A Recent Oregon Court of Appeals Decision Bears on Insurance Coverage for Repair of Construction Defects

Laurie Hager | Snell & Wilmer

In a February 15, 2023 decision in Twigg v. Admiral Insurance Company, the Oregon Court of Appeals held that an insurance company was not required to indemnify its insured based on a claim for breach of a repair agreement that settled underlying construction defect claims.

As background, the Twiggs hired a contractor, Rainier Pacific, to construct a new home. The Twiggs then filed their first arbitration against Rainier Pacific alleging, among other things, that a portion of the work was defective. The first arbitration was resolved through a settlement agreement which the parties referred to as the “Repair Agreement.” Under the Repair Agreement, Rainier Pacific was required to repair certain alleged construction defects.

The Twiggs then filed a second arbitration alleging that Rainier Pacific had breached the Repair Agreement by failing to perform the repairs required under the Repair Agreement. The arbitrator awarded $604,594.80 to the Twiggs for the total cost to perform the repairs that Rainier Pacific had failed to adequately complete under the Repair Agreement.

Rainier Pacific had a commercial general liability insurance policy from Admiral Insurance Company, under which Admiral agreed to cover Rainier Pacific’s liability arising from property damage caused by an occurrence. An occurrence is defined in the policy as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” After Admiral denied indemnity coverage, the Twiggs sought to collect on their arbitration award by asserting a claim against Admiral for breach of the general liability insurance policy.

The trial court dismissed the Twiggs’ coverage claim against Admiral, and the Twiggs appealed. The Court of Appeals (“the Court”) affirmed the trial court’s dismissal ruling on appeal.

In its decision, the Court notes that the Twiggs’ written arbitration claim was informal and did not set forth numbered allegations or labeled claims, but was generally framed as a breach of the Repair Agreement. With respect to the arbitrator’s ruling, the Court found that the

“arbitrator concluded that [certain] repairs had been completed, but that the installation was ‘defective’ and contrary to the manufacturer’s specifications. … The arbitrator concluded that Rainier Pacific, ‘through its consistent failure to diligently prosecute the work, and through its defective efforts to repair the garage slab, materially and substantially breached the [Repair] Agreement.’ The arbitrator finally concluded that the Twiggs’ ‘relief is based upon common-law principles of breach of contract.’”

The Court concluded that the claim asserted by the Twiggs in the second arbitration did not allege property damage based on an “occurrence.” Rather, the Court held that the claim was for breach of Rainier Pacific’s contractual obligations under the Repair Agreement, which is not a claim covered under the insurance policy. The Court relied heavily on the fact that the Twiggs’ arbitration claim was presented, defended, and ruled on by the arbitrator as a single claim for breach of contract.

All that being said, the Court acknowledged that “[t]here is no doubt that a repair contractor’s negligent work that accidentally caused damage to physical property could give rise to an occurrence under the policy.”

The Court’s decision allows for different outcomes under distinguishable facts. For example, the Court’s decision suggests that it might have ruled differently had the arbitration claim clearly alleged a distinct claim for negligence that caused resulting property damage. Additionally, if the performance under the Repair Agreement had led to new resulting property damage that was not already required to be repaired under the Repair Agreement, that might have also led the Court to a different conclusion. Additionally, it appears that the Admiral policy did not cover the underlying defects that led to the first arbitration that was resolved through the Repair Agreement and, therefore, the Twiggs could not argue that the underlying defects from the first arbitration constituted resulting property damage that Admiral was required to cover under the policy.

A contractor that enters into separate contract to repair originally defective work should be aware of the Admiral coverage case ruling, as it may affect the contractor’s ability to receive indemnity coverage for related property damage.

When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email experts@adviseandconsult.net.

Want to Limit Roof Claims in Florida? Why Not a Roof Endorsement?

Ben Mandell | Insurance Journal

I am an independent insurance adjuster. That means that I work for many different insurance companies on a freelance basis. I am usually hired by an IA firm that has a contract with an insurance company to adjust insurance claims. Many insurance companies have a limited number of staff adjusters and have more claims than their internal adjusters can handle. That’s why I have a job.

I am a field adjuster, which means that I travel to the actual location of the claim. My job is to meet with the policyholder, gather the facts of the loss and document the damages. I take a lot of photos so that the managers and desk adjusters can see the damages and make the proper payment, to the policyholder, for the loss.

As a field adjuster that has handled thousands of claims, I’ve seen some of the same things come up over and over again. There is no question that the strengthened building codes in Florida have helped reduce the damages from catastrophic events. That is a step in the right direction, but it has created other problems. Claims have gotten more complex and what were once easy claims became more difficult to adjust as the damages are not as easily visible. For example, with the new building codes, shingles are not detaching from roofs as easily and as often as in the past.

We may arrive at a home and notice than most of the shingles are still attached to the house. Some folks believe if the shingles are still on the roof, then there is no damage. After all, you don’t see any damage. But upon closer inspection, we will often find wind damage to many shingles.

During a hurricane or tornado, the winds will pick up pieces of wood, trees or other debris and crash these into the roof at speeds of 150 mph or more. On an asphalt shingle roof, the shingle is still there, but it is dented; granules have been loosened and the internal fiberglass matting has been broken. If it’s not leaking today, it will leak within 3 to 6 months as the sun heats the roof up in the daytime and cools it down at night. This will cause the shingle to crack or open up, which results in the roof leaking, even though the shingle is still on the roof.

The most common property insurance claims are from roofs and from water. These two categories represent 70% of our claims volume. The water we refer to is water from broken pipes within the dwelling, broken or faulty appliances (i.e., dishwashers, refrigerators) within the dwelling, or water that enters the dwelling though a broken window, leaking roof, or from above.

Most insurance companies do not include or have coverage for water that touched the ground before entering the dwelling. We classify this as flood water and this peril is excluded from dwelling or commercial insurance policies. This is an important exclusion. Flood insurance is a separate insurance product that must be purchased separately and is mostly a government-backed insurance product issued though the National Flood Insurance Program.

One of the first things we learn in claims adjuster training school is that the dwelling policies used in the insurance industry are fire policies. The insurance was originally designed to cover only losses from fire. The fire policy is modified though the use of endorsements which can add or take away additional coverages.

There are many types of available endorsements. Some of the most recent common endorsements are for mold and water. Most dwelling policies now limit mold damage to $5,000 per policy. A water endorsement limit might be a maximum of $10,000 per policy. An endorsement may exclude sewer backup unless you pay an additional premium.

These endorsements are important for insurance companies to limit their maximum exposure and keep the premiums at an affordable level.

Prior to introduction of a mold endorsement of $5,000, most insurance companies were responsible for coverage up to policy limits. This caused lawsuits demanding that an entire house be demolished and rebuilt because someone found mold within the dwelling. These claims may, or may not, have had merit. The simple fact remains that they were expensive claims to investigate and/or defend.

We no longer see these types of major claims. The reason is that the maximum payout is $5,000. The target has been taken off the insurance policy and the bad guys can’t come in and scare a homeowner half to death claiming hundreds of thousands of dollars in damages when the maximum payout is limited to $5,000. The payoff is not worthwhile for the bad guys.

There is one glaring endorsement that is missing. That is a roof endorsement. As a field adjuster, I have recommended this endorsement for the past several years. It’s really just common sense. Thus far, I’ve gotten no traction with it and every excuse why the insurance companies won’t do it. I hope that will change soon.

It is my belief that the insurance crises we are currently facing in Florida could have been eliminated, or greatly minimized, with a roof endorsement attached to insurance policies. They have the endorsements in Canada, so it’s not totally unheard of. Why won’t the Florida insurance companies support a roof endorsement?

My belief is that a Florida policy should contain a roof endorsement that provides for a maximum amount of coverage. As an example, the Roof Endorsement coverage could be $20,000. That would be the maximum a policyholder could receive if their roof were damaged. If the policyholder wants more coverage, then they could purchase more roof coverage for an additional premium. If the policyholder needs $30,000 of protection, then they could purchase an extra $10,000 worth of coverage for the roof.

The insurance company may determine, during the initial underwriting inspection, that the roof is old, but not leaking, and is still serviceable. Rather than decline the policy or require a new roof before a policy is issued, the insurance company may choose to limit the initial amount of the coverage under a roof endorsement. For example they may limit the roof coverage to $5,000.

The endorsement would limit the maximum amount that the insurance company would have to pay out on a roof claim. Currently there is no limit on roofs in Florida and the policy limits are an attractive target for the bad guys. Without a roof endorsement, if a home has a $400,000 policy, then the bad guys look at that number and can take a $20,000 roof claim and turn it into a $120,000 payout from the insurance company. If there were a roof endorsement then that $20,000 roof would be replaced and the bad guys will have to figure out another way to take advantage of the system.

Let’s hope we can find some Florida insurance executives that understand what a roof endorsement could do for this industry. Surely this one-page policy addition could be written and implemented faster than the Florida Legislature passed the 120-page insurance bill last December.

When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email experts@adviseandconsult.net.

Second Circuit Affirms Ruling That Prior Knowledge Exclusion Barred Coverage for Legal Malpractice Lawsuit

Novera H. Ahmad | PropertyCasualtyFocus

The Second Circuit Court of Appeals recently affirmed a lower court’s ruling, which declared that North River Insurance Co. had no duty to defend or indemnify its insured in connection with a legal malpractice lawsuit.


In September 2019, Max Leifer and his law office applied for professional liability insurance with North River. Leifer’s application was approved, and North River issued the policy, which covered damages and defense expenses for claims made against Leifer during the policy period of October 20, 2019, through October 20, 2020. Claims based on facts or circumstances of which Leifer had knowledge as of the effective date of the policy and which could reasonably have been expected to give rise to a claim were excluded from coverage.

In 2020, a malpractice lawsuit was brought against Leifer by Andy Lee, an individual to whom Leifer had previously given legal advice. Leifer sought to have North River extend coverage for the lawsuit, but North River argued that the lawsuit was not covered by the policy. North River subsequently filed suit in the U.S. District Court for the Southern District of New York, seeking a declaratory judgment that it had no obligation to defend or indemnify Leifer in the lawsuit. The district court granted North River’s motion for judgment on the pleadings, and Leifer appealed the decision.

Ruling on Appeal

Under New York law, an insurer has a duty to defend if there is a possibility that it might eventually be obligated to indemnify the insured under any provision of the insurance policy. To avoid a duty to defend based on a policy exclusion, an insurer must demonstrate that the allegations of the underlying complaint place the pleading “solely and entirely” within the exclusion and that the allegations are subject to no other interpretation. In this particular case, the Second Court explained that North River had to show the facts as alleged in the Lee malpractice suit were completely barred by the policy’s “prior knowledge exclusion” such that there was potential coverage under the policy.

On appeal, Leifer argued that the facts alleged in Lee’s malpractice suit did not fall entirely within the prior knowledge exclusion and that the district court erred in granting North River’s motion. The Second Circuit disagreed, finding there was no doubt based on Leifer’s own pleadings in the underlying action that he knew of the facts giving rise to the malpractice claim as of the policy’s effective date. The court also held that a reasonable attorney would have understood that Leifer’s conduct could reasonably give rise to a malpractice claim. The court looked specifically to Leifer’s answer to North River’s complaint, in which Leifer admitted that he advised Lee not to file an answer in an action in which Lee was involved, resulting in a default judgment.

Leifer attempted to argue that he advised Lee to file an answer, but that Lee never actually retained him to do so, and that he could not have anticipated a malpractice suit because Lee thanked him for his services. The Second Circuit rejected both arguments, finding any reasonable attorney in Leifer’s position would have understood the possibility of a future malpractice suit following the entry of a default judgment. The Second Circuit held that the appropriate question was not what Leifer expected but rather what a reasonable attorney in Leifer’s position would have anticipated. Having determined Leifer knew of the pertinent facts before the North River policy was incepted, and that Leifer should have anticipated a malpractice suit, the court found the prior knowledge exclusion barred coverage under the North River policy and therefore affirmed the district court’s ruling.

When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email experts@adviseandconsult.net.

Preparing For And Responding To A Large Property Loss

Jason Cables | Ankura Consulting Group

Often, the last thing a company wants to address immediately following a large property loss is an insurance claim. However, the claims preparation process is vital to ensuring that a business survives a large property loss. Throughout my career of measuring and preparing large property losses for insureds, I have learned many lessons to ensure the claims process goes smoothly and efficiently. Below, I outline six critical steps to take prior to and following a loss to increase the chances of a favorable claims outcome.

Prior to a loss:

  • Ensure your reported values are accurate

To place insurance, each year a company reports the annual values of the property, inventory and business interruption risk to insurers. Inaccurate values can lead to several difficult outcomes, including co-insurance penalties, insufficient limits of insurance or inaccurate deductibles.

  • Assemble your claim team prior to a loss

Internally, identify key personnel from risk management, facilities, operations, sales, accounting, insurance broker, etc. Externally, take the opportunity to interview, vet and contract with vendor partners including restoration companies, claim preparation firms and coverage counsel. Following a wide-spread event, these resources quickly become fully utilized and having relationships in place will result in prioritized response and recovery.

  • Fully read and understand the policy language

Work with your insurance broker to understand the policy, coverage and any potential areas of concern. Once a loss has occurred, it is not the time to learn what coverage you have (or don’t have).

Following a loss:

  • Communicate externally and internally

Early on, it is important to provide insurers with a preliminary estimate of total loss so that the insurance reserve can be properly set. This will develop into a well-documented insurance claim submission and be shared with insurers. It is equally important to identify potential recovery issues with internal management, including insurance sublimits, deductibles or potential policy coverage issues.

  • Make decisions in a timely manner

Often after a catastrophic event, the insured may decide to make changes to the building or operations while rebuilding. While most understand the increased cost of upgrading will not be covered by insurance, it is important to also highlight that any extension to the restoration period will be excluded from a business interruption recovery. Of course, the insured may opt to make the change or investment regardless but should understand the implications to their insurance recovery.

  • Establish a claim preparation timeline and communication protocols

Following a loss, it is important to keep regularly scheduled meetings with the team (risk, operations, finance, claim preparer, etc.) and the insurance company’s representatives (adjuster, equipment or building consultants, claim auditor, etc.). Develop communication protocols and assign a point person for such communications. This ensures timely communication and discussion of key decisions and issues. It also keeps the insurance adjustment team focused on your claim, which may be one of many following a wide-spread event.

By following these steps, a business will be in position to maximize insurance recovery in a timely manner, allowing it to get back to running its business.

When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email experts@adviseandconsult.net.

An Occurrence Under Builder’s Risk Insurance Policy is Based on the Language in the Policy

David Adelstein | Florida Construction Legal Updates

Builder’s risk insurance coverage is a vital property insurance coverage during the course of construction.  Builder’s risk insurance is not a one-size-fits-all product so please make sure you are working with your insurance broker to procure this product that factors in and covers risk associated with the project.

Builder’s risk insurance is typically an occurrence-based policy. No different than other occurrence-based policies (such as commercial general liability), a dispute may arise as to the occurrence. This could be due to the triggering of the actual policy during the coverage period or it could be due deductible obligations, as in the case discussed below. When dealing with a builder’s risk insurance policy–again, no different than any policy–the language in the policy matters.  Definitions used in the policy to define specific terms matter and, in numerous cases, the ordinary dictionary meanings of terms matter. But it all starts with the policy language.

In KT State & Lemon, LLP v.  Westchester Fire Insurance Co., 2023 WL 2456499 (M.D.Fla. 2023), a builder’s risk policy provided coverage from April 2018 through the end of November 2019.  There was a $50,000 per occurrence deductible for loss caused by or from water damage.  An extension to the builder’s risk policy was negotiated through the end of January 2020 that increased this water damage deductible to $250,000 per occurrence.  During construction and the testing of the fire suppression (sprinkler) system, leaks started to occur resulting in water damage.  Two leaks occurred in September 2019, one leak in October 2019, one leak in November 2019, and two leaks in December 2019 (during the extension and higher water damage deductible period).

The plaintiff-insured argued that all of the leaks in the fire sprinkler system should constitute one single occurrence.  Naturally, it did so because one occurrence would be a $50,000 deductible since the initial leak occurred prior to the extension period.  The insurer took a contrary position and argued that each leak was a separate occurrence meaning there were four leaks with a $50,000 per occurrence deductible and two leaks in December 2019 each with a $250,000 deductible.  This is a big deal from a dollar’s perspective as it means each leak would have to have damages in excess of the per occurrence deductible and the insured would potentially be responsible for the first $700,000 in water damage based on the six leaks.

“In Florida, the [insurance] contract should be ‘construed according to the plain language of the policy,’ and any ambiguities must be ‘construed against the insurer and in favor of coverage.’ KT State, supra, at *2 (citations omitted).

The Court looked at the policy language, specifically how the builder’s risk policy defined the term “occurrence” as it would be this definition in the policy that shed light on whether there would be one occurrence or multiple occurrences:

All LOSS attributable directly or indirectly to [1] one originating cause, event, incident or repeated exposure to the same originating cause, event or incident, or [2] to one series of similar originating causes, events, incidents or repeated exposures to the same originating cause, event or incident first occurring in the Policy period. All such LOSS will be treated as one OCCURRENCE, unless a specified period of time is included in this Policy. The most the Company will pay for LOSS in any one OCCURRENCE is the applicable Limit of Insurance shown on the Declarations.

As to the underlined above, the policy did not define the terms “series” or “similar.” Yet, these terms are not technical terms so the Court looked at the ordinary dictionary definitions. “The dictionary meaning of ‘series” is ‘[a] number of things of one kind (freq. abstract, as events, actions, conditions, periods of time) following one another in time or in logical order.’ The dictionary meaning of ‘similar’ is ‘alike in substance’ or ‘having characteristics in common.’” KT State, supra, at *3 (citations omitted).  Based on the definition of “occurrence” in the policy, and the ordinary dictionary definitions of “series” and “similar,” the Court found the six fire sprinkler leaks constituted only one occurrence:

Reading the policy language from the standpoint of an ordinary person, in light of the common meaning of the terms used, and in a common-sense and natural manner produces only one reasonable conclusion. Plaintiffs’ claimed loss was attributable, directly, or indirectly, to a “series of similar originating causes, events, [or] incidents,” and therefore resulted from one occurrenceThe loss resulted from leaks in the same sprinkler system, due in whole or part to improper installation by the same [subcontractor] crew under the same contract, in the same general location in the same building, and occurred one after the other in a relatively short span of time from late September to December 2019.

KT State, supra, at *4.

Yet, despite there being one occurrence, the Court applied a caveat to the benefit of the insurer since there were two leak incidents during the extension of the policy with an increased $250,000 per occurrence deductible:

Accordingly, under the Policies’ definition of “occurrence,” the leaks at issue together constituted one occurrence. For damage from leaks that occurred prior November 30, 2019, therefore, a single deductible of $50,000 applies. The result is different, however, for leaks after that date, because the parties expressly modified the Policies at that point. The original policy term ended on November 30, 2019. Plaintiffs were only entitled to purchase an extension of coverage beyond that date on the same terms as before if no “risk aggravating situation” was present at the time of the extension. But such a situation was present, because Plaintiffs had reported multiple leaks, and that was obviously the reason the parties changed the water damage deductible to $250,000 when they extended coverage to January 30, 2020. It is clear that the increased deductible was intended to apply to similar water damage events occurring during the extended policy period. Therefore, the increased deductible applies to water damage from leaks occurring after November 30, 2019, notwithstanding the definition of “one occurrence.”

KT State, supra, at *5.

When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email experts@adviseandconsult.net.