A.Henri de Marne responds: Siding applied directly over rigid insulated sheathing has a history of failures. The consensus seems to be that rigid-foam sheathing is so impermeable that moisture absorbed by the siding (from direct rainfall or "splash back" at horizontal surfaces) cannot be buffered by temporary absorption in the underlying wood framing elements. The rigid insulation also prevents the wall framing from absorbing any of the heat generated by exposure to direct sun.
Depending on the action of the rain, sun, and temperature, the siding cups as moisture is driven back and forth through the siding. In this case, the peeling of the latex stain indicates that a solid-color stain was used. The surface film of stain lifts off the siding when underlying moisture tries to escape by migrating through the surface of...
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