wis. Ct. App. Dec. 26, 2024).
2 Arnold v. Cincinnati Ins. Co., 276 Wis.2d 762 (Wis. Ct. App. Sept. 23, 2004).