In Twigg v. Admiral Insurance Co., the Oregon Court of Appeals held that an insurer need not indemnify its insured for damages arising out of a breach of a contract.
In this case, Weston and Carrie Twigg hired Rainier Pacific Development LLC (“Rainier Pacific”) to construct a new home. The Twiggs determined that the home was not constructed within the agreed upon and time and that Rainier Pacific’s work was defective in several respects. In particular, the Twiggs noted that the garage floor was sloped and cracked. Accordingly, the Twiggs filed an arbitration claim alleging that Rainier Pacific failed to construct the home in accordance with the approved plans and specifications and within the time provided. Eventually, the Twiggs and Rainier Pacific settled the arbitration claim by entering into a Settlement Agreement. The Settlement Agreement provided, among other things, that Rainier Pacific would repair a number of the alleged construction defects. These repairs included correcting the sloped and cracked garage floor.
After several months, the Twiggs determined that Rainier Pacific had not adequately completed the agreed upon repairs. Accordingly, the Twiggs filed a second arbitration claim against Rainier Pacific. The second arbitration claim alleged that Rainier Pacific failed to perform the repair obligations of the Settlement Agreement. In the end, the arbitrator found that Rainier Pacific breached the Settlement Agreement and awarded damages to the Twiggs in the amount of $605,594.80. Approximately $150,000 of this total was attributable to the cost to repair the garage floor. The arbitrator concluded that the relief was based upon common-law principles of breach of contract. The county circuit court thereafter entered a judgment against Rainier Pacific conforming to the arbitration award.
After entry of the Judgment, Rainier Pacific sought coverage for the arbitration award under its commercial liability insurance policy with Admiral Insurance Company (“Admiral”). However, Admiral denied coverage. Admiral noted that Rainier Pacific’s insurance policy provided coverage for property damage only if it was caused by an “occurrence,” which the policy defined as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” Admiral reasoned that Rainer Pacific’s liability in the second arbitration claim was based upon of Rainier Pacific’s breach of its Settlement Agreement with the Twiggs, and therefore such liability did not arise out of an “occurrence” as that term was defined under the policy.
The Twiggs, standing in the shoes of Rainier Pacific, filed a lawsuit alleging that Admiral breached the insurance policy with Rainier Pacific by failing to pay the arbitration award. They argued that Admiral breached the insurance policy by failing to pay at least $150,000, an amount that allegedly represented the “accidental property damage to the new garage floor.”
The parties filed cross motions for summary judgment. Admiral argued, among other things, that Rainier Pacific’s liability was not covered by the policy because it did not arise from an “occurrence” as that term was defined under the policy. The trial court granted Admiral’s motion for summary judgment. In doing so, the court reasoned that that the case was controlled by Oak Crest Const. Co. v. Austin Mutual Ins. Co., 329 Or. 620, 998 P.2d 1254 (2000). In that case, the Oregon Supreme Court ruled that a claim premised upon the breach of a contractual duty was not an “occurrence” under similar policy language.
The Court of Appeals framed the issue on review as “whether the applicable Admiral insurance policy provide[d] coverage for the legal liability incurred by Rainier Pacific in the underlying arbitration proceeding.”
The Court of Appeals rejected the Twigg’s contention that the term “occurrence,” which was defined as “an accident,” could be reasonably understood by an insured to cover damages caused by mistakes in performing the repair obligations of the Settlement Agreement. Rather, the Court of Appeals emphasized that the Twiggs’ presented their arbitration claim as a claim for breach of contract. In the second arbitration, the Twiggs sought the stipulated contract remedies provided in the Settlement Agreement. Further, the claim was defended by Rainier Pacific as a breach of contract claim. Most significantly, the arbitrator understood the claim to be one for breach of contract.
The Court of Appeals agreed with the trial court that Rainier Pacific’s liability arose solely from the breach of a contractual duty and, therefore, was not an “occurrence” for which Admiral had a duty to provide coverage. Accordingly, the Court of Appeals affirmed the trial court’s grant of summary judgment in favor of Admiral.
Although the Court of Appeals noted that liability could arise from both a breach of a contractual duty and a breach of an independent duty of care not to tortiously damage property, it found that this issue was not relevant to the present facts. In particular, the Court of Appeals emphasized that the Twiggs second arbitration claim never contended that Rainier Pacific’s liability arose from a breach of any duty of care separate from the Settlement Agreement. Rather, the Twiggs only alleged that Rainier Pacific breached the Settlement Agreement.
