In a pivotal decision interpreting the scope of coverage under a commercial general liability (CGL) policy, the Oregon Supreme Court in Twigg v. Admiral Insurance, clarified how courts should assess whether property damage arises from an "accident" when the underlying claim can be resolved by way of the contract in place rather than expanding it to a tort claim. The case centered on whether an insurer was obligated to cover damage caused by a subcontractor's faulty installation work, where the policy defined a covered "occurrence" as an "accident." Although the plaintiffs pursued only a breach of contract claim, they argued that the facts supported liability in tort, and therefore fell within the scope of the policy's coverage.
Background and Key Facts: Homeowner Construction Dispute Leads to Insurance Coverage Lawsuit
In 2011, homeowners hired Rainier Pacific Development, LLC, a general contractor insured under a commercial general liability (CGL) policy issued by Admiral Insurance Company, to construct a residence on a hillside lot. The homeowners identified significant construction defects, including a cracked and improperly sloped garage floor that directed water toward the home, creating a risk of damage.
Rainier Pacific initially agreed to repair the defects, and the parties formalized a repair agreement setting out specific performance standards. To meet this obligation, Rainier Pacific subcontracted the installation of a lightweight concrete overlay known as Ardex.
The homeowners contended the Ardex overlay was defectively installed, citing poor slope, inadequate waterproofing, and failure to address existing control joints. Expert reports and video demonstrated voids and disbonding between the overlay and the original slab in support of these claims. The plaintiffs further contended that Rainier Pacific failed to secure the manufacturer's approval of the installation method and had not followed manufacturer specifications.
Rainier Pacific denied liability, asserting that the Ardex was properly applied and that the manufacturer approved the method. The arbitrator ultimately found that Rainier Pacific had breached the repair agreement, relying on evidence of improper installation and structural deficiencies. The arbitrator concluded that the garage floor was left in a worse condition and awarded plaintiffs $150,000 in damages for repair costs related to the slab, along with additional damages.
After judgment was entered against Rainier Pacific, the homeowners sought coverage under the company's Admiral-issued CGL policy. Admiral denied the claim, prompting the homeowners to file a coverage lawsuit. The central issue became whether the faulty construction constituted an occurrence under the policy.
Coverage Based on Contractual Nature of Claim
At the trial court level, the plaintiffs argued that Admiral Insurance Company had a duty to indemnify its insured, Rainer Pacific Development, for the damages awarded in arbitration. They claimed the duty arose under the CGL policy because Rainer Pacific's defective work caused property damage. Admiral denied coverage, arguing that the arbitration award stemmed solely from Rainier Pacific's breach of a repair agreement and not from an "occurrence" as defined in the CGL policy. Admiral cited precedent establishing that breach of contract damage is not typically covered under such policies, since they do not arise from an "accident."
Both parties moved for summary judgment. Plaintiffs contended that the damage to the garage was accidental in nature and therefore qualified as an "occurrence" despite arising from a contractual obligation. They argued that Rainier Pacific's failure to properly install the Ardex overlay was a mistake resulting in unintended physical damage.
The trial court sided with Admiral, granting summary judgment. It concluded that Oak Crest Const. Co. v. Austin Mutual Ins. Co., 329 Or 620, 627, 998 P2d 1254 (2000), controlled the outcome, holding that the damages arose from defective workmanship tied to a contractual breach, not from an accidental occurrence triggering coverage. The Court of Appeals affirmed, agreeing that the arbitrator's award was grounded in a breach of contract, not in tort, and thus did not implicate coverage under the CGL policy. The Oregon Supreme Court granted review.
Court Interprets "Occurrence" and "Accident" Under CGL Policy
In analyzing whether Admiral Insurance Company's CGL policy covered the arbitration award against Rainer Pacific, the court focused on the meaning of the term "occurrence," which the policy defines as an "accident, including continuous or repeated exposure to substantially the same general harmful conditions." The policy covers only "property damage" caused by such an occurrence, and "property damage" is defined as physical injury to tangible property.
The central legal question was whether the property damage stemming from Rainier Pacific’s defective installation constituted an 'accident'—and therefore an 'occurrence'—under the CGL policy, even though the homeowners pursued only a breach of contract claim. Plaintiffs argued the damage was the result of the contractor's mistake and was an "accident." They contended that coverage should not depend on whether the underlying liability is characterized as contractual or tortious. Admiral, however, argued that an accident must involve tort liability, and that damages awarded solely for breach of contract do not trigger coverage, relying heavily on the Oregon Supreme Court's decision in Oak Crest.
The Court applied Oregon's established framework for interpreting insurance contracts, as set forth in Hoffman Const. Co. v. Fred S. James & Co., 313 Or 464, 469-71, 836 P2d 703 (1992), case:
- If a term is undefined (as accident was here), the court first considers whether it has a plain, unambiguous meaning.
- If more than one plausible interpretation exists, the court examines the term in both its immediate and broader policy context.
- If ambiguity remains, the term is construed against the insurer.
To determine whether Rainer Pacific's liability for property damage qualifies as an "accident" under its CGL policy, the court closely examined both dictionary definitions and relevant case law, particularly the Oregon Supreme Court's decision in Oak Crest. At the heart of the dispute is whether unintended property damage resulting from a contractor's mistake, even if arising from a breach of contract, constitutes accident sufficient to trigger CGL coverage.
Webster's Dictionary offers multiple definitions of "accident," emphasizing events that occur unintentionally, unexpectedly, or through carelessness. Some aspects of those definitions support the plaintiffs' argument that unintended damage, even if caused by a contractual mistake, should qualify as an accident. Others, which imply some level of fault or a legal remedy, such as carelessness, arguably support the defendant's position that an accident must involve conduct giving rise to tort liability.
Ultimately, the court found that both interpretations are plausible based solely on the dictionary definitions and that no single plain meaning resolves the dispute. Therefore, the court turned to legal precedent for guidance, specifically, the Oak Crest decision.
Revisiting Oak Crest and its Significance
In Oak Crest, the Oregon Supreme Court denied CGL coverage for the costs a general contractor incurred to fix a subcontractor's defective paint job, holding that damages stemming solely from a breach of contract were not caused by an accident. General liability insurance protects against third party claims, not claims arising from failures to perform contractual duties. Kisle v. St. Paul Fire & Marine Ins. Co., 495 P.2d 1198, 262 Or.1 (1972).
Admiral argued that Oak Crest controls the outcome here and bars recovery because the plaintiffs' damages resulted from Rainer Pacific's failure to meet its obligations under a repair agreement. Plaintiffs disagreed, challenging Oak Crest's relevance and asserting that unlike Oak Crest, the record in this case identifies specific mistakes made by Rainer Pacific that caused the property damage. They urged the court to limit or clarify Oak Crest, arguing it failed to apply Oregon's well-established policy interpretation framework from Hoffman and relied too heavily on tort-based definitions that conflict with an ordinary insured's understanding of "accident."
The court concluded that Oak Crest remains a valid and instructive precedent though not dispositive. It provides insight into what does not constitute an accident, namely, damage arising solely from breach of contract, but does not definitely resolve what does. The court emphasized two key takeaways form Oak Crest:
- Damages that result solely from a failure to perform contract do not qualify as accidents.
- Whether a claim is based only in contract or also implicates tort depends on the underlying factual record. Not just how the claim is pleaded.
In other words, the Court clarified Oak Crest does not stand for the proposition that contract-based pleadings always preclude coverage. Rather, it emphasized that courts must now look beyond how a claim is styled and assess whether the underlying facts support a tort-based theory of liability—even if unpleaded."
Applying these principles, the court found while an accident must involve more than a contractual failure, it does not demand that plaintiffs specifically plead tort liability to establish coverage.
Contextual Meaning of "Accident" in CGL Policies Offers Limited Clarification
The court next analyzed whether the context of the term "accident" in the defendant's CGL policy helped clarify its meaning. The court focused on the immediate language surrounding the term, including the policy's definition of occurrence, which is defined in part as an accident, and the clause referencing "continued or repeated exposure" to harmful conditions.
The court acknowledged that occurrence is broader than accident. While an accident must be unexpected, an occurrence merely denotes something that happens, whether expected or not. The broader term was introduced into the CGL policies after 1996 to expand coverage beyond sudden events and include gradual or ongoing harm. However, the expansion does not resolve the core issue: how to determine whether liability arises from an accident as opposed to a contractual breach. The inclusion of the phrase "continuous or repeated exposure" similarly fails to offer meaningful guidance. It reinforces that an accident need not be sudden, but it does not explain how to determine whether the liability stems from a non-contractual duty.
Ambiguity in Policy Language Triggers Interpretation Favoring Coverage
The court expanded its analysis to the broader context of the CGL policy to determine whether the accident necessarily incorporates tort principles. The court found that, while certain language in the policy could be interpreted to require tort liability, it did not clearly exclude coverage for property damage arising from negligent contractual performance.
The court focused on Coverage A of the policy, which obligated the insurer to pay damages the insured becomes "legally obligated to pay because of property damage." Although this clause appears to hinge on damages caused by an occurrence, it does not unambiguously state that only tort-based liability qualifies. This left open the possibility that liability could arise from the facts underlying the damage- even if the claim was brought as a breach of contract- as long as those facts could support a tort claim.
To resolve this ambiguity, the court again turned to its prior decision in Oak Crest, which involved similar facts and stands for the principle that the form of the underlying claim is not controlling; what matters is whether the facts could support the liability. Because this interpretation aligns with the plaintiff's view and the policy remained ambiguous even after considering context and precedent, the court applied the final step of the Hoffman methodology, which was to construe ambiguities against the insurer.
Evidence of Negligence Precludes Summary Judgment Despite Contract-Based Pleading
In the final section of its opinion, the court addressed the defendant insurer's core argument: that because the plaintiffs pursued only a breach of contract claim and not a tort claim, they were precluded from recovering under the CGL policy. While the court acknowledged that the plaintiffs had not formally pleaded a tort cause of action, it rejected the insurer's assertion that this omission barred coverage.
The record contained substantial evidence that Rainer Pacific's subcontractor failed to follow installation instructions and warnings provided by the manufacturer of the Ardex overlay. Plaintiffs also submitted evidence that Rainer Pacific may have misrepresented the manufacturer's approval of the installation method. These facts, if accepted by a factfinder, could support a finding of negligent conduct— specifically that the subcontractor's actions created a foreseeable and unreasonable risk of harm, which resulted in damage to the plaintiff's garage floor.
Viewing this evidence in the light most favorable to the plaintiffs, the court found that a genuine issue of material fact remained as to whether the property damage resulted from an accident as defined under the policy, i.e. from negligent conduct rather than purely contractual performance. Thus, summary judgment for the defendant insurer was not appropriate.
Conclusion
The Oregon Supreme Court's decision provides key guidance for policyholders and insurers navigating the interplay between contract-based claims and insurance coverage rooted in tort concepts. In ruling the absence of a formally pleaded tort claim does not foreclose CGL coverage where the record supports potential tort liability, the court emphasized substance over form. The opinion reinforces that courts must consider the broader factual context, not just labels applied in pleadings, when determining whether damage arises from an "accident."
This decision may significantly influence future construction defect and other commercial litigation in Oregon, where plaintiffs often assert hybrid or contract-only claims. Insurers simply can no longer rest easily on the legal form of a claim to avoid coverage; instead, courts will now carefully scrutinize the factual underpinnings.