Can a liability insurer deny coverage just because the underlying suit only alleges breach of contract, even if the facts suggest negligence or an accident? That's the question the Oregon Supreme Court recently answered in a ruling that's likely to be welcomed by policyholders, especially those involved in construction defect litigation.
The Oregon high court held that coverage under a CGL policy doesn't turn on the legal theory alleged, such as contract versus tort, but rather on the underlying facts. If the facts support accidental property damage or negligent conduct, coverage may exist, regardless of how the claim is framed. This aligns Oregon with other states that focus on the substance of the allegations and not the legal labels when analyzing the duty to defend or indemnify.
We dive into the nuts and bolts of the dispute below, tracing the issues with
the construction project, the policy language the insurer relied on, and the arguments
that shaped the court's analysis. By walking through these coverage positions and the
Oregon Supreme Court's reasoning, we can see exactly how the facts, rather than the
pleadings' labels, drove the outcome—and what that means for contractors, insurers, and
counsel going forward.
Subscribers to IRMI's Insurance Law Essentials will receive the following as part of their package.
A semimonthly* newsletter that gives you the most recent and important
coverage decisions, allowing you to keep up to date with changes in the law
and stay ahead of the competition.
Access to more than 10,000 case summaries. Save time and money finding the cases that are important to you, such as how courts in your jurisdiction interpret a certain additional insured endorsement, waivers of subrogation, other insurance provisions, contractual liability, and much more.
Access to the actual policy forms (where available)—a feature exclusive to Insurance Law Essentials! Improve your coverage arguments and build your own database of forms.
If you are not a subscriber, click here to subscribe today!
*Except for November and December, when the newsletter is sent
monthly.
Underlying Facts: The CGL Insurer Denied Coverage Due to Breach of Contract Label on the Arbitration Award
A general contractor was hired to build a home in Oregon. After construction was completed, the homeowners discovered defects in the garage floor and other areas. The homeowners and the general contractor agreed to a repair agreement to settle these original issues, and attempts were made to repair the defects. However, the garage floor remained defective.
An underlying arbitration action was filed, claiming that the general contractor had breached the repair agreement. The underlying arbitration sought to recover the costs of correcting the general contractor's work, based on the alleged improper installation of a concrete overlay product, Ardex, which resulted in disbonding, cracks, and voids. Ultimately, the arbitration proceeding determined that the general contractor had breached the repair agreement, and the homeowners were awarded $150,000 in damages.
The general contractor was insured under a CGL policy issued by Admiral Insurance Company. After the underlying arbitration award was entered against the contractor for breaching the repair agreement, Admiral denied that it owed a duty to indemnify the homeowners for the underlying arbitration award. Admiral argued that, because the arbitrator had awarded damages based solely on the general contractor's breach of the repair agreement, coverage was not owed under the CGL policy. Specifically, Admiral stated that the underlying award for breach of contract did not qualify as "property damage" caused by an "occurrence," which the policy defined in relevant part as an "accident."
A coverage lawsuit was filed in an Oregon trial court. The insured argued that, based on Oregon law, a "complete failure to perform under a contract" is not a covered "occurrence," but a "mistake that results in accidental property damage" is an "occurrence." The general contractor argued that "its failure to carry through the control joints as directed by the manufacturer of the Ardex had been a 'mistake' that caused 'accidental property damage' in the form of 'voids' and 'cracks' in the garage floor." In other words, the insured argued that coverage under the CGL policy should be determined based on whether the actual facts demonstrate accidental harm, rather than whether the allegations in the underlying suit are framed as a breach of contract.
The trial court rejected the insured's argument and held that no CGL coverage was owed for the arbitration award based on the fact that it was based on a breach of contract. The general contractor appealed this result to the Oregon Court of Appeals, which similarly ruled that "liability arising from breach-of-contract damages does not qualify as an 'accident' and thus does not meet the 'occurrence' requirement of a CGL policy."
An appeal was filed with the state's highest court.
Court's Ruling: CGL Coverage Is Not Dependent on Legal Label Used by the Underlying Claimant
In Twigg v. Admiral Ins. Co., 373 Or. 445 (Apr. 17, 2025), the Oregon Supreme Court reversed the
lower courts' rulings. It held that coverage under a CGL policy may apply even where
the underlying claim is pleaded solely as a breach of contract. In reaching this
result, the court analyzed whether coverage under a CGL policy was dependent on the
underlying claimant alleging or ultimately proving negligence in the underlying
case. In siding with the general contractor's view, the court held as follows.
[W]e conclude that, to establish the property damage alleged here was caused by an "accident" within the meaning of defendant's CGL policy, [the underlying claimants] were not required to formally allege a tort claim or obtain an award in tort. Rather, [the underlying claimants] were required to establish that there was a basis in fact for imposing tort liability on [the general contractor], even though the same facts may have established [the general contractor's] liability in contract. [Emphasis added.]
Thus, the court rejected an overreliance on the legal labels used by underlying claimants as they related to the policy's "occurrence" requirement. Instead, CGL coverage is dependent on "whether there is a basis in fact for imposing tort liability" on the insured.
Next, the Oregon Supreme Court reviewed the actual evidence in the
underlying suit based on this new standard. The Oregon high court noted that
evidence, including expert reports and manufacturer warnings, raised a factual issue
as to whether the contractor's failure to install the Ardex correctly amounted to
negligence. The Oregon Supreme Court, therefore, remanded this case to the trial
court for a fact-finding trial to determine whether the damage was caused by an
"accident" or an "occurrence," as required by the CGL policy.
Takeaway: Liability Coverage
Will Turn on the Facts Alleged and Not on Legal Liabilities
The Oregon Supreme Court ruled that coverage under a CGL policy
for construction defects does not depend on whether the claim is pleaded in contract
or tort. Instead, the court held that coverage depends on the actual facts that
support liability for an accidental or negligent act. Thus, coverage will exist in
Oregon for a lawsuit or claim solely alleging breach of contract if the underlying claim could also support
tort-based liability for property damage.
Opinions expressed in Expert Commentary articles are those of the author and are not necessarily held by the author's employer or IRMI. Expert Commentary articles and other IRMI Online content do not purport to provide legal, accounting, or other professional advice or opinion. If such advice is needed, consult with your attorney, accountant, or other qualified adviser.
Can a liability insurer deny coverage just because the underlying suit only alleges breach of contract, even if the facts suggest negligence or an accident? That's the question the Oregon Supreme Court recently answered in a ruling that's likely to be welcomed by policyholders, especially those involved in construction defect litigation.
The Oregon high court held that coverage under a CGL policy doesn't turn on the legal theory alleged, such as contract versus tort, but rather on the underlying facts. If the facts support accidental property damage or negligent conduct, coverage may exist, regardless of how the claim is framed. This aligns Oregon with other states that focus on the substance of the allegations and not the legal labels when analyzing the duty to defend or indemnify.
We dive into the nuts and bolts of the dispute below, tracing the issues with the construction project, the policy language the insurer relied on, and the arguments that shaped the court's analysis. By walking through these coverage positions and the Oregon Supreme Court's reasoning, we can see exactly how the facts, rather than the pleadings' labels, drove the outcome—and what that means for contractors, insurers, and counsel going forward.
Subscribers to IRMI's Insurance Law Essentials will receive the following as part of their package.
If you are not a subscriber, click here to subscribe today!
*Except for November and December, when the newsletter is sent monthly.
Underlying Facts: The CGL Insurer Denied Coverage Due to Breach of Contract Label on the Arbitration Award
A general contractor was hired to build a home in Oregon. After construction was completed, the homeowners discovered defects in the garage floor and other areas. The homeowners and the general contractor agreed to a repair agreement to settle these original issues, and attempts were made to repair the defects. However, the garage floor remained defective.
An underlying arbitration action was filed, claiming that the general contractor had breached the repair agreement. The underlying arbitration sought to recover the costs of correcting the general contractor's work, based on the alleged improper installation of a concrete overlay product, Ardex, which resulted in disbonding, cracks, and voids. Ultimately, the arbitration proceeding determined that the general contractor had breached the repair agreement, and the homeowners were awarded $150,000 in damages.
The general contractor was insured under a CGL policy issued by Admiral Insurance Company. After the underlying arbitration award was entered against the contractor for breaching the repair agreement, Admiral denied that it owed a duty to indemnify the homeowners for the underlying arbitration award. Admiral argued that, because the arbitrator had awarded damages based solely on the general contractor's breach of the repair agreement, coverage was not owed under the CGL policy. Specifically, Admiral stated that the underlying award for breach of contract did not qualify as "property damage" caused by an "occurrence," which the policy defined in relevant part as an "accident."
A coverage lawsuit was filed in an Oregon trial court. The insured argued that, based on Oregon law, a "complete failure to perform under a contract" is not a covered "occurrence," but a "mistake that results in accidental property damage" is an "occurrence." The general contractor argued that "its failure to carry through the control joints as directed by the manufacturer of the Ardex had been a 'mistake' that caused 'accidental property damage' in the form of 'voids' and 'cracks' in the garage floor." In other words, the insured argued that coverage under the CGL policy should be determined based on whether the actual facts demonstrate accidental harm, rather than whether the allegations in the underlying suit are framed as a breach of contract.
The trial court rejected the insured's argument and held that no CGL coverage was owed for the arbitration award based on the fact that it was based on a breach of contract. The general contractor appealed this result to the Oregon Court of Appeals, which similarly ruled that "liability arising from breach-of-contract damages does not qualify as an 'accident' and thus does not meet the 'occurrence' requirement of a CGL policy."
An appeal was filed with the state's highest court.
Court's Ruling: CGL Coverage Is Not Dependent on Legal Label Used by the Underlying Claimant
In Twigg v. Admiral Ins. Co., 373 Or. 445 (Apr. 17, 2025), the Oregon Supreme Court reversed the lower courts' rulings. It held that coverage under a CGL policy may apply even where the underlying claim is pleaded solely as a breach of contract. In reaching this result, the court analyzed whether coverage under a CGL policy was dependent on the underlying claimant alleging or ultimately proving negligence in the underlying case. In siding with the general contractor's view, the court held as follows.
Thus, the court rejected an overreliance on the legal labels used by underlying claimants as they related to the policy's "occurrence" requirement. Instead, CGL coverage is dependent on "whether there is a basis in fact for imposing tort liability" on the insured.
Next, the Oregon Supreme Court reviewed the actual evidence in the underlying suit based on this new standard. The Oregon high court noted that evidence, including expert reports and manufacturer warnings, raised a factual issue as to whether the contractor's failure to install the Ardex correctly amounted to negligence. The Oregon Supreme Court, therefore, remanded this case to the trial court for a fact-finding trial to determine whether the damage was caused by an "accident" or an "occurrence," as required by the CGL policy.
Takeaway: Liability Coverage Will Turn on the Facts Alleged and Not on Legal Liabilities
The Oregon Supreme Court ruled that coverage under a CGL policy for construction defects does not depend on whether the claim is pleaded in contract or tort. Instead, the court held that coverage depends on the actual facts that support liability for an accidental or negligent act. Thus, coverage will exist in Oregon for a lawsuit or claim solely alleging breach of contract if the underlying claim could also support tort-based liability for property damage.
Opinions expressed in Expert Commentary articles are those of the author and are not necessarily held by the author's employer or IRMI. Expert Commentary articles and other IRMI Online content do not purport to provide legal, accounting, or other professional advice or opinion. If such advice is needed, consult with your attorney, accountant, or other qualified adviser.