Pleading in contract no longer kills a builder's defect coverage
Pleading in contract no longer kills a builder's defect coverage
2026-09-15 · Oregon · Courts
The Oregon Supreme Court has removed the pleading trap that insurers used to defeat construction-defect coverage. Twigg v. Admiral Insurance Company, 373 Or 445, was decided April 17, 2025, and it matters to every Oregon association pursuing a builder.1
The problem it solves
Commercial general liability policies cover “property damage” caused by an “occurrence,” which the policies define as an accident. Insurers have long argued that where the underlying claim against the builder was pleaded and resolved in contract, there was no accident — only a breach — and therefore no coverage.
That argument had real force in Oregon, because construction-defect claims are frequently framed in contract, and because arbitration awards often do not specify a theory.
The holding
“Whether an insurance claim seeks recovery for an 'accident' does not depend on a plaintiff's pleading decisions in the underlying claim against the insured but depends instead on whether there is a basis in fact for imposing tort liability.”1
Applied to the facts: “Applying that rule of construction, we conclude that, to establish the property damage alleged here was caused by an 'accident' within the meaning of defendant's CGL policy, plaintiffs were not required to formally allege a tort claim or obtain an award in tort. Rather, plaintiffs were required to establish that there was a basis in fact for imposing tort liability on Rainier Pacific, even though the same facts may have established Rainier Pacific's liability in contract.”
And the underlying principle: “It is well settled that the mere fact that an insured was in a contractual relationship with a plaintiff does not foreclose the possibility of liability to that plaintiff in tort, in addition to contract.”
Disposition
“The decision of the Court of Appeals is reversed. The judgment of the circuit court is reversed, and the case is remanded to the circuit court for further proceedings.”
The homeowners had arbitrated defect claims against their builder and then pursued the builder's CGL insurer. Both lower courts had gone against them.
How the court got there
By reading the ambiguity against the insurer, and by cabining the two decisions insurers relied on.
The court applied the settled Oregon rule from Hoffman Construction Co. v. Fred S. James & Co., 313 Or 464, that an ambiguous policy term is construed against the drafter. It then read its earlier decisions in Oak Crest and Kisle as telling us more about what is not an accident — damage arising “solely from a breach of contract,” or “a complete failure of timely performance” — than about what is.
The distinction is between a builder who simply did not perform, and a builder whose defective performance caused damage in a way that would support a tort duty independent of the contract. The second is an accident; the first is not.
What this means for an Oregon association
An association suing a builder for defects in common property, and looking through to the builder's liability insurance, is no longer defeated by the shape of its own pleadings. What matters is the factual record — whether it supports a basis in fact for imposing tort liability.
A practical example the court's reasoning reaches: installation contrary to a manufacturer's explicit instructions. That is a factual predicate for negligence whether or not negligence was the label on the claim.
Three things follow for how a defect case plays out for an association.
Build the tort record even in a contract case. If coverage is the realistic source of recovery — and against a dissolved or judgment-proof builder it usually is — the evidence needs to establish the facts that would support tort liability, not merely breach of the construction contract.
Watch what an arbitration award says. Arbitration is common in Oregon construction-defect resolution and awards are often unreasoned. Twigg means the award's silence on theory is not fatal, but a record that lets a court find a basis in fact for tort liability is still required.
Understand what this does not decide. Twigg is about the threshold “occurrence” question. CGL policies contain a suite of business-risk exclusions — the “your work” exclusion, damage to the particular part being worked on, and others — that are untouched by it. Getting past “accident” is the beginning of a coverage analysis, not the end.
Where it sits against the new statute
Alongside House Bill 3746, which took effect January 1, 2026 and shortened the construction-defect period for an Oregon association from ten years to seven, keyed to when the declaration was first recorded. Our Oregon condominium inspection page covers the statutory package.
The two work in opposite directions. The Supreme Court widened the coverage that can be reached; the Legislature narrowed the window in which to reach it, for communities whose declarations are recorded from 2026 onward. A board in a new Oregon community has better law on insurance and less time to use it.
Worth noting: no Oregon appellate decision has yet construed House Bill 3746. The interaction between the shortened repose, the mandatory year-two and year-six moisture inspections, and the pre-suit owner-notice requirements is entirely untested in the appellate courts.
What to watch next
Whether insurers respond by litigating the exclusions harder, which is the predictable answer to losing on the threshold question. And whether the first Oregon appellate decision construing House Bill 3746 arrives before the first post-2026 declarations reach year six — which, on the arithmetic, would be around 2032.
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