Laurie Hager | Snell & Wilmer
In a February 15, 2023 decision in Twigg v. Admiral Insurance Company, the Oregon Court of Appeals held that an insurance company was not required to indemnify its insured based on a claim for breach of a repair agreement that settled underlying construction defect claims.
As background, the Twiggs hired a contractor, Rainier Pacific, to construct a new home. The Twiggs then filed their first arbitration against Rainier Pacific alleging, among other things, that a portion of the work was defective. The first arbitration was resolved through a settlement agreement which the parties referred to as the “Repair Agreement.” Under the Repair Agreement, Rainier Pacific was required to repair certain alleged construction defects.
The Twiggs then filed a second arbitration alleging that Rainier Pacific had breached the Repair Agreement by failing to perform the repairs required under the Repair Agreement. The arbitrator awarded $604,594.80 to the Twiggs for the total cost to perform the repairs that Rainier Pacific had failed to adequately complete under the Repair Agreement.
Rainier Pacific had a commercial general liability insurance policy from Admiral Insurance Company, under which Admiral agreed to cover Rainier Pacific’s liability arising from property damage caused by an occurrence. An occurrence is defined in the policy as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” After Admiral denied indemnity coverage, the Twiggs sought to collect on their arbitration award by asserting a claim against Admiral for breach of the general liability insurance policy.
The trial court dismissed the Twiggs’ coverage claim against Admiral, and the Twiggs appealed. The Court of Appeals (“the Court”) affirmed the trial court’s dismissal ruling on appeal.
In its decision, the Court notes that the Twiggs’ written arbitration claim was informal and did not set forth numbered allegations or labeled claims, but was generally framed as a breach of the Repair Agreement. With respect to the arbitrator’s ruling, the Court found that the
“arbitrator concluded that [certain] repairs had been completed, but that the installation was ‘defective’ and contrary to the manufacturer’s specifications. … The arbitrator concluded that Rainier Pacific, ‘through its consistent failure to diligently prosecute the work, and through its defective efforts to repair the garage slab, materially and substantially breached the [Repair] Agreement.’ The arbitrator finally concluded that the Twiggs’ ‘relief is based upon common-law principles of breach of contract.’”
The Court concluded that the claim asserted by the Twiggs in the second arbitration did not allege property damage based on an “occurrence.” Rather, the Court held that the claim was for breach of Rainier Pacific’s contractual obligations under the Repair Agreement, which is not a claim covered under the insurance policy. The Court relied heavily on the fact that the Twiggs’ arbitration claim was presented, defended, and ruled on by the arbitrator as a single claim for breach of contract.
All that being said, the Court acknowledged that “[t]here is no doubt that a repair contractor’s negligent work that accidentally caused damage to physical property could give rise to an occurrence under the policy.”
The Court’s decision allows for different outcomes under distinguishable facts. For example, the Court’s decision suggests that it might have ruled differently had the arbitration claim clearly alleged a distinct claim for negligence that caused resulting property damage. Additionally, if the performance under the Repair Agreement had led to new resulting property damage that was not already required to be repaired under the Repair Agreement, that might have also led the Court to a different conclusion. Additionally, it appears that the Admiral policy did not cover the underlying defects that led to the first arbitration that was resolved through the Repair Agreement and, therefore, the Twiggs could not argue that the underlying defects from the first arbitration constituted resulting property damage that Admiral was required to cover under the policy.
A contractor that enters into separate contract to repair originally defective work should be aware of the Admiral coverage case ruling, as it may affect the contractor’s ability to receive indemnity coverage for related property damage.
When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email experts@adviseandconsult.net.