Twigg v. Admiral Insurance Co. illustrates how relying on breach of contract claims may disadvantage property owners

In Twigg v. Admiral Insurance Co.,[1] the Oregon Court of Appeals recently resolved an insurance coverage dispute arising out of a construction project. Two homeowners hired a contractor to build a new home. The homeowners filed an arbitration claim against the contractor, alleging that the construction was deficient in numerous ways. The parties resolved the arbitration through a settlement agreement in which the contractor agreed to perform specific repairs to its prior work.

The dispute reignited when the homeowners became dissatisfied with the contractor's repair work. They filed a second arbitration claim against the contractor, this time alleging that the contractor breached the repair obligations in the settlement agreement. The arbitrator ruled in the homeowners' favor and awarded them over $600,000 in damages.

Having secured a judgment, the homeowners then turned to the contractor's insurer for payment. The insurer denied coverage, and both the trial court and Oregon Court of Appeals agreed the judgment was not covered. The Court of Appeals held that the applicable insurance policy provided coverage for an "occurrence," which was defined as an "accident," and expressly excluded coverage for breaches of contract. The homeowners' problem was that they only asserted a single claim for relief in the second arbitration—breach of the settlement agreement. Although the homeowners' arbitration claim alleged that the contractor's repair work was defective, they alleged that the contractor's "liability arose solely from breach of its contractual duties," not from an independent duty not to damage the homeowners' property. Accordingly, the claim was not covered.

Twigg illustrates the danger for both property owners and contractors if, in a construction defect dispute, the owner asserts only a breach of contract claim. While the specific insurance policies must be consulted, as a general matter, the insurance policies will likely exclude coverage for breach of contract claims. This can be harmful to property owners because they might be left with an uncollectable judgment if their contractor has few assets, and can be harmful to contractors who cannot depend on their insurer to cover the claim.

It is not entirely clear why the homeowners only asserted a breach of contract claim.[2] Although it does not appear to be the case in Twigg, sometimes it happens because negligence claims have a two-year statute of limitations in Oregon, while breach of contract claims have a six-year statute of limitations. Accordingly, if a property owner delays in filing a claim, they might be stuck with just a breach of contract claim. For that reason, owners must be diligent in timely addressing construction defect issues. Twigg also illustrates the importance of owners and contractors understanding all of the insurance policies applicable to a project. Insurance policies are often complex and contain many exclusions, so owners and contractors should familiarize themselves with them so that they are not unpleasantly surprised by a lack of coverage once a dispute arises and a judgment is entered.

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