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

Larger projects tend to offer better protections to contractors and owners through the issuance of sureties and bonds and the design professional is often left with the court system as the sole remedy for recouping payment either through an action for breach of contract, or to foreclose on a lien.  Smaller projects offer similar pitfalls for design professionals… and depending on the amounts owed, recouping the money can seem daunting.

In situations where the fee is a fraction of the total project cost, consider the personal guarantee.  It’s an additional agreement signed by an individual, not an LLC or a Corporation obligating the person to the debt owed.   

A recent case from the Northern District, Kawasaki Motors, deals with these types of guarantees (albeit in a motor vehicle financing setting) and is illustrative of the shorter method recoupment on the guarantee can take.

In Kawasaki, two individuals had signed personal guarantees for the debts of a corporation that had contracted with the plaintiff.  The corporation defaulted on its obligations and ended up owing roughly $76,000 to the plaintiff.  The plaintiff had a judgment against the corporation and then sought the money from the guarantors that had signed agreements with the plaintiff guaranteeing the debts of the corporation.  The defendants failed to contest the validity of the guaranties and the court ruled in favor of the plaintiffs on summary judgment finding that no issues of fact existed for trial where the contract for they guaranties was not contested and the defendants failed to put forward any reason to contest the amount claimed by the plaintiff.

Someone financing a project should be able to personally guaranty the 7% to 10% fee that the design professional will earn… especially on smaller commercial projects or residential ones.  Given that the design professional usually will have completed the majority of its work before financing problems arise, an extra guaranty for those taking such a risk is a welcomed safety net.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Recently, we have reported on cases related to claims arising out of construction regarding converage under a CGL policy.  Here is another that found no coverage under a standard CGL policy.  These cases emphasize the need to evaluate their risk allocation and coverage needs for claims arising out of claims stemming from faults with the work that’s performed.

In Auto-Owners, the CGL carrier filed a declaratory action asserting that it did not owe coverage under a standard CGL policy to a subcontractor.  The subcontractor wanted coverage in a suit filed against it for breach of contract, defective workmanship and negligence.  The sub’s work on the project that led to the underlying dispute stemmed from the sub’s attempt to fix the sill plate at the top of the foundation.  The sub was lifting the existing structure to get at the plate and the building slid off its foundation.  The damage to the building was extensive and the city of Chicago ordered the building demolished.  The GC sued the sub and the sub looked to its CGL carrier for coverage.

The court did not address the question of the accident’s categorization as an “occurrence” or as “property damage” under the policy.  Instead, it looked beyond any argument that the action fell under the policy as both an “occurrence” and “property damage” (a contention not assumed in our previous entry on Lyerla) and found that two exclusions in the policy barred coverage:

“Even if the home sliding off of its foundation constitutes “property damage” resulting from an “occurrence,” Auto-Owners is not obligated to defend or indemnify Defendants for the resulting damage because any such damage fell under exclusions j(5) and j(6) to the policy. Exception j(5) excluded damage to the “particular part” of property on which Chorak was “directly or indirectly” performing operations if the damage arose from those operations, and exclusion j(6) excluded damage to the “particular part” of property that must be restored because Chorak's work was incorrectly performed on it.”  Slip Op. at 2.

The court granted summary judgment to the plaintiff and found that no coverage existed due to the exclusions.  Again, while no one plans on an accident affecting the project, or expects damage to occur, having coverage for this kind of event should be considered.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

The background and facts of this matter can be found at our previously reported entry on the Kirkpatrick v. Strosberg opinion when it was handed down in April.  On August 8, the Appellate Court released a modified opinion in the matter and withdrew the previous opinion.

Of note, the new opinion adds an issue previously unaddressed by the court and changes the appellate court's ruling on a previous decision about punitive damages in the case.

1)       Upholding the trial court’s finding that the difference between the square footage depicted in their sales contracts and the square footage of the units as built did not amount to a breach of contract.   Contract language indicating that the floor plan measurements were approximations was included in a rider to the sales contracts that stated:

“All dimensions on the attached marked-up floor plan dated __ are approximate and subject o adjustments due to the actual location of piping, electrical, studs, steel bar joists, and other building components.”

The court also found that the architect’s construction drawings were incorporated into the contracts another provision in the agreement and used that fact to bolster the determination that the plans attached to the sales contracts were approximations.

2)       The Appellate court reversed its previous opinion that the plaintiffs were not entitled to the trial court’s award of $300,000 in punitive damages where the plaintiffs did not establish a basis for computing compensatory or actual damages.  The court revised its opinion and stated that where the trial court expressly found that the plaintiff’s proved actual damages punitive damages would be allowed.  It then addressed the issue of the excessive nature of the $300,000 in punitive damages where no compensatory damages were awarded and held that the damages were not excessive and cited several cases including the Illinois Supreme Court’s Lowe decision (225 Ill.2d 456, 870 N.E.2d 303) encouraging courts to keep the ratio of punitive damages in the single digits.  Although the court had no compensatory damages to create a ration, the court found that an award of $83,000 in attorney’s fees in this matter compared in a 3.5 to 1 ration with the damages and was not excessive.

The court then affirmed the rest of the trial court’s determinations thus modifying its previous opinion to a full affirmation of the trial court’s findings by changing its decision about the award of punitive damages.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

In a recent case from the Seventh Circuit the court found that no coverage existed in a CGL policy for a contractor sued by homeowners for breach of contract. (The opinion can be found here.)

The contractor had performed work on a residential project and the owners of the project sued him for breaching his construction contract by failing to complete the punchlist, and for liquidated damages guaranteed to them under the contract ($100 per day for every day the project went over the date required for completion of the punchlist items for the first 14 days and $150 for every day thereafter).  The contractor tendered the claim to his insurer and coverage was denied.  The contractor settled the suit with the owners for $53,000 and brought an action against the insurer for breach of contract and for violating the Illinois Insurance Code.  The insurer and the contractor both moved for summary judgment on the matter and the district court concluded that the underlying breach of contract claim filed by the owners had not alleged either an “occurrence” or “property damage” as defined in the contractor’s CGL policy.

The definitions in the policy were:

That insurer “will pay those sums that the insured becomes legally obligated to pay as damages because of ‘bodily injury’ or ‘property damage’ to which this insurance applies.” The policy:

applies to “bodily injury” and “property damage” only if:

1) The “bodily injury” or “property damage” is caused by an “occurrence” that takes place in the “coverage territory”; and

2) The “bodily injury” or “property damage” occurs during the policy period.

“Occurrence” is defined as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” “Property damage” is defined as:

a. Physical injury to tangible property, including all resulting loss of use of that property. All such loss of use shall be deemed to occur at the time of the physical injury that caused it; or

b. Loss of use of tangible property that is not physically injured. All such loss of use shall be deemed to occur at the time of the “occurrence” that caused it.

Lyerla v. AMCO Ins. Co., at 2 - 3.

The Seventh Circuit agreed with the District Court’s decision and went on to note that Illinois law was replete with cases holding that allegations for breach of contract against an insured do not trigger coverage where the alleged defects resulting from the breach are considered the natural and ordinary consequences of the improper construction techniques of the contractor or its subs and therefore do not constitute “occurrences” within the definitions of most CGL policies.

The court also held that the damages alleged by the owners against the contractor for the costs they were forced to pay to complete the construction and the liquidated damages did not amount to “property damage” under the policy where they could not be considered damage to tangible property or damages resulting from “loss of use” by the owners.

The opinion serves to reaffirm the principal that the CGL policy doesn’t provide coverage for breach of contract claims and should put designers, contractors, and subs on notice that different policies should be procured if they would have coverage for these allegations.

• Email This
• Print
• Comments
• Trackbacks
• Share Link