More Form Insurance Policy Language to Check On

Posted on June 30, 2009 by Ashley Brandt

We take a lot of joy in writing about these coverage cases when we see them because they are turning out to be a patchwork of distinctions and guidelines that can allow you the ability to interpret some language in your own policies.

Today’s case is Mota Construction Co. v. Westfield Insurance Co. (1st Dist. Doc. No. 1-07-3208). The case involves a suit brought by a worker of a Mota subcontractor for injury on the job. The worker sued Mota, the GC on the project, and another subcontractor, GM Sloan, for injuries the worker alleges happened during his painting and drywall work on a project when he tripped over some material at the site.

The complaint alleged that Mota was negligent as a GC for not maintaining a safe worksite, that Mota was also negligent because it retained control over the site had a duty to properly supervise the work and not let injuries happen, and that GM Sloan was negligent because it failed to maintain a safe work site during its work on the project.

Westfield was the carrier for GM Sloan. The policy that GM Sloan had which Mota was named an additional insured on had a provision in the additional insured endorsement that stated:

“This endorsement provides no coverage to the additional insured [Mota] for liability arising out of the claimed negligence of the additional insured [Mota], other than that which may be imputed to the additional insured by virtue of the conduct of the named insured [GM Sloan].”

16 months after learning of the claim, Westfield denied coverage and argued that the claims made against Mota by the injured worker were not for claims that could be imputed to GM Sloan, but alleged Mota’s own negligence. The trial court agreed and Mota was forced to look to the policy of the injured worker’s employer for coverage. Mota appealed.

The appellate disagreed and held that because the complaint contained a count that alleged that Mota maintained control over the manner and means of the work of the subcontractors (including GM Sloan) and contained allegations of negligence against GM Sloan, there was a possibility that GM Sloan’s negligence would be imputed to Mota and thus, there was a duty to defend on the part of Westfield.

The court went on to state that imputed liability was implied by the allegations that a GC maintains control over the sub’s work because it means that a GC could be held vicariously liable for harm to third-parties caused by a sub’s negligence – which is vicarious liability imputed to the GC. The court distinguished this from the direct liability alleged in a case where the GC failed to properly inspect, manage, and supervise a jobsite… but when these direct negligence allegations are combined with allegations against as sub in a different count, the possibility of imputed liability exists.

The court also distinguished the policy clause in this case from one which included the word “solely” in a different case where the policy granted coverage to the additional insured for liability arising “solely” out of the claimed negligence of the additional insured.

Additionally, for those keeping track, the court also found that in any event, the 16 month delay in brining the claim against Mota meant that Westfield had waived its ability to assert its policy defenses. So time was against Westfield as well. The appellate court reversed the ruling by the trial court and sent the case back to the trial court to determine the appropriate relief for Mota now that a different insurance company had been defending it.

Pay attention to the policy language of your subs, look out for the magic word “solely” in an additional insured endorsement, and definitely consult with someone to make sure the policy you’re getting from your sub is what you’re contracting for.

 

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Could Adding The Term "On Demand" to My Indemnification Provision Protect My Ability To Bring A Claim Within A Ten-Year Statute of Limitations?

Posted on June 18, 2009 by Ashley Brandt

 

The recent case of Peregrine Financial Group, Inc. v. TradeMaven, LLC, has at least offered some guidance.

In Peregrine, both the plaintiff and the defendant had been sued in another action over a patent dispute. The initial action had been resolved by a federal court through a settlement between the parties and the plaintiff in the patent action and  a consent judgment had been entered.

The indemnity provision in the TradeMaven contract stated that it agreed to hold Peregrine harmless from any claims for “expenses and costs (including any reasonable legal fees and expenses related to [Peregrine’s] defense) arising from any claim of infringement of any trademark, service mark, trade name, copyright, or other proprietary right.” In the patent suit, the parties placed a provision in the consent judgment that each party would bear its own costs and attorneys fees. 

After the federal suit, Peregrine sent a letter to TradeMaven’s counsel requesting the $416,081.22 in attorney's fees. TradeMaven didn’t indemnify Peregrine for the fees so Peregrine filed the indemnification claim in state court for recovery of those fees. The state district court ruled that the claim was precluded by res judicata.

One of Peregrine’s arguments on appeal was that even if Peregrine could have brought its claim for indemnity in the federal suit, it didn’t need to because a previous Illinois Supreme Court Case, Guzman, held that the claim for indemnification did not accrue until after the patent dispute concluded and TradeMaven rejected Peregrine’s written demand for indemnification. 

Guzman ruled that the 13-204 statute of limitations was applicable in construction defect contract dispute for indemnification between a defendant and a third-party in a situation where the third-party suit had been brought with three counts – implied indemnity, express indemnity, and breach of contract – and the opinion was rendered without an express statement of which theory the Court was considering.

The Appellate Court in Peregrine rejected Peregrine's argument and said that Guzman involved an “implied contract of indemnity” and a third-party complaint and that the instant case involved no third-party action where both parties had been named as defendants in the federal action and that the parties had an express contract of indemnity.

Peregrine then argued that the more recent Illinois Supreme Court decision in Travelers extended Guzman to express indemnity agreements. The Appellate Court said that because the indemnity provision in Travelers contained the words “on demand” – “Payments of amounts due Surety hereunder together with legal interest shall be payable on demand” – the express terms of the indemnity agreement in Travelers implied that the indemnity action did not accrue until demand was made and therefore, the instant action was different because the indemnity provision at issue in Peregrine contained no language providing that payment was triggered by demand for payment. 

In Travelers the Supreme Court apparently determined that the fact that the Guzman did not especially state whether it was addressing the nature of the indemnity claim on a breach of contract, implied indemnity or express indemnity basis meant that Guzman did not provide enough guidance to aid in the assessment of a suit based on express contractual indemnity.

Travelers also held that implied contractual indemnity is only available in tort. Which makes it odd that the court in Peregrine could say that the claim in Guzman was about implied contractual indemnity because it was a construction defect case and not one about a tort. 

Travelers also didn’t offer guidance on whether carefully constructed indemnity provisions in regular construction contracts could serve as the basis for a claim for breach of contract premised upon the breach of an indemnity provision thereby making them claims regulated by the ten-year statute of limitations addressed in Travelers,  or whether a claim for "express contractual indemnity" was different than a breach of contract claim and in construction defect case which could be brought as a third-party action (the commercial equivalent of contribution).  In the second type of claim, the defendant is basically saying “if I’m liable to the plaintiff, it is because this third party made a mistake.”  In the latter instance, Travelers would seem to imply that the four-year 13-214 statute of limitation would apply because the claim was based on the construction defect, in the former, because the claim is actually for failure to indemnify after a demand, it would appear that this is a 13-206 matter as discussed in Travelers.

By distinguishing the Travelers case based on the demand language the Appellate Court in Peregrine has created an interesting distinction and not resolved the issue created in Travelers regarding how and under what theory a defendant should sue a third-party in a construction dispute not based on negligence such as one where the party is looking to pass-through any potential economic damages.   Another question raised by these line of cases:

  • Is the claim properly one for "express contractual indemnity" because there is an indemnity provision of the contract and the third-party contract was breached, or is it a claim for breach of contract for breach of the indemnity provision or both?

We know that professionals and contractors should arguably include indemnification for “economic damages” in their indemnification provisions if they want to attempt to recover those forms of damages at a later date. Friedman, Alschuler & Sincere v. Arlington Structural Steel Co., Inc., 140 Ill.App.3d 556, 489 N.E.2d 308 (1 Dist., 1985). Friedman and a line of cases following it support the contention that the indemnity provision needs to be specific as to the type of damages the parties will be able to seek, but nothing has settled the question raised by Travelers about where and when, if the provision is drafted properly, a party, if at all, must seek this contractual indemnity and what the cause of action actually is in third-party claims for construction defect where someone is looking to pass-through the claims of another.

For now the best practice seems to be to ensure that the contractual indemnity provisions include the “on demand” language in an effort to preserve a claim and to assert both a claim for express contractual indemnity and a claim for breach of that provision as a breach of contract.

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New Suit Fridays 6-12-2009

Posted on June 12, 2009 by Ashley Brandt

 

Yes, it’s a New Suit Friday once again. This week's cases should pique the curiosity of a few of our readers out there who dabble in title work, advertise ADA compliant housing or deal in accessibility design, condo associations looking to oust someone and as a special treat, even clergy members interested in ecclesiastical law.

In Hamdan v. Stewart Title Guaranty Company and Monroe Title Company, Inc., the complaint alleges that the title guaranty company issued a policy to the plaintiff for a real estate transaction based on a title search performed by the defendant title company that came up clean. It’s asserted that what the title company missed was a previous demolition action filed by the City of Chicago against the property that the plaintiff purchased. After plaintiff filed a claim with the title insurance company, it admitted that it failed to disclose the action as a possible encumbrance and admitted to a duty to defend the plaintiff, but denied any duty to indemnify the plaintiff. The title insurance company appointed counsel for the plaintiff, but plaintiff claims that because the indemnification for loss was denied by the company, a sufficient conflict of interest exists between the title insurance company and the plaintiff that plaintiff should have the right to counsel of its own choice. The action seeks a declaration that the title insurance company has the duty to indemnify plaintiff, has the right to its own counsel and seeks damages for the “vexations and unreasonable” denial of insurance coverage.

In People of the State of Illinois v. Roszak/ADC L.L.C. et al., the complaint, brought by the Attorney General’s office alleges that the developers of an Evanston high-rise condo building are accused of failing to build the accessible structure it promised. According to the complaint the developer approached the Center for Independent Futures about creating a community of individuals with disabilities at his development which helped him get permitting under an Evanston ordinance requiring a certain percentage of units be held out for sale as Affordable Dwelling Units. Several persons with disabilities purchased units in the complex. The complaint states that although the plans called for the west side of the development to have the accommodating access for those with disabilities, to date, that portion of the development has not been constructed and the accommodating access does not exist leaving no accessible route that allows the several unit owners with various disabilities to safely enter or exit the building. The AG’s office pleads actions against the building development and management companies and the architect for violations of the Environmental Barriers Act, The Illinois Accessibility Code, the Fair Housing Act and the Illinois Human Rights Act. The complaint seeks the correction of the violations, immediate compliance with the acts, fines, and the establishment of an account for a retrofitting fund for future alterations necessary to comply with the acts.

In 1400 Lake Shore Drive Condominium Asscoiate v. Annette Goggins, et al., the complaint, brought by the condo association of a building seeks to oust a unit owner. The allegations are that she has violated portions of the association’s by-laws by verbally abusing and threatening other unit owners, smoking marijuana at the front desk, brandishing a straight razor in the lobby of the building and punching the owner of a convenience store that is in the building. The unit has held meetings and assessed various fines and penalties for the behavior and is now suing for the enforcements of its rights under the by-laws including termination of the tenant’s right to occupy the unit and a judicial sale of the unit.

In Illiana Classis-Reformed Church in America v. Living Grace Church, Inc., the complaint alleges that the regional assembly of the Reformed Church in America was to acquire title in land owned by the defendant pursuant a merger agreement approved by the plaintiff and pursuant to negotiations that never came to fruition regarding a termination of the defendant’s affiliation with the Reformed Church in America (RCA). The plaintiff alleges that the laws of the Book of Church Order (BCO), the governing constitution of the RCA control the property issues in the case. Part of the dispute is that because the defendant church never requested to withdraw from the RCA in accordance with the procedures of the BCO, the defendant church is still “affiliated” with the RCA and subject to the BCO. Under the BCO the regional assembly (plaintiff) has the ability to dissolve the defendant church and take over management and ownership of the property. The complaint seeks the application of the BCO to the defendant as a matter of ecclesiastical doctrine and a determination that the regional assembly is the rightful owner of the property.

 

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The Validity of Municipal "Impact Fees" For Contractor/Developers

Posted on June 10, 2009 by Ashley Brandt

It’s a case worth parsing through if you have the time because the Municipalities you deal with could be exacting costs from you that are not allowed under State law and that you could recoup.

In Raintree Homes, Inc. and Raintree Builders, Inc. v. The Village of Long Grove (2nd Dist. Doc. No. 2-06-1105) the second district appellate court was faced with the review of a district court’s determination that the provisions of the Village of Long Grove’s “impact fees” that were assessed on those applying for building permits were void under the Illinois Municipal Code (65 ILCS 5/1-1-1 et seq.)

The Village had been assessing “impact fees” which had increased in cost over the years from 1993 to 1997 against anyone applying for a building permit pursuant a village ordinance (Section 4—1—4 of the Long Grove Municipal Code which was repealed in 2003 and new “fees” have since been implemented). A statement contained in the “impact fee” provision of the code contained a description regarding the purpose of the fee as being for parks and schools, but the application of the money showed that some went to the Village, some went to the schools and parks for different purposes, and the district court found that none of the uses comported with what was allowed under the Illinois Municipal Code.

The appellate court upheld the ruling and the court’s order that the Village pay back to Raintree some $114,700 in impact fees that it had paid from 1993 to 1997.

The appellate court’s decision found that because the funds from the impact fees were put into a general operation fund rather than being used for the purpose of improving/funding or having to do with “school grounds” which is a term elaborated upon by a 2002 opinion (Thompson v. Village of Newark) and augmented by a 2003 amendment to the code to include “land or site improvements, which include school buildings or other infrastructure.”

The appellate court also held that the portion of the fee attributed to the parks and other various land improvements or “open space” was not tailored pursuant to the Illinois Municipal Code to limit the use of the fee to “only newly acquired open space.”

The opinion also contains a lengthy analysis and discussion of “duress” concerning a business’ need to pay for a fee given the need to have the license or benefit conferred by paying the fee for the operation of the business and its later ability to contest the fee without losing that right under the voluntary payment doctrine.

The important part here is that Raintree got the fees back. This was in large part due to the specific manner in which the purpose portion of the municipal code was drafted and the distinct method in which the funds were distributed and used. It is likely that a statute that was more vague and less accurate testimony regarding the application of the fees would have offered a different result even if the fees were applied the same.

For contractors and developers forced to pay such fees, the lesson is to find out what they’re for and how they’re being used. The lesson for municipalities is the craft the statutes correctly to make sure the money is being used properly.

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What Should I Know About The Recent Amendments To The Illinois Architecture Practice Act and Structural Engineering Practice Act?

Posted on June 9, 2009 by Ashley Brandt

 

When Senate Bill 122 was introduced, it appeared as another formality required to reissue the Illinois Architecture Practice Act and the Illinois Structural Engineering Practice Act given the current acts’ sunset provisions of January 1, 2010. The addition of certain amendments and the augmentation of provisions of the act that design professionals have come to rely on make it necessary for any practicing architect or engineer to revisit their respective acts, as passed (read the changes here) to gain a better understanding of the new standards and rules that are applicable to the professions in Illinois.

The Bill, now passed by both houses, is awaiting the signature of the governor. We address most of the changes below:

 

 

ARCHITECTS

  • The new act will require that draftsmen, students, project representative and other employees of those lawfully practicing as licensed architects act under the “responsible” control of the licensed architect. The old act required that they act under the “direct supervision” and control of the licensed architect. This appears to provide a broader definition of the acceptable use of unlicensed employees than was allowed before given that “responsible” is not as descriptive as “direct supervision.”
  • The new act has a provision for designating someone as “Architect, Retired” which is defined as a person who has been licensed, but chooses inactive status or not to renew the license. This may have roots in the recent events involving Mr. Netsch and should have been done sooner.
  • The new act also has a designation for “Architectural intern” – an unlicensed person who has a degree and is actively participating in professional training and maintains a training record as required for licensure – the term was already included in the act but not explicitly defined.
  • The new act explicitly incorporates sections of the Illinois Administrative Code regulating the profession. It defines “Design build” in accordance with §1150.85. It makes explicit the duty of an architect to adhere to the standards of professional conduct enumerated in §1150.90.
  • The new act prohibits any officer, board, commission or other public entity from accepting for filing or approval any submissions that do not bear the seal and signature of a licensed architect. It is unlawful to affix the seal to any submissions if it masks the true identity of the person who actually exercised responsible control of the preparation of the work.
  • The new act states that an architect who seals and signs technical submissions is not responsible for damage cause by subsequent changes to or uses of those submissions where the subsequent changes or uses, including changes or uses made by State or local governmental agencies, are not authorized or approved in writing by the architect who originally sealed and signed the submissions. This is an interesting statement and should likely be fleshed out, but it could be used to try and disclaim liability for certain actions of individuals using plans multiple times or for changes made as required by local agencies.
  • The new act sets a limit of 5 years from the passage of the first examination for the successful completion of all examinations.
  • The new act changes the definitions for the professional design firm registration and requires that the resident architect be “in responsible charge of” the architectural practices in the office rather than “overseeing” the practices and requires that the resident architect be designated as the managing agent of the firm.
  • The new act requires that every entity registered as a professional design firm display its certificate of registration or a facsimile in a conspicuous place in each of its offices.
  • The new act defines the term “address of record” and makes it the duty of the architect to keep the information updated.
  • The new act adds the powers of probation or other disciplinary action to the Departments remedies and changes the recourse to individual licenses rather than to the corporations, persons, or firms as previously done.
  • The new act gives the Department the power to force an architect so submit to an examination by a physician to enforce its powers of refusal, revocation or suspension without the showing of probable cause that was previously required.
  • The new act mandates the denial or non-renewal of a license if the applicant defaults on an educational loan or scholarship provided by the Illinois Student Assistance Commission or other Illinois agency, if the applicant is in arrears for child support, or if the applicant hasn’t paid their taxes (the tax amendment isn’t new, but before the Department had discretion in such a determination).
  • The new act increases the civil penalty for unlicensed practice to $10,000 from $5,000.
  • The new act augments the Department subpoena power to include documents and records as well as people.

STRUCTURAL ENGINEERS

  • The new act adds “analysis” to the “design or supervision” activities definition.
  • The new act gives the Department the power to review an applicant’s qualifications to sit for an exam.
  • The new act changes the enforcement of rules for revocation, suspension or refusal of licensure to be effective against individual “licensees” rather than the previous corporations, firms or partnerships.
  • The new act also allows for the compulsion to examination by a physician as above and includes the same mandates for denial based on non-payment of school loans, child support and taxes.
  • The new act augments the subpoena power as above.

Architects and Structural Engineers should familiarize themselves with the new requirements.

 

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Could My Workers Maintain A Suit Against Me Under the Illinois Employee Classification Act?

Posted on June 8, 2009 by Ashley Brandt

Over the past two years we’ve seen quite a few Acts from the Illinois legislature regarding the industry and its operations. We’re still waiting on good case law interpreting the contractor prompt payment act. We saw the downfall of the attempt to reintroduce the structural work act. And now we have our first case regarding the act that many parties tried to defeat – the Illinois Employee Classification Act (820 ILCS 185/1 et seq.) (the ECA).

The ECA is a must-know for any contractor in the state that wants to classify the people working for it as an “independent contractor.” Prior to the act, we all know that it was common practice, for whatever reason, to call many employees independent contractors. Pay scales, union dues, liability issues, insurance rates and coverage, even labor laws played a part in the decision to classify someone working for you as someone working for you or someone you’ve contracted with to perform work for you.   The purpose of the act was to allow a statutory remedy for the widespread practice of employing laborers as independent contractors in a manner that circumvented many other obligations someone who was an employer would otherwise have.

The ECA invokes penalties and offers both public and private rights of action for those effected by their misclassification as “independent contractors.” This Synopsis of the ECA is available from the legislature’s website:

“Creates the Employee Classification Act. Provides that an individual performing services for a contractor is deemed to be an employee of the employer. Provides that an individual performing services for a contractor is deemed to be an employee of the contractor unless it is shown that: (1) the individual has been and will continue to be free from control or direction over the performance of the service for the contractor, both under the individual's contract of service and in fact; (2) the service performed by the individual is outside the usual course of services performed by the contractor; and (3) the individual is engaged in an independently established trade, occupation, profession or business; or (4) the individual is deemed a legitimate sole proprietor or partnership. Provides that subcontractors or lower tiered contractors are subject to all provisions of the Act. Provides that he Department of Labor shall post a summary of the requirements of this Act in English, Spanish, and Polish on its official web site and on bulletin boards in each of its offices. Provides that it is a violation of the Act for an employer or entity not to designate an individual as an employee under the Act unless the employer or entity satisfies the provisions of the Act. Provides for civil remedies and civil penalties.”

The ECA was introduced in February of 2007, passed both houses that May and was signed into law by the Governor in August of that year. The ECA took effect on January 1, 2008. 

Up through now, a majority of the claims made under the ECA have fallen by the wayside or been resolved in other venues and usually on other grounds. That looks like it may be changing given that on June 3, 2009, in the case of Chicago Regional Council of Carpenters et al v. Joseph J. Sciamanna, Inc. et al (N.D. IL – Doc No. 08 C 4636), a Northern District of Illinois court denied several parties motions to dismiss the amended complaint (a copy of the amended complaint can be found here) in favor of allowing the action to continue.

The action in Sciamanna was brought by the Chicago Regional Council of Carpenters and several other parties against a contractor and others seeking monetary, equitable and declaratory relief for the alleged misclassification of employees as independent contractors at construction sites building the Hilton Garden Inn hotels in Warrenville and Schaumburg.

Originally filed in state court, the action was removed to federal court by the defendants. In the amended complaint, plaintiffs allege that two of the workers on the site were misclassified under the act by Sciamanna and suffered because of that misclassification by not having been paid wages, employment benefits, proper payroll tax withholdings, FICA payments, Workers Compensation Insurance and payments under the Illinois Unemployment Insurance Act. The amended complaint seeks redress for the failure to properly post notices regarding the ECA at the site and for retaliation against the workers after they filed the suit seeking to exercise their rights under the ECA. Relevant to many employers, the union is also seeking classification as an interested party under the act and that it be granted monetary damages and attorneys fees. This is important given that individual employees may not always have the money or resources to obtain counsel to enforce their alleged rights, but suits brought by their unions for such practices could profoundly change the playing field for contractors practicing in violation of the ECA under the assumption that a single employee – contractor – may not have the ability to enforce their rights.

The opinion rendered by the District Court can be found here.

Parties should be paying attention to this and any other similar cases given that the actual allowance of a per-day fine for violation of the act to the union, or for damages and attorneys fee awards may start to make it incredibly costly for contractors to classify workers as independent contractors without first making sure that the classification comports with Section 10 of the act:

§ 10. Applicability; status of individuals performing service.

(a) For the purposes of this Act, an individual performing services for a contractor is deemed to be an employee of the employer except as provided in subsections (b) and (c) of this Section.

(b) An individual performing services for a contractor is deemed to be an employee of the contractor unless it is shown that:

(1) the individual has been and will continue to be free from control or direction over the performance of the service for the contractor, both under the individual's contract of service and in fact;

(2) the service performed by the individual is outside the usual course of services performed by the contractor; and

(3) the individual is engaged in an independently established trade, occupation, profession or business; or

(4) the individual is deemed a legitimate sole proprietor or partnership under subsection (c) of this Section.

(c) The sole proprietor or partnership performing services for a contractor as a subcontractor is deemed legitimate if it is shown that:

(1) the sole proprietor or partnership is performing the service free from the direction or control over the means and manner of providing the service, subject only to the right of the contractor for whom the service is provided to specify the desired result;

(2) the sole proprietor or partnership is not subject to cancellation or destruction upon severance of the relationship with the contractor;

(3) the sole proprietor or partnership has a substantial investment of capital in the sole proprietorship or partnership beyond ordinary tools and equipment and a personal vehicle;

(4) the sole proprietor or partnership owns the capital goods and gains the profits and bears the losses of the sole proprietorship or partnership;

(5) the sole proprietor or partnership makes its services available to the general public or the business community on a continuing basis;

(6) the sole proprietor or partnership includes services rendered on a Federal Income Tax Schedule as an independent business or profession;

(7) the sole proprietor or partnership performs services for the contractor under the sole proprietorship's or partnership's name;

(8) when the services being provided require a license or permit, the sole proprietor or partnership obtains and pays for the license or permit in the sole proprietorship's or partnership's name;

(9) the sole proprietor or partnership furnishes the tools and equipment necessary to provide the service;

(10) if necessary, the sole proprietor or partnership hires its own employees without contractor approval, pays the employees without reimbursement from the contractor and reports the employees' income to the Internal Revenue Service;

(11) the contractor does not represent the sole proprietorship or partnership as an employee of the contractor to its customers; and

(12) the sole proprietor or partnership has the right to perform similar services for others on whatever basis and whenever it chooses.

(d) Where a sole proprietor or partnership performing services for a contractor as a subcontractor is deemed not legitimate under subsection (c) of this Section, the sole proprietorship or partnership shall be deemed an individual for purposes of this Act.

(e) Subcontractors or lower tiered contractors are subject to all provisions of this Act.

(f) A contractor shall not be liable under this Act for any subcontractor's failure to properly classify persons performing services as employees, nor shall a subcontractor be liable for any lower tiered subcontractor's failure to properly classify persons performing services as employees.

Another interesting point is that the private right of action accrues at the final date of the provision of services and lasts for 3 years. The ECA defines both “construction” and “performing services”:

“Construction” means any constructing, altering, reconstructing, repairing, rehabilitating, refinishing, refurbishing, remodeling, remediating, renovating, custom fabricating, maintenance, landscaping, improving, wrecking, painting, decorating, demolishing, and adding to or subtracting from any building, structure, highway, roadway, street, bridge, alley, sewer, ditch, sewage disposal plant, water works, parking facility, railroad, excavation or other structure, project, development, real property or improvement, or to do any part thereof, whether or not the performance of the work herein described involves the addition to, or fabrication into, any structure, project, development, real property or improvement herein described of any material or article of merchandise. Construction shall also include moving construction related materials on the job site to or from the job site.

“Performing services” means the performance of any constructing, altering, reconstructing, repairing, rehabilitating, refinishing, refurbishing, remodeling, remediating, renovating, custom fabricating, maintenance, landscaping, improving, wrecking, painting, decorating, demolishing, and adding to or subtracting from any building, structure, highway, roadway, street, bridge, alley, sewer, ditch, sewage disposal plant, water works, parking facility, railroad, excavation or other structure, project, development, real property or improvement, or to do any part thereof, whether or not the performance of the work herein described involves the addition to, or fabrication into, any structure, project, development, real property or improvement herein described of any material or article of merchandise. Construction shall also include moving construction related materials on the job site to or from the job site.

With the ECA’s broad classification of both “construction” and “performing services” everyone thinking about calling someone an independent contractor should revisit the issue in light of the ECA and the potential for a cause of action brought by multiple worker or the union.

 

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House Bill 236 Passes

Posted on June 2, 2009 by Ashley Brandt

House Bill 236 has passed both houses and is now awaiting the signature of the Governor. Once signed, the bill will require the stated 10 day notice to home-owners from general contractors placing liens on owner-occupied homes.

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Linhart v. Bridgveiw Creek Development, Inc., et al. - Disclosure Is Important

Posted on June 1, 2009 by FGPP

In Linhart, (1st Dist. Doc. No. 1-07-2712) the plaintiffs were the purchasers of four connected townhomes, pictured via satellite from Google at the left. The townhomes shared a common foundation and adjoining walls. Plaintiffs sued the developer individually, his construction company, and two other entities for fraud, breach of the implied warranty of habitability, and consumer fraud.

The evidence showed that the developer was aware of cracks in the foundation of the homes prior to their sale, that a village inspector had told the developer about the cracks and the need for an engineer and the developer did nothing about the problems, that there had been no follow-up soil testing on the property after the engineering company recommended it to the developer, and that developer and his son had denied that the cracks were a problem when asked by the plaintiff’s prior to purchasing. The developer’s son told the plaintiffs that the cracks were normal and the natural result of settling and even made the comment, “it’s not like the house is going to sink or anything.”… which was before the house started to sink.

Faced with this evidence, the jury found the defendants guilty of fraud for making the false statements about what they knew to the purchasers. The appellate court found that this determination was reasonable and upheld the verdict noting:

The jury heard evidence sufficient to conclude that defendants knew these statements were false at the time they were made because a village inspector informed them that the foundation was sinking and they should consult an engineer. C.J. Johnson testified that he was aware of the cracks prior to October 1997. Preconstruction soil testing was conducted in the area and revealed significant water content. The company retained by Carriageway to conduct the preconstruction soil testing recommended further testing, especially in the lower areas of the subdivision. C.J. Johnson testified that when construction on the foundation began at the property in question he added stone to the soil because of the soil conditions, but never ordered soil testing at that specific location. A rational jury could find that defendants' statements to plaintiffs were to reassure them and assuage their concerns so that they would proceed with the purchase of the townhomes.

Plaintiffs each testified that they relied on those statements and purchased the homes. The damage to the foundation and the structure of the building was established by plaintiffs' testimony regarding all of the defects now prevalent in their homes. Plaintiffs had three experts testify to the damage and the cost of repairs. Moreover, defendants did not contest that the structure is damaged, but provided their own expert to estimate the cost of repairs.

The jury also found for the plaintiff’s on the implied warranty of habitability. The defendants objected to the fact that the term “latent” had not been included in the jury instruction, however, because the trial court had noted that the defects were latent, the appellate court found that the failure to include the term “latent” with the term “defect” in the jury instruction was harmless error and did not merit reversal of the jury’s verdict.

The jury also awarded $1,380,781 in damages based on the testimony of plaintiff’s expert that the homes were uninhabitable and would need to be demolished and rebuilt at that cost. Defendants objected to this valuation method and argued that the proper method for such a catastrophic loss would be the difference in value rather than the cost of repair, but the appellate court found that the defendants failed to introduce proper evidence of the diminution in value and could not raise the issue on appeal when they had failed to present evidence of the loss at trial.

The jury’s verdict was affirmed.

 

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New Suit Fridays 5-29-2009

Posted on May 29, 2009 by Ashley Brandt

It’s New Suit Friday and this week we have some new cases that just about every reader will be interested in. From attorneys looking at sample complaints and causes of action to design professionals, owners and contractors wondering what issues they might face and what could give rise to liability, this week’s spot is interesting.

In Erickson v. 2678 Orchard LLC, the plaintiff is alleging that the defendant violated several building code regulations after the plaintiff’s property became infested with rodents shortly following the beginning of excavation of the defendant’s property. The complaint also alleges that plaintiff’s tenant vacated the rental property due to the infestation and plaintiff had to reimburse pre-paid rent and incurred a revenue loss. The plaintiff seeks a permanent injunction forcing defendant to remove materials from plaintiff’s property, an end to the trespassing, correction of damages to the property and compliance with the building codes along with counts for trespass, negligence and nuisance.

In Phillips v. Savino, the plaintiffs allege that defendant, contractor, breached its contract when it failed to complete home renovations it had been paid to perform. The complaint states that the plaintiffs purchased their home and contracted with Savino for construction work, the purchase of construction materials, and services as a general contractor. The plaintiffs allege that they paid Savino for work, materials and services approximately $250,000 and that defendant did not complete and/or deficiently completed excavation of the patio, interior and exterior calking, roof flashing, floor resanding, driveway damage and siding work they also seek damages for work performed to fix work that defendant performed, and other out-of-pocket expenses they were asked to pay by the defendant during the term of the job.

In K-Mart Corp. v. Menard, Inc., a sublessor is suing a sublessee for damages which allegedly incurred during the sublessee’s 18 year tenancy in a building in Hanover Park. The complaint seeks damages for monies K-Mart says it had to/ or will have to expend to replace a parking lot a drainage system, a building roof, exposed wiring and many other problems that it claims the sublessee had a duty to maintain and keep in good repair under the lease.

In McWalters v. Lee and GLP, Inc., a partner in a design firm is suing another partner alleging that the partner and the company have damaged him by breaching their shareholder agreement which required that his shares be purchased back at a price described in a specific formula, that the defendant partner breached fiduciary duties to both the plaintiff partner and the company and the because of the breach, the shares are worth less than what they would be worth had the breach not occurred, and that the plaintiff partner was fraudulently induced into purchasing his shares of the company based on the defendant’s false representations that the shares would be redeemed at the price derived through the specified formula. As a shareholder, the plaintiff partner also asserts causes of action against the defendant partner on behalf of the company. The allegations include claims that the defendant partner used company money for personal travel and renovation of his private residences, to pay himself an undeserved salary, to start up a publishing company, and offered a rent-free sublet to a friend.

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Limiting Retainage Through Amending the Contractor Prompt Payment Act

Posted on May 27, 2009 by Ashley Brandt

Joshua Glazov over at the Construction Law Attorney Blog has an April 23, 2009, posting about Illinois House Bill 344 which, as introduced, would amend the Illinois Contractor Prompt Payment Act to limit, on a percentage basis, the amount of retainage legally allowed under construction contracts to contractors and subs.

The bill passed the house with the percentage provisions intact and the Illinois Senate now has amended the bill to include a definition of retainage:

(d) "Retainage" means funds that are earned by the contractor but not paid until some agreed upon date, such as the completion of the job.

The senate amendment also eliminates the percentage restrictions on outright retainage and instead has proposed making this bill a restriction on retainage for materials:

(b) Under a construction contract, it is unlawful to withhold retainage on materials required for completion of the construction contract that are delivered to a job site and are billed in accordance with the periodic payments in the construction contract.

This  provision is interesting given that the bill could alter the general nature of invoices by allowing those parties that do not distinguish between materials and labor in their payment applications to parse out the two and demand payment for the materials listed in the  payment applications leaving the owner without recourse to its contract's retainage provision for those payments.

CLAB’s posting lists and links to some advocacy groups that can be contacted to comment on the bill.

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