Illinois Construction Law Blog : Illinois Construction Lawyer & Attorney : Foran Glennon Palandech & Ponzi Law Firm : Chicago IL

 The Second District recently addressed this inquiry in American States Insurance Co. v. CFM Construction Co.  CFM Construction (CFM) was a general contractor which entered into subcontract agreements with NF Construction and International Decorators on a certain project. Under each of its subcontract agreements, CFM required NF Construction and International Decorators to name CFM as an additional insured on their respective general liability policies. NF Construction was insured by American States Insurance Company (American States), and International Decorators was insured by Michigan Mutual Insurance Company (Michigan Mutual). 

During the construction, Francisco Flores, an employee of International Decorators, was injured when he fell from a scaffold. Mr. Flores filed two separate lawsuits to be compensated for his alleged injuries. One lawsuit was against CFM and the other named NF Construction as the defendant. Both lawsuits claimed that the defendants negligently managed, supervised, and controlled the construction site.

The two lawsuits were consolidated, and CFM tendered its defense to Michigan Mutual. In turn, Michigan Mutual sought contribution for the defense of CFM from American States. However, American States denied the requested for contribution and filed a declaratory judgment action seeking a declaration that it had no duty to contribute to the costs of defending CFM in the Flores lawsuit. 

On cross-motions for summary judgment, the trial court ruled against American States, and American States filed its appeal. On appeal, the Second District Appellate Court held that American States owed a duty to defend CFM as an additional insured.

In the interim, the underlying Flores lawsuit was settled. Michigan Mutual paid $700,000 in the settlement, but American States only agreed to pay $200,000 on behalf of NF Construction and refused to contribute to the settlement on behalf of CFM.

On remand from the original appeal, American States filed a second amended complaint seeking a declaration that it had no duty to indemnify CFM. Michigan Mutual filed its counter-complaint seeking reimbursement for half of the $700,000 it paid to settle the Flores claims on behalf of CFM. Furthermore, Michigan Mutual sought attorney fees and prejudgment interest from American States. Again, on cross-motions for summary judgment, the trial court granted Michigan Mutual its requested relief, except for the attorney fees and interest.

American States again filed its appeal. In the appeal, American States argued that equitable contribution does not apply because the policies insured completely different risks. Generally, when an insurer has paid the entire loss, the doctrine of equitable contribution allows it to be reimbursed by other insurers that share the same liability as the insurer seeking contribution. This doctrine applies only where concurrent insurance policies insure the same entities and the same risks. The Second District Appellate Court held that equitable contribution applied as both policies insured the same risks.   

Nonetheless, the decision is puzzling as it fails to explain why CFM’s tender to Michigan Mutual did not foreclose Michigan Mutual from seeking equitable contribution from American States. See Kajima Construction Co. v. St. Paul Fire & Marine Ins. Co., 227 Ill.2d 102, 108, 879 N.E. 2d 305 (2007) (when an insured has knowingly chosen to forego one insurer’s assistance by instructing that insurer not to involve itself in the litigation, the targeted insurer has the sole responsibility to defend and indemnify the insured and is foreclosed from seeking equitable contribution from the other insurer that was not selected by the insured). 

Perhaps CFM’s tender to Michigan Mutual did not state that it was deselecting all other insurance and demanding that Michigan Mutual accept its tender on a primary and non-contributory basis. However, the American States Ins. Co. v. CFM Construction Co. opinion provides no explanation as to why CFM’s tender to Michigan Mutual did not foreclose it from seeking equitable contribution as explained by the Illinois Supreme Court in Kajima.

• Email This
• Print
• Comments
• Trackbacks

In Diaz v. Legat Architects, et al.,  Nos. 1-08-3622 & 1-08-3635 consolidated, the plaintiffs, Jose Diaz and Maria Diaz, filed a complaint against defendant Boller Construction Company, Inc. (Boller), for personal injuries and loss of consortium. Mr. Diaz was injured when scaffolding he was working on collapsed.  Boller filed a third-party complaint against Mr. Diaz’s employer, Larmco Construction Company (Larmco), seeking contribution pursuant to the Joint Tortfeasor Contribution Act.  The jury returned a verdict for the plaintiffs and against Boller. The jury also returned a verdict for Boller and against Larmco. After reducing the award by the percentage of Mr. Diaz’s negligence, the jury awarded Mr. Diaz $1,246,875 on his negligence claim and Mrs. Diaz $50,000 on her loss of consortium action.

Following the filing of post-trial motions, the trial court ordered a remittitur of the jury award based on improper admission into evidence of future medical costs, reducing the personal injury recovery to $1,076,770.06. Further, the trial court granted Larmco’s Motion to Dismiss Boller’s contribution action (presumably based on Briseno, however, it is not specifically stated in the opinion). 

On appeal, Boller contended that it was entitled to a directed verdict or a judgment n.o.v. because plaintiffs had failed to show evidence of its liability pursuant to Section 414 of the Restatement (Second) of Torts. The jury had found Boller to be directly liable stemming from its failure to exercise supervisory control. The First District found that plaintiffs had established a prima facie case that Boller had retained sufficient control over project safety to incur legal responsibility for Mr. Diaz’s injuries. Specifically, the First District focused on the contract between Boller and the owner (which made Boller responsible for all construction means and methods), the testimony of Boller’s own retained safety expert to the effect that Boller was responsible for preventing injuries on the project and was required to maintain and supervise all of the safety precautions and programs in performance of its contract and the conduct of Boller’s superintendent in asserting his authority on site, having stopped excavation work on two prior occasions. 

Boller argued further that it could not be found directly liable because it had no notice of the dangerous condition, a precondition to direct liability under Section 414. Boller’s argument was that its superintendent was not familiar with the scaffolding utilized by Larmco and, therefore, could not be found to have actual or constructive knowledge of any safety hazard associated with the scaffolding. The First District disagreed, citing the contract requirement that Boller provide a competent superintendent. 

Further, it ruled that Boller was entitled to pursue its contribution action against Larmco for the amount of Boller’s liability not covered by the insurance provided to Boller by Larmco and that the trial court’s granting of remittitur was in error as to Mr. Diaz’s future medical expenses. The Court did not address Boller’s liability under Section 343 of the Restatement (Second) of Torts or plaintiff’s argument that the trial court erred in denying their motion to adjudicate the workers’ compensation lien. 

While this case appears to be another arrow in the plaintiff bar’s quiver against general contractors and construction managers, it should be pointed out that Boller’s contract with the owner in this case made it responsible not only for safety, but for all construction means and methods. 

• Email This
• Print
• Comments
• Trackbacks

We’ve been reporting repeatedly on the recent decisions regarding the different Appellate Divisions’ interpretations of the Home Repair Remodeling Act and its use as both a sword and a shield.

Today’s Chicago Daily Law Bulletin has an article by Bethany Krajelis discussing the leave to appeal filed in the case of Artisan Design Build v. Bilstrom.  If granted, the Illinois Supreme Court would be hearing the case and likely putting to rest the district split.

Our entry on Artisan can be found here.

• Email This
• Print
• Comments
• Trackbacks

It’s still in its infancy, but Google Scholar’s beta version allows you to search scholarly articles, patents or legal opinions and journals. Here’s a sample search for “weather tite Illinois”

• Email This
• Print
• Comments
• Trackbacks

On November 11, 2009 Judge Virginia Kendall of the Northern District entered memorandum opinion and orders in the matter styled, ExxonMobil Oil Corp. v. Amex Construction Co., Case No.07 C 4278 applying a Daubert challenge from third party defendants to opinions held by Amex's retained expert Dr. Nicholas Biery of SEA, Ltd.  One of the defendants, Ambitech Engineering, was charged with negligence in the design of the plastic piping, which was serving as a temporary by-pass for the return cooling water line of ExxonMobil's Joliet refinery.  The plastic pipe uncoupled at a welded intersection during plant operation.  The resulting shutdown resulted in a very large business interruption claim and a smaller physical loss/damage component.  As to Ambitech, the underlying defendant, contractor Amex (who installed the plastic pipe and performed welding of the sections) alleged that Ambitech was negligent in the design of the specified piping.  Specifically, the issue surrounded whether a thicker wall section ought to have been specified in conformance with ASME standard B 31.3  and whether the failure to specify a thicker wall section led to the de-coupling event. .   

 The attack on Dr. Biery and his opinions was not foundational, but rather focused on the lack of methodology/substantiation in expressing opinions which were challenged as being unsupported and subject to the Daubert prohibition on the expression of conjecture passing as expert opinion.   Dr.  Biery was of the opinion that Ambitech did not exercise the requisite degree of care/skill in detailing the HDPE pipe since the specified by-pass had a wall thickness "thinner" than what was required under ASME B31.3 requirements.  Ambitech contended that the wall thickness was of no legal consequence since there was never any credible evidence upon which  Dr. Biery could say that the pipe ever experienced heat/pressure conditions in situ exceeding the installed pipe's material capacities.  Hence, you had a situation where a party's alleged breach of duty was not causative of the loss since the breach could not be proven as constituting a proximate cause of the loss.  Judge Kendall ruled that Dr. Biery is not allowed to testify that the allegedly incorrectly specified plastic pipe failed in service because of plant operating conditions.  Dr. Biery will only be allowed to  opine that there was a deviation from B31.3 requirements but won't be able to testify that it was causative of the loss.

• Email This
• Print
• Comments
• Trackbacks

According to the 7^th Circuit it does when someone seeks payment for those materials by submitting a claim to an insurance company. 

One method of recovering for materials on a site or at a shop that have been damaged by a storm or rain is to submit a claim to the property insurer. Most property insurance policies have an “in the open” exclusion.  The terms of the exclusion may vary, and that variance is important, but the exclusion is usually present.

Oddly, up until recently, the issue of interpreting the phrase “in the open” from a property policy’s exclusion hadn’t been litigated in front of the 7^th Circuit… which is where the case of Twenhafel v. State Auto Property and Casualty Ins. Co. (Doc. No. 08-4275) comes in.

The facts of the case from the opinion are worth reiterating in full:

“Twenhafel manufactures kitchen and bathroom cabinets. On September 22, 2006, a violent storm blew through Murphysboro, Illinois, where Twenhafel’s business is located. Before the storm, Twenhafel had some of the wood inventory he uses to make cabinets stored outdoors under an industrial covering or tarp. The tarp was secured with six-by-six oak beams and large concrete blocks which weighed about ninety pounds each and had been placed on top of the tarp. The storm lifted the tarp, along with the beams and blocks, and dropped them on the roof of a building about 150 feet away. As a result of the violent storm, the wood inventory was damaged by rain. The storm did not cause any other damage to Twenhafel’s property, except for some minor damage to the building’s roof, which was repaired by Twenhafel’s employees. The insurance policy State Auto issued to Twenhafel was an “open peril” policy which covers all losses unless specifically excluded under the terms of the policy. Twenhafel made a claim under the policy for the loss of his wood inventory. State Auto denied Twenhafel’s claim, relying on the following specific policy exclusion:

CAUSES OF LOSS—SPECIAL FORM

B. Exclusions

2. We will not pay for loss or damage caused by or resulting from any of the following:

. . . .

j. Rain, snow, ice or sleet to personal property in the open.”

The plaintiff filed suit to recover the money for the damaged lumber from his insurance.  The trial court found in favor of the plaintiff and the insurance company appealed the determination.

The appellate court agreed with the district court that the phrase “in the open” was commonly understood to mean something that was “exposed to the elements” and not simply “outside.”

In reaching this determination the court pointed other cases that also offer examples of stored materials at a construction site being damaged by the elements and other courts’ determinations.

One case the court analogized to that provides another example of this form of storage was Victory Peach Group, Inc. v. Greater N.Y. Mut. Ins. Co., 707 A.2d 1383 (N.J.Super.Ct.App.Div.1998)

In the Victory Peach case from the New Jersey Appellate Court, the plaintiff stored personal property in a building with a damaged roof that was being repaired.  Tarps were nailed over portions of the roof because the repairs couldn’t be completed in one day.  A rainstorm blew the tarps off the roof and water got into the building and damaged the plaintiff’s stored property.  The policy exclusion was similar and the New Jersey court found for the plaintiff against the insurance company holding that nothing in the method of protecting the property left it open to the elements.

Another example in the court’s finding came from a case in Texas and can be found in the opinion, in that case, there was no reimbursement for the damage to steel at a construction site after a rain storm, but it involved slightly different “in the open” exclusion language that included rust.

One thing is for certain, don’t cover the materials at a site with newspapers… the opinion and the oral argument took pains to contradict an “absurd” position from the insurance company:

“State Auto contends that equating the phrase “in the open” with “exposed to the elements” would lead to an absurd result because such an interpretation does not take into account the adequacy of the protection in question. State Auto argues that, under such an interpretation, a pile of wood covered by newspapers would not be “in the open” because the wood was not “exposed to the elements.” We find State Auto’s contention without merit because a reasonable person would not think that newspapers would protect property from exposure to the elements. Therefore, the interpretation does not lend itself to absurdity.” Slip Op. at 9.

The oral argument in this case is filled with the questions from the judges posing “construction site” hypotheticals to the attorney and can be heard here.

The lessons are not only to remember to make sure that there’s some policy covering the materials that are stored at a site or at a shop, but also to make certain that the way they’re preserved at that location doesn’t keep someone from getting paid if they’re damaged.

• Email This
• Print
• Comments
• Trackbacks

We’ve been lax lately in getting our readers interesting district court opinions on topics that are facing the industry. Today we’re pleased to rectify a small portion of that delinquency with this written opinion from Judge Goldberg regarding an engineer’s motion to dismiss a negligent misrepresentation claim.

The facts of the case from the opinion detail the parties’ involvement in the City of Chicago’s Façade and Circulation Enhancement Project (“FACE Project”). After it was apparently sued by the City for breach of contract in connection with the construction of the FACE Project, a general contractor on the project brought a suit against an engineer hired by the City. The general argued that the engineer was hired by the “City to provide testing and review of welds and steel related to the FACE Project.” The general contended that this created a duty on the part of the engineer to advise the general, among others, of any defects that it found. Although its not apparent from the order, you can guess that the general was trying to pass through some form of damage liability, likely based on defects or errors in the welds, to the engineer.

Why is this important? In short, it is important because the economic loss doctrine usually allows architects and engineers in the state of Illinois to avoid suits based in negligence where part or all of what they were contracted to do involved creating plans and specifications and providing information that was ancillary to the construction of a building – a final project. The doctrine forces those seeking recovery against a design professional to bring an action based on the breach of the contract, the breach of the commercial expectation in the end product, the building. One of the exceptions to this rule is carved from an enterprise where the design professional is hired, not to render some end product, but to provide information with no tangible result.

Perhaps the most-cited Illinois appellate authority for not allowing a suit against a design professional in negligence when their job has involved both the creation of plans and specifications and the provision of testing and information is a 1^st District case from 1999, Tolan and Son, Inc. v. KLLM Architects, Inc, et al (Doc. No. 1-98-2581). Tolan recognized the distinction between the different activities of the design professional and chose not to split hairs when both inspections and plan design performed by a design professional took place during construction of the project. Tolan ultimately held that the dual tasks of both design and inspection could not be bifurcated where the design professional created an end product:

“Based on the foregoing, we find that KLLM and Walter's work cannot be bifurcated. They were not retained to provide an analytical end product. They were retained to design and construct the townhomes. The information supplied by them during the course of construction was incidental to the tangible object--the townhomes. Therefore, the circuit court properly granted their motions to dismiss.”

What is interesting about the Tolan decision is that it extended the economic loss rule to a situation involving the design professional both prepared plans and rendered an opinion outside the scope of the plans, but within the scope, temporally, of the construction project as a whole.

This temporal factor finds its way into the analysis in the instant opinion. The opinion does not state that the engineer in this case prepared plans and specifications – “[the engineer’s] work on the FACE Project was to provide testing and review of the work performed by [the welder], to ensure compliance of the work with the Contract Documents and the approved shop drawings.” The analysis finds that because this work was taking place during the construction process, it was ancillary to the construction and design of the project and therefore the economic loss doctrine barred a negligent misrepresentation suit against the engineer pursuant to Tolan.

This raises some unique issues.

What if the construction had concluded and the test was being performed after substantial completion? One year? Three years?

Does the portion of the Tolan opinion relative to the defendant “Reiss” imply that a design professional who supplies an opinion but not plans and specifications will not be exempt from negligent misrepresentation claims when the information is not supplied during construction?

Does this opinion create a distinction between an opinion for the guidance of others in their business transactions and “inspection information and review” for the purpose of insuring compliance of the end product to the Contract Documents? 

It is likely that we will be seeing answers to some of these new questions now that we’ve broached the topic.

• Email This
• Print
• Comments
• Trackbacks

Post hoc ergo propter hoc may be a logical fallacy, but the alternative, the maxim that an event could not be caused by an occurrence happening afterward, sort of an ante hoc ergo non propter hoc finds some harbor in the law. This is the case in the recent opinion of Rock v. State Farm Fire and Casualty Co. (Doc. No. 3-08-0915).

In Rock, there was an underlying case where home purchasers brought a complaint against the sellers of their home for fraudulent, knowing, reckless and/or negligent misrepresentation, based on some false representations they allege were in the property disclosure statements regarding the foundation, mold and water infiltration. The purchasers claimed that the false representations caused them damage through the loss of value to their home, loss of their “bargain” in the purchase, and the cost of remediation.

The sellers won the underlying case and then had a dispute with their insurance company about whether or not the insurance company should pay for the defense of the suit against the sellers pursuant to the terms of an insurance policy. The policy’s terms stated that:

State Farm would provide a defense “[i]f a claim is made or a suit is brought against an insured for damages because of bodily injury or property damage to which this coverage applies, cause by an occurrence.”

An “occurrence” was defined as “an accident, including exposure to conditions” that results in bodily injury or property damage.

“Property damage” was defined as “physical damages to or destruction of tangible property, including loss of use of this property.” 

The trial court heard the parties arguments on the matter and found that State Farm owed a duty to defend the Rock’s in the suit brought by the buyers. State Farm appealed the decision and the appellate court reversed the decision of the trial court. The appellate court held that the damages alleged by the buyers were economic and not caused by the misrepresentations. The court also noted that there was no allegation of “physical damage” to the home occurring after the misrepresentations and therefore the misrepresentations related to past or existing damage and could not have caused the past or existing damage.

The Third District agreed with the Second District’s in Stoneridge Development v. Essex (which we wrote about here) that claiming the cost of repair and diminished value as damages is actually claiming economic loss and not property damage. This is because the damages that are referred to in the suit happened prior to the misrepresentation, they cannot be caused by the misrepresentations. As the court held, these “lawsuit[s] pertain… to the nondisclosure of the damage, not the damage itself.” Slip op. at 8. The court also held that the phrase “loss of use of this property” included in the “Property damage” definition modified and referred to “physical damages” and “destruction” and held that the loss of use must be accompanied by the physical damage or destruction.

In a dissent by Justice Lytton, those opposing this view will find some comfort in an acknowledgment of a line of Illinois cases stating that “unknowing” or “reckless” misrepresentations are adequate to establish an “occurrence” under such a policy.

The interesting point to take away from the opinion is for those in the business of supplying information who may be subject to a claim of negligent misrepresentation. There’s a real need to check the policy language governing the coverage you’ve purchased to make sure that your potential liability is covered in the manner it’s believed to be covered.

• Email This
• Print
• Comments
• Trackbacks

We’ve been writing with updates regarding the recent decisions by the differing appellate district’s in the state on whether causes of action can exist for payment when a contractor has failed to follow the requirements of the Illinois Home Repair and Remodeling Act (815 ILCS 513/1 et seq.) The debate between the districts is fast becoming an issue that the Illinois Supreme Court should decide given the rampant differences in the manner non-compliance with the act is treated depending on which appellate district the non-compliance occurred.

Adding clarity and insight to this debate is a post from one of the best construction law blogs out there. Josh Glazov’s Construction Law Attorney Blog (based right here in Chicago). This recent post discussing both our articles and additional information concerning the reality of the way some trade associates are dealing with informing their members about the act, its requirements and offering recommendations about how to go about complying with the act is worth a read.

What’s also worth reading are the posts Mr. Glazov recently did on FDIC takeovers and how they can affect your projects along with these fun discussions of his recent jury duty on a case picked up and reported on in the Chicago Tribune by Ameet Sachdev.

• Email This
• Print
• Comments
• Trackbacks