You Noticed the Problem Years Ago. Does Your Property Insurance Still Cover the Damage?

Almost everyone who owns property has had a version of this moment. A crack shows up in a wall. A drain keeps backing up. Someone who knows buildings points at something and says it really ought to be dealt with. So you fix what you can, you keep an eye on the rest, and life moves on.

Years later, the problem turns out to be far worse than anyone thought. You file an insurance claim. And the insurance company comes back with a question: you knew about this, didn't you?

On September 1, 2026, the Arizona Supreme Court answered a version of that question. Its ruling draws a line that matters to anyone who owns property and buys insurance to protect it — the line between a risk you could see coming and a loss you already knew was coming.

Thirty years of water and salt

The building at the center of the case is a commercial property in Arizona, covered by what the insurance industry calls an "all-risk" policy. Part of it had been leased since 1990 to a business that processes seafood — an operation that used a great deal of water and salt, both in its work and in cleaning up afterward.

Over three decades, that took a toll. By 2010, there were visible signs of trouble: damaged concrete stairs, a damaged interior slab, damage to an exterior wall. The owner hired an engineering firm, which reported that the daily washing was draining into the structure and working on the walls, the stairs, and the soil underneath.

The owner did not ignore this. The lease was amended to put the tenant on the hook for repair costs. Drains and faulty drainage were repaired, cracks in the flooring were sealed, weep holes were installed, wall panels and stairs were fixed. Some of the engineer's other suggestions — a waterproof floor coating, a vapor barrier, additional drainage — were not carried out. No insurance claim was filed at the time.

Then in 2021, new damage appeared. Concrete panels were deteriorating, stairs were damaged again, and by early 2022 there were confirmed structural problems. This time the owner filed a claim.

The insurer investigated, hired its own engineering firm, and denied the claim. Its expert concluded the deterioration was concentrated around the tenant's space and looked like the result of years or decades in a corrosive environment — while also concluding that some of the damage could not be blamed on the water and salt at all. The insurer pointed to exclusions in the policy for things like faulty workmanship, settling, and ordinary wear and tear. The owner asked it to reconsider. It denied the claim a second time.

The problem with looking backward

The dispute landed in federal court, which ruled for the insurer. Its reasoning: the loss had been "reasonably foreseeable and almost certain to occur." If the owner could have seen this coming, the court said, it was not the kind of unpredictable event insurance is meant to cover.

There is a problem buried in that reasoning, and anyone who has ever cleaned up after a disaster will recognize it. After something breaks, it always looks like it was going to break. The warning signs that seemed ambiguous at the time line up neatly into a story once you know the ending. Hindsight has a way of turning a maybe into an obviously.

Because Arizona courts had never actually defined the key term, the federal appeals court hearing the case did something courts do in that situation: it paused and asked Arizona's highest court to explain its own state's law. That request is called a certified question, and it is why this case reached the Arizona Supreme Court without being an appeal in the ordinary sense.

Insurance is for risks, not certainties

The Court started with something close to common sense. Insurance covers risk. A risk is something that might happen. If an event is already certain, it isn't a risk at all — it is simply a bill waiting to arrive, and no company would sell you a policy against it. Arizona law reflects this: it defines insurance as a promise to pay on "determinable contingencies," which is a lawyer's way of saying things that may or may not happen.

So the real question is what the owner had at the moment coverage began: a risk, or a certainty?

The Court's answer is that a loss is fortuitous — that is the legal word — when, as far as the parties know, it depends on chance. Being fortuitous is what gets a loss through the door of an all-risk policy; it is not the same thing as being covered, because the policy's own exclusions still apply on top of it. A loss falls outside the fortuity requirement only if, when coverage started, the insured already knew that the event causing the damage:

• had already happened,
• was already underway, or
• was certain to happen, because nothing significant was left that could still change the outcome.

That third one carries the most weight, so it is worth slowing down on. The Court's phrase is that no "material contingency" remained — meaning no remaining uncertainty, important enough to matter, about whether the loss-causing event would happen at all. If something meaningful could still have gone either way, the situation was still a risk. A repair might have held. A tenant's practices might have changed. A condition might have stopped progressing.

Those examples belong to the third branch only. They do not help an insured who already knew the loss-causing event had occurred or was underway — those are independent reasons a loss is not fortuitous. And the Court did not find that any of these examples actually fit this property; it decided the legal standard, not how it comes out here.

Knowing about a risk is not knowing what will happen

This is the heart of the decision, and the Court was direct about it.

Arizona courts, it noted, have long held that merely knowing about a risk — being aware of it, even appreciating how serious it is — is not the same as knowing something is substantially certain. A person who acts knowing there is a real chance of harm may be careless, even seriously careless. That still is not the same as knowing an outcome is coming.

The Court also explained what would happen if foreseeability alone were enough to defeat coverage: it would create an entire category of risks that are "reasonably foreseeable" and therefore uninsurable. That result would hollow out the purpose of insurance. People buy coverage precisely because they can imagine things going wrong. A rule that withdrew protection the moment a risk became imaginable would leave coverage only for the things nobody ever thought of.

Drawing on a long-standing case from another court, the Arizona Supreme Court made the point about hindsight explicit: it is not fair to make an insured lose coverage by concluding, with the benefit of knowing how the story ended, that the loss was never really uncertain — when at the time the policy took effect, everyone involved was looking at nothing more than a risk.

The Court did not leave insurers without options

The Court was explicit that this ruling cuts in both directions.

Insurance companies, it observed, are not powerless. They can evaluate a risk and decline to cover it. They can price it. And they can write exclusions into the policy — the Court noted that an insurer wanting to limit coverage has to communicate that limit clearly. What an insurer cannot do is sell an all-risk policy and then argue after the fact that a risk the buyer knew about was never covered at all.

At the same time, the Court was clear that "all-risk" does not mean "all losses." As noted above, fortuity is only the entry ticket. A loss can clear that bar and still run into an exclusion written into the policy itself.

What the Court did not decide

This part matters as much as the holding.

The Court answered a question of law. It did not decide this dispute. It expressly declined to resolve the facts, noting that the parties still contest them and that the factual record may change as the case continues. It did not rule that the owner's loss was covered, it did not order the insurer to pay anything, and it did not decide whether the policy exclusions the insurer relied on apply. All of that returns to the federal case, where the standard the Court has now defined will be applied to whatever the evidence turns out to show.

What does this decision teach us?

• Insurance covers risks, not certainties. That distinction is doing the real work here, and it is the reason the Court set the bar at known certainty rather than predictability.
• The moment that counts is when coverage started. What matters is what the insured actually knew at that point, not what became obvious later.
• Hindsight is not the test. A loss does not lose protection simply because, looking back, the damage seems to have been coming.
• "All-risk" is not the same as "everything." A loss can be unpredictable enough to qualify and still fall within a specific exclusion the policy spells out.
• Answering a legal question is not the same as deciding a case. Here the Court supplied a definition for another court to apply; whether this particular claim gets paid is still unresolved.