Oregon Supreme Court Clarifies Coverage for Construction Defect Damage

The Oregon Supreme Court has ruled that defective construction work performed by a general contractor may constitute a covered “occurrence” under an ISO commercial general liability (CGL) policy. 

Ali H. Jamwal of Saxe Doerenberger writes that the Twigg v. Admiral Ins. Co. ruling resolves long-standing uncertainty under Oregon law regarding the intersection of contractual liability and CGL coverage in construction defect disputes.

According to the Court, while property damage resulting solely from a contractor’s contractual obligations does not amount to an accident, and thus does not trigger coverage, defective work that causes property damage through tortious conduct may qualify as an occurrence.

The case arose after Weston and Carrie Twigg hired Rainer Pacific Development LLC to build their home. Following completion, the Twiggs identified construction defects that caused property damage and ultimately obtained an arbitration award against Rainer for breach of contract.

Rainer was insured by Admiral Insurance Company, which denied coverage on the grounds that a breach of contract could not constitute an occurrence under its policy.

Both the trial court and the Oregon Court of Appeals agreed with Admiral, granting and affirming summary judgment in its favor. The Twiggs appealed to the state’s high court.

The Oregon Supreme Court reversed, holding that coverage turns not on the form of the legal claim, but on the underlying facts. If those facts show that the contractor breached a duty imposed by law, for example, negligence resulting in property damage, then an occurrence may exist even if the claim is pleaded as breach of contract.

Lawyers should note that the decision moves Oregon into alignment with the majority of jurisdictions. It signals that allegations of property damage from construction defects may trigger an insurer’s duty to defend, provided tortious conduct is factually implicated.