C. SUMMARY JUDGMENT STANDARD OF REVIEW
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¶77 We review summary judgment de novo, using the same standards and methodology as the circuit court and benefitting from their analyses. Quick Charge Kiosk LLC v. Kaul, 2020 WI 54, ¶9, 392 Wis. 2d 35, 944 N.W.2d 598. "Summary judgment is appropriate when there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law." 5 Walworth, LLC, 408 Wis. 2d 39, ¶13, (citation modified). The key question in determining whether factual issues exist is what a reasonable jury could conclude from the evidence. See Physicians Plus Ins. Corp. v. Midwest Mut. Ins. Co., 2002 WI 80, ¶18, 254 Wis. 2d 77, 646 N.W.2d
777. When examining the evidence, we view it in the light most favorable to the non-moving party and draw all reasonable inferences in favor of the non-moving party. Metro. Ventures, LLC v. GEA Assocs., 2006 WI 71, ¶20, 291 Wis. 2d 393, 717 N.W.2d 58.
D. SUMMARY JUDGMENT ANALYSIS
¶78 We conclude genuine disputes of material fact exist. We examine the record on each issue, starting with the factual disputes revolving around the Construction Defect Exclusion and Ensuing Loss Exception and then moving to those that pertain to the Fungi Exclusion and the Fungi Additional Coverage.
1. The Construction Defects ¶79 Before examining where the parties disagree about the alleged construction defects, it is helpful to establish what is and is not in dispute regarding the existence of construction defects. It is not Ropicky's position that the house was entirely free of construction defects or that no damage was caused in part by a construction defect. Rather, Ropicky concedes that construction defects existed that caused losses on the front and sides of the house.
¶80 The conceded defects are limited to two areas in the home and the damages in those parts of the home. Ropicky concedes Krizan's finding of a gap in the north tower flashing at the front of the home, which allowed rainwater to enter the joist space above the dining room and cause minor ceiling staining. Ropicky's expert, Enea, acknowledged construction quality issues on the front and sides of the home such as the gutters being too small; grades on the sides and front being too high; the foundational elevation being too low; thin-stone veneer being improperly installed; and
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downspouts insufficient for the home. But it is here that the parties' agreement ends and material factual disagreements begin. ¶81 While Ropicky conceded the existence of those construction defects, he argues the parties have never agreed how much of the loss flows from those defects and what portion of the ensuing loss damage was properly adjusted. While Cincinnati did pay $2,138.53 for these damages, Ropicky maintains that the full scope of the ensuing losses was never determined or paid. This disagreement over the extent of the damage caused by the admitted construction defects constitutes a material dispute of fact. Nothing in the record before us conclusively determines which damages were due to which purported defects.
¶82 The factual disputes do not stop there. Ropicky claims the admitted construction defects do not bear on the rear east wall damages, where the bulk of the claimed loss occurred. Ropicky notes instead that where most of the damage occurred, there was no stone veneer, there was a different structural system, and there were different drainage characteristics.
¶83 Even more, Ropicky disputes whether one particular construction defect even exists: a gap allowing rainwater to enter the home. Cincinnati's experts, Krizan and Kuchenbecker, testified to the existence of the gap and to damages consistent with that defect allowing rainwater to enter the home for years. Kaul also allegedly spoke in support of the existence of the one-inch hole. The Ropicky witnesses—Hermann, Enea, Dr. Karls, and Dr. Fallah—present a different story. They deny that a one-inch gap existed before construction material was removed during the investigation and repairs. They also deny that Cincinnati has proved that the gap would constitute a construction defect. The Ropicky experts also attack both Krizan's methodology as unreliable and accuse him of bias due to his relationship with Cincinnati.
¶84 Cincinnati points out that the Ropicky experts have failed to create their own positive theory of what caused the damage to the home. So, Cincinnati claims, we must accept Krizan's theory. This is incorrect. In construing the facts most favorably to Ropicky, we conclude that a reasonable jury could reject Krizan's theory. The Ropicky experts present evidence that could refute Krizan's theory, and a reasonable jury could also consider his allegedly biased relationship with Cincinnati. A jury could also rely on the expert testimony that most rain damage is not caused by a defect, the averment that Ropicky and Leichtfuss never observed rain
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damage until the storm, and the witnesses who deny the existence of a construction defect. A jury could also agree Ropicky's experts that the loss was attributable to delamination from rainwater, not years of fungi because of persistent rainwater.
¶85 In short, the record here does not conclusively establish the existence of the disputed construction defect, nor does it determine the scope of damages such a defect may have caused, especially given our conclusion that the ensuing loss exception would apply to reinstate coverage for some damages. The circuit court erred in granting summary judgment because genuine disputes of material fact exist to preclude summary judgment on the issue of the Construction Defect Exclusion.
2. The Presence and Effect of Fungi ¶86 Moving to the Fungi Exclusion, Cincinnati has already paid the $10,000 limit for fungal damage in the policy. Nevertheless, if there are genuine disputes of material fact about whether fungi was in fact present or the cause of the damage, then Ropicky may be entitled to more coverage for losses. Krizan determined that the OSB sheathing and structural components were damaged by "high moisture content and subsequent rot"
and "fungal growth." However, Ropicky's expert witnesses pointed to a different cause: delamination, a form of damage that can occur when wood is suddenly saturated with water. Dr. Fallah said this sudden saturation could cause damage that seems like fungi but is not. He also asserted that Krizan's inspection photos did not reveal images that would be typical of fungi. Hermann, too, observed delamination when his crew opened up the home for repairs. Enea denied observing mold, fungi, rot, or bacteria when he examined the home in 2018. Dr. Karls also claimed that the damage was caused by delamination rather than fungi, rot, or bacteria. If it is true that the fungi did not form until after the storm, then the damage would not have been caused either directly or indirectly by the fungi, and the Fungi Exclusion would not come into play.
¶87 Disputes also exist about whether the fungi samples that were tested by Kuchenbecker are reliable. Krizan admits that the samples tested were kept in a garbage bag for six months, exposed to the elements in the Bagster before giving them to Kuchenbecker, and admits that the materials could have come from anywhere. He also admitted to not drying the samples before bagging them, which can cause mold. This chain of custody led Dr. Fallah to opine that testing results regarding the presence of fungi
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could not be trusted. This shows a clear dispute over material facts regarding the existence of fungi and the extent to which fungi caused a loss. * * *
¶88 When material factual disputes exist, a fact-finder must resolve those disputes. It is the trier of fact who sifts through the evidence to determine the facts supporting the claim. Material factual disputes exist in this case for both the Construction Defect Exclusion and the Fungi Exclusion. Summary judgment is therefore precluded, and we affirm the court of appeals' reversal of summary judgment.
III. CONCLUSION
¶89 In summary, we hold that "physical losses" caused by the rainwater constitute an ensuing loss and fall within the exception to the Construction Defect Exclusion. We further hold that the Fungi Additional Coverage is an exception to the Fungi Exclusion. As it concerns summary judgment, we conclude that genuine disputes of material fact exist that preclude summary judgment for both the Construction Defect Exclusion and the Fungi Exclusion. In addition, because Ropicky's bad faith claim was dismissed by the circuit court on summary judgment, which we now reverse, it should be reinstated on remand.
By the Court.—The decision of the court of appeals is affirmed, and the cause is remanded to the circuit court for further proceedings consistent with this opinion.
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JUSTICE ZIEGLER, dissenting ANNETTE KINGSLAND ZIEGLER, J., with whom REBECCA GRASSL BRADLEY and SUSAN M. CRAWFORD, JJ., join, dissenting.
I. INTRODUCTION
¶90 The court's approach to the ensuing-loss exception expands Arnold's1scope to cover losses beyond the terms of the parties' insurance policy, unnecessarily broadening Wisconsin's ensuing-loss jurisprudence in its wake. Arnold is not as expansive as the majority's application today. It, like most jurisdictions, requires a cause of loss independent from the excluded cause of loss to trigger the ensuing-loss exception. This case presents an opportunity for our court to clarify when ensuing-loss provisions act as exceptions to exclusions for faulty workmanship and construction in homeowner-insurance contracts. While the court of appeals previously grappled with this question in Arnold, our court has not. In the two decades since Arnold was decided, courts have reached a consensus on this question, and the resulting majority rule of these courts accords with a proper reading of Arnold. Unfortunately, the majority has failed to properly apply or clarify Arnold.
¶91 Making matters worse, the majority does not provide guidance to the circuit court on how to proceed or give weight to the policy's provisions. The unfortunate reality is that Wisconsin homeowners now may see their insurance costs skyrocket as coverage is expanded to encompass the homebuilder's faulty workmanship.
¶92 I write separately because ensuing-loss provisions should be construed in alignment with the overwhelming majority of jurisdictions. By doing so, we give effect to the intentions of the contracting parties, apply ensuing-loss provisions as they were historically intended to work, and provide clarity to homeowners across Wisconsin. Instead, the majority fails to distinguish between rain damage caused by the construction defect and rain damage that would have occurred to a properly constructed house. Ensuing-loss provisions do not cover damages to a home caused by defective construction. In fact, such damage is specifically excluded in the policy. Here, the insured failed to produce any evidence that an independent cause of loss, distinct from the defective workmanship, caused
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JUSTICE ZIEGLER, dissenting
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damage to the home. Accordingly, I would reverse the court of appeals' decision and affirm the circuit court's grant of summary judgment dismissing the claim of coverage under the ensuing-loss exception. For these reasons, I respectfully dissent.
II. DISCUSSION
¶93 Ensuing losses have been unclear for homeowners, insurance companies, and courts across the country. Inconsistent decisions, involving similar fact patterns, have created confusion as to what constitutes an
"ensuing loss." See Taja Invs. LLC v. Peerless Ins. Co., 196 F. Supp. 3d 587, 592-93 (E.D. Va. 2016) (acknowledging the split of authorities), aff'd, 717 F. App'x 190 (4th Cir. 2017) (per curiam). Although every court agrees that the cost to correct the original defect itself is never covered, Rocky Mountain Prestress, LLC v. Liberty Mut. Fire Ins. Co., 960 F.3d 1255, 1261-62 (10th Cir. 2020), how each jurisdiction determines which damages "ensue" from the excluded event—and are therefore covered—varies. Nonetheless, a majority rule has emerged, and Wisconsin's Arnold, when properly interpreted, accords with that majority rule.
A. A MAJORITY OF COURTS CONSTRUE ENSUING-LOSS PROVISIONS
NARROWLY, CONSISTENT WITH CONTRACT INTERPRETATION PRINCIPLES AND
THE HISTORY OF ENSUING-LOSS PROVISIONS.
1. The Majority Rule ¶94 A majority of courts construe ensuing-loss exceptions to provide coverage when damage is the result of an independent cause of loss. The Fourth, Fifth, Sixth, Eighth, Ninth, and Tenth Federal Circuit Courts of Appeal all take this narrow approach. Each holds that ensuing- loss provisions provide coverage only when the damage caused to the property is distinct and separate from the damage caused by the excluded defect itself. See, e.g., Alton Ochsner Med. Found. v. Allendale Mut. Ins. Co., 219 F.3d 501, 506 (5th Cir. 2000) (holding that ensuing-loss provisions are triggered only when a distinct and unrelated event caused damage); TMW Enters., Inc. v. Fed. Ins. Co., 619 F.3d 574, 579 (6th Cir. 2010) (declaring that if
"damage came naturally and continuously from the faulty workmanship, unbroken by any new, independent cause, the exclusion applies and the ensuing loss provision does not" (citation modified)); Friedberg v. Chubb & Son, Inc., 691 F.3d 948, 953 (8th Cir. 2012) ("[T]he ensuing-loss provision excludes from coverage the normal results of defective construction, and applies only to distinct, separable, and ensuing losses." (citation modified));
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Costco Wholesale Corp. v. Commonwealth Ins. Co., 45 F. App'x 646, 647 (9th Cir. 2002) (holding that movement of the Earth, which caused the warehouse's damages, was a distinct cause apart from the defective design); Rocky Mountain Prestress, 960 F.3d at 1262 ("A covered peril by definition is a peril that is not excluded, and thus by definition defective workmanship is not a covered peril, even if it may trigger a covered loss as a new causal agent or in combination with another cause.").2 ¶95 In majority-rule jurisdictions, an insurer never pays (1) to fix the construction defect nor (2) for the damages resulting from the construction defect. Instead, these courts require distinct losses, each of a different kind, to trigger coverage under an ensuing-loss provision. See Alton Ochsner Med. Found., 219 F.3d at 506 (ensuing-loss provisions contemplate a separate and distinct loss that is "different in kind, not merely different in degree"). Something besides the construction or workmanship defect must have caused the damages for there to be ensuing- loss coverage. Under the policy language, damage to property, expected to be caused by an excluded defect, is not an ensuing loss in a majority of jurisdictions.
¶96 In the construction context, the majority rule precludes damages that naturally result from defective construction. See Friedberg, 691 F.3d at 953 (excluding from ensuing-loss coverage "the normal results of defective construction" (citation modified)); Alton Ochsner Med. Found., 219 F.3d at 507 (ensuing-loss provisions generally apply only to damage that
"result[s] fortuitously from events extraneous to the construction process"
(citation modified)); TMW, 619 F.3d at 579 (when "damage [comes] naturally and continuously from the faulty workmanship, unbroken by any new, independent cause, the exclusion applies and the ensuing loss
2 Arnold requires that "an ensuing loss must result from a cause in addition to the excluded cause." 276 Wis. 2d 762, ¶29 (emphasis added). The majority observes that Arnold "rejected the notion that the secondary cause needed to be a separate and independent peril." Majority op., ¶61 (citing Arnold, 276 Wis. 2d 762, ¶40). However, the court of appeals specifically took issue with the insurer's use of the term "peril," not necessarily with "separate and independent." See Arnold,
276 Wis. 2d 762, ¶38 ("[T]here is no requirement in the policy that a loss must be caused by a 'peril' in order to be covered."). For the reasons discussed infra, ¶¶19-
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provision does not" (citation modified)); In Re Chinese Manufactured Drywall Prods. Liab. Litig., 759 F. Supp. 2d 822, 850-51 (E.D. La. 2010) (ensuing-loss provisions are inapplicable to damages that flow from the direct and continuous result of workmanship defect); 12W RPO, LLC v. Affiliated FM Ins. Co., 353 F. Supp. 3d 1039, 1060 (D. Or. 2018) (explaining that ensuing- loss provisions do not apply to damages that are the "natural and expected, as opposed to a separate and independent, result" of faulty workmanship (citation omitted)).
¶97 And in a majority of jurisdictions, when there are losses from construction defects and damage from natural elements, there is no insurance coverage. Friedberg, 691 F.3d at 953; see Tzung v. State Farm Fire & Cas. Co., 873 F.2d 1338, 1341 (9th Cir. 1989) (holding that faulty workmanship clauses exclude "losses caused by defects in the design and construction of a building"). Such loss is not covered because one could reasonably expect rain, snow, and other weather to damage a defectively constructed home. In this case, the record is absent of an independent cause, other than the construction defect, that caused the rain to enter the house. Thus, for the ensuing-loss exception to apply under the majority rule, the homeowners must be able to show that the damage would have been sustained if the house had been properly constructed. On this record, the homeowners failed to present any such evidence creating a genuine factual dispute for trial.
¶98 While there are courts that construe ensuing-loss provisions broadly like this court does today, they are the minority. Those jurisdictions focus on the dictionary definition of "ensue." See, e.g., Leep v. Trinity Universal Ins. Co., 261 F. Supp. 3d 1071, 1083-84 (D. Mont. 2017) (defining
"ensuing" as "to take place afterward or as a result," "to follow in order; come afterward, especially in immediate succession," or "to follow as a consequence; result" (citations omitted)); Eckstein v. Cincinnati Ins. Co., 469 F. Supp. 2d 455, 462 (W.D. Ky. 2007) (relying upon the dictionary definition of "ensue" to interpret the provision's scope); Goldner v. Otsego Mut. Fire Ins. Co., 336 N.Y.S.2d 717, 720 (App. Div. 1972) (using dictionaries to define
"ensue"). They require insurers to cover all of the damages that result after the defect arises. Platek v. Town of Hamburg, 26 N.E.3d 1167, 1173 (N.Y. 2015); see Bartram, LLC v. Landmark Am. Ins. Co., 864 F. Supp. 2d 1229, 1235 (N.D. Fla. 2012) ("[E]nsuing losses, if they resulted from a covered cause, are covered . . . regardless of whether the loss was naturally set in motion by an excluded cause of loss.").
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2. Majority Rule Effects Contracted-For Intentions. ¶99 Interpreting ensuing-loss provisions by excluding damages that result from defective workmanship gives effect to the parties' intentions. That is, after all, the purpose of contract interpretation. Wadzinski v. Auto-Owners Ins. Co., 2012 WI 75, ¶11, 342 Wis. 2d 311, 818 N.W.2d 819. Insurance contracts explain which liabilities the insurer will cover, and which they will disclaim. To further that end, courts do not rewrite insurance contracts against the insurer to bind the insurer for risks which are plainly excluded and for which it was not paid. Limpert v. Smith,
56 Wis. 2d 632, 640, 203 N.W.2d 29 (1973). ¶100 A home exists to protect its inhabitants from the elements. Failing to construct a home properly will naturally let the elements enter. See TMW, 619 F.3d at 576 ("When a policy excludes 'loss or damages . . . caused by or resulting from . . . faulty . . . workmanship . . . [or] construction' of a building, it should come as no surprise that the botched construction will permit the elements—water, air, dirt—to enter the structure and inside of the building and eventually cause damage to both." (alterations in original)). By excluding damages caused by the faulty construction of a home, the insurer disclaims responsibility for all damages associated with expected, elemental forces. When the insurance policy excludes those damages, recovery for damage caused by defective construction comes not from that policy, but rather comes from the construction company.
¶101 The parties' contract states that Cincinnati does "not insure 'physical loss' caused by . . . [f]aulty, inadequate or defective . . . [d]esign, specifications, workmanship, repair, construction" or the materials used in the defective construction. "[I]f the home's 'physical loss' is caused by a faulty, inadequate, or defective construction, this exclusion applies and damages are presumptively excluded from coverage." Majority op., ¶8 (emphases added). Then, the contract's ensuing-loss provision provides that "any ensuing 'physical loss' to Covered Property in Section I — Coverages A, B, and C not precluded by any other provisions in this policy is covered." The majority reads "physical loss" in the provision to include losses resulting directly "from the construction defect." Id., ¶9. But that is not what the contract says. The contract explicitly excludes "'physical loss' caused by . . . [f]aulty, inadequate or defective . . . [d]esign, specifications, workmanship, repair, construction" and presumes that such damages are excluded. Id., ¶8 (emphases added).
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JUSTICE ZIEGLER, dissenting
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¶102 Simultaneously, a proper interpretation avoids eviscerating the exclusion. This ensuing-loss provision simply means when damage is caused by faulty workmanship, it is not covered by the policy. See Friedberg,
691 F.3d at 953 ("[W]hen water enters a home because of defective design, faulty workmanship, or faulty materials furnished in connection with construction or remodeling and causes damages, the damages are excluded from coverage under the 'errors, omissions, and defects' exclusion . . . ."
(citation modified)); see also 3534 E. Cap Venture, LLC v. Westchester Fire Ins. Co., 104 F.4th 913, 918 (D.C. Cir. 2024) (explaining that many courts require
"some degree of distinctness" between the faulty workmanship and the damage, "lest coverage for the ensuing cause 'very nearly destroy' the exclusion" (quoting Aetna Cas. & Sur. Co. v. Yates, 344 F.2d 939, 941 (5th Cir. 1965) (Friendly, J., sitting by designation)). It prevents insureds from creatively linking losses to an excluded cause to obtain coverage. ¶103 But endorsing a broad approach writes the exclusion out of the policy because any damage caused by a defect in the construction can be recharacterized as an "ensuing loss" restoring coverage to the home. This broad interpretation renders the exclusion "inapplicable in [most] circumstances." Majority op., ¶9. What is the difference between "a loss caused by a construction defect," which "is not covered," and "a loss ensuing from the construction defect," which is? Id., ¶10. In effect, the majority's reading excludes only the cost to correct the original construction defect and not the losses that the construction defect causes. See id., ¶3 (holding that "any physical loss caused by rainwater constitutes an ensuing loss within the meaning of the policy"). That interpretation creates coverage for the exact dangers the parties originally excluded from coverage—an unreasonable outcome. Phillips v. Nat'l Sec. Fire & Cas. Co., 59 So. 3d 711, 716 (Ala. Civ. App. 2010) (declining to interpret ensuing-loss provisions "to create coverage beyond the perils initially insured against"). It is an impermissible reading.
¶104 Instead, the contract should be read as it is written. The parties excluded the perils of defective construction from their insurance contract. That encompasses both (1) the defect itself and (2) the damages caused by the defect. By excluding damages "caused by" defective construction, the insurers disavowed liability for damages that flow
"naturally and continuously" from the faulty construction, "unbroken by any new, independent cause." TMW, 619 F.3d at 579 (citation modified). That requires two separate events for the exception to be triggered. Balfour Beatty Constr., L.L.C. v. Liberty Mut. Fire Ins. Co., 968 F.3d 504, 512 (5th Cir.
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JUSTICE ZIEGLER, dissenting
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2020). And involves an attenuation between the initial defect and the subsequent losses.
¶105 Transforming water that infiltrates through a construction defect into a separate, final causative element opens the door for any number of "last-in-time 'but for' causes of damage" that "are limited only by the imagination of the reader." TMW, 619 F.3d at 577. That inanity is precisely what the parties contracted against.
3. The History of Ensuing-Loss Provisions. ¶106 Ensuing-loss provisions were never intended to be as broad as the majority interprets them.3The original purpose of ensuing-loss provisions "has been and remains to preserve coverage for insured losses,
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JUSTICE ZIEGLER, dissenting
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such as the fires after the San Francisco earthquake, and not to create a 'grant-back' through which coverage may be had for the original excluded loss, whether it be an earthquake, a design defect, or any other excluded cause of loss." James S. Harrington, Lessons of the San Francisco Earthquake of 1906: Understanding Ensuing Loss in Property Insurance, BRIEF, Summer 2008, at 28, 32. Ensuing-loss provisions prevent insureds from resurrecting coverage for explicitly excluded losses.
¶107 This makes sense. The liability for building a faulty home should lie with the builder—not the insurer who agreed to cover only those catastrophes that occur separately from the home's construction. By leaving the builder responsible for mitigating foreseeable damages, narrow interpretations put the responsibility for avoiding liability directly in the hands of the party best suited to avoid the damages in the first instance: the builder. Builders, in turn, expect these mishaps to occur from time to time. That's why they carry their own general liability and builders risk insurance.
B. WISCONSIN'S ARNOLD ALIGNS WITH THE MAJORITY RULE
WHEN PROPERLY INTERPRETED AND APPLIED.
¶108 In Wisconsin, Arnold v. Cincinnati Insurance Co., 276 Wis. 2d 762, defined ensuing losses for the first time. In Arnold, a couple noticed that the staining on the siding of their house was darkening from its original color. Id., ¶5. The homeowners hired a contractor to strip the siding's stain, pressure wash the siding, apply a wood restorer and then re- stain it. Id., ¶¶5-7. The stripping product damaged the windows, gutters, driveway, porch, patio, roof, doors, and the caulking around the windows. Id., ¶10. Water from the pressure washer also seeped into the home damaging the home's interior. Id. Subsequently, the damaged seals around the windows and skylight allowed rain to leak into the home further damaging its interior. Id., ¶36. The couple had a homeowners' policy that contained a faulty workmanship exclusion with a provision that reinstated coverage for ensuing causes of loss. Id., ¶19.
¶109 The court of appeals held that ensuing losses are losses not directly caused by faulty workmanship, but nonetheless follow as a
"chance, likely, or necessary consequence" of the loss caused by the faulty workmanship. Id., ¶28. Unlike the minority of jurisdictions, the court did not strictly apply a dictionary definition. After defining "ensue," Arnold rejected one definition that defined "ensue" as "to follow in chronological succession." Id., ¶27 (quoting Ensue, WEBSTER'S THIRD INTERNATIONAL
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JUSTICE ZIEGLER, dissenting
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DICTIONARY 756 (1993)). In rejecting that definition, the court of appeals explained that an "ensuing loss is a loss that is not directly caused by faulty workmanship or faulty materials." Id., ¶28 (emphasis added). Thus, not "all losses that follow and are a consequence of either faulty workmanship or faulty materials" are considered "ensuing losses." Id., ¶29. ¶110 The court of appeals found Richland Valley Products Inc. v. St. Paul Fire & Casualty Co., 201 Wis. 2d 161, 548 N.W.2d 127 (Ct. App. 1996), instructive. There, an ice cream manufacturer filled a helical coil with subzero temperature ammonia and submerged it into a vat filled with a brine solution of water and calcium chloride to keep its novelties frozen. Richland Valley Prods., 201 Wis. 2d at 165. When the coil failed to keep the proper temperatures, engineers revealed that the welder who built the machines left holes in the coil and then galvanized and coated the holes with metal. Id. at 166. Over time, the metal coating deteriorated. Id. The exposed holes allowed the brine to enter the coil, which mixed together with the ammonia to create crystallized salts. Id. Those salts clogged the manufacturing facility's pipes and spread to its refrigeration system. Id. ¶111 The Richland Valley Products court determined that the welding error "caused the defect in the coil which led to the brine's entering the coil and mixing with the ammonia. Because the defect was due to faulty workmanship and manufacture, the resulting loss [was] excluded . . . ." Id. at 168. Next, the court decided whether the resulting contamination from the ammonia-brine mixture was covered as an ensuing loss. Id. at 174. Then, the court decided that "[c]ontamination occurred when brine entered the coil and mixed with the ammonia in it," meaning that "[t]he loss from the contamination is the impure ammonia." Id. And the salt that spread throughout the pipes and clogged the machine was also not an ensuing loss. Id. at 175. The court held that the circulated salt that clogged the "system resulted from the initial contamination itself." Id. (emphasis added). But
"[h]ad the initial contamination resulted in fire, for example, that loss would have been covered under the ensuing loss clause." Id. at 176. ¶112 Richland Valley Products excluded the downstream effects of the original defect. It did not limit the excluded damage to simply the cost to replace the coil but instead, extended it to all damages that "resulted from the initial contamination itself." Id. at 175.
¶113 The Arnold court's application is consistent with Richland Valley Products. The court determined that damages must occur as a result of a distinct cause-in-fact. It held that "in addition to being a loss that
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JUSTICE ZIEGLER, dissenting
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follows as a chance, likely, or necessary consequence of the excluded loss, an ensuing loss must result from a cause in addition to the excluded cause."
Arnold, 276 Wis. 2d 762, ¶29 (emphasis added). Accepting that interpretation of the insurance contract's ensuing-loss provision, the court of appeals then applied a three-part framework to determine whether the losses were covered as "ensuing losses." First, the court identified the losses caused by the faulty workmanship and faulty materials and excluded those losses. Id., ¶34. Second, the court identified each ensuing loss, i.e., each loss that followed as a chance, likely, or necessary consequence from that excluded loss. Id. Lastly, for each ensuing loss, the court determined whether it is an excepted or excluded loss under the policy. Id. ¶114 Under the first part of the test, the court of appeals excluded
"the loss[es] consisting of the deterioration of the caulking, the discoloration or other damage to the window frames and door frames, and the discoloration or other damage to other parts of the exterior of the house and the driveway" because they "were all caused only by faulty workmanship, faulty materials, or some combination of the two." Id., ¶35. Because those losses fell within the terms of the exclusion, the insurance policy did not cover those losses. Id.
¶115 As for the water damages to the interior of the home, the court of appeals split the damages between those that stemmed from the unworkmanlike use of the pressure washer and those that resulted from the damaged caulking that allowed rain to enter the home. Id., ¶36. It held that the water damage that occurred during the power washing was excluded because it was caused by faulty workmanship. Id., ¶37. But the interior that was damaged by rain leaking in through the damaged caulking was not excluded because the rain was a separate "cause in addition to the excluded cause," and the rain fell into the policy's ensuing cause-of-loss-exception. Id., ¶¶38-40 (emphasis added).
The Majority Misinterprets and Misapplies Arnold.
¶116 Unfortunately, in today's decision, the majority fails to correctly interpret and apply Arnold. The majority says that "Arnold's interpretation is reasonable and deserves some prudentially grounded respect." Majority op., ¶62. But it then fails to recognize the distinction that Arnold set forth regarding what damages are recoverable for each cause. ¶117 The independent cause of damages, from Arnold, is
unaccounted for in the majority's application. In one breath, the majority
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JUSTICE ZIEGLER, dissenting
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recognizes that Arnold requires "an additional cause of loss to trigger the ensuing loss exception." Majority op., ¶63. In the next, it holds that the damages "caused by the rainwater that came as a consequence of the construction defect would be an ensuing loss." Id., ¶67 (emphasis added). That ignores Arnold's command that an additional cause of loss must exist to trigger the ensuing-loss exception. In other words, the majority does not follow Arnold; it expands it beyond recognition.
¶118 Focusing on the rain in Arnold distracts from the true causal event. The rain in Arnold entered into the home only as a result of the damage to the caulking and windowsills. The insurer was liable only for the losses caused by rain that entered because of the broken caulking—an attenuated event that constituted an independent cause of damage. But here, all the damages derive from the construction defect itself.4Nothing ensued to allow water to damage the insured home; all the damage came directly from water entering the home as a result of defective construction. At a minimum, the homeowners have not demonstrated what damage would have occurred had the house been properly constructed. ¶119 Does the majority really intend for the extensive coverage its interpretation of Arnold provides? Homes provide shelter. Shelters protect individuals from the elements. If a shelter is built defectively, then the
"chance, likely, or necessary consequence" of elemental damage to a new build is highly likely, particularly here in Wisconsin. Accordingly, in the home-construction context, construing Arnold broadly effectively holds insurers liable for all damages that stem from shoddy homebuilding, even though the policy precludes it. Arnold, properly applied, undermines the majority's conclusion. Instead, our jurisprudence should follow the majority of jurisdictions that apply ensuing-loss provisions narrowly, emphasizing the "cause in addition to" language in Arnold. 276 Wis. 2d 762, ¶29. That leaves Arnold intact. That accounts for the secondary-cause requirement in Arnold. And, that resolves the case before us.
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JUSTICE ZIEGLER, dissenting
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III. CONCLUSION
¶120 Ensuing losses are losses that are distinct from the losses that are explicitly excluded by the insurance contract. The provision itself indicates that there are two events: (1) an event that is excluded from coverage, including everything caused by that event, and (2) a distinct event that causes a second, ensuing loss. To prevent the exception from swallowing the exclusion, a majority of jurisdictions favor an interpretation that requires proof of separate losses, not those that result from the defect itself.
¶121 By broadly interpreting Arnold and ensuing-loss provisions, this court abandons Arnold's two-cause framework, furthering confusion for insureds and insurers alike. It allows the policy's exception to swallow the policy's exclusion by providing insurance coverage for damages caused by a construction defect. Instead, in cases like this, our jurisprudence should require proof of what damages were caused by the construction defect and what damages were caused by the independent event.
¶122 It is peculiar to think that an excluded risk can "become compensable because in a philosophical sense it can also be classified as water damage." Yates, 344 F.2d at 941. But that is precisely what the majority's decision has done.
¶123 Respectfully, I would affirm the circuit court's grant of summary judgment, and accordingly, I dissent from the majority's opinion.
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