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

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.

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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.

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Ezra Klein had an interesting piece back in June discussing Wendell Potter’s frank testimony about the insurance industry in front of the Commerce Committee. The testimony and the piece relate to healthcare, but the notions reflected in the article about profit motives and the need to sustain a business by generating money apply to any enterprise in the industry. Rightfully so. We need insurance to mitigate risk that businesses might otherwise not be able to justify taking if the prospect of excessive liability would fall to them directly. The coverage afforded by insurance is sometimes duplicative. 

Two companies can be faced with covering the same loss and in that instant it becomes worth their while to attempt to avoid paying or to shift the burden of paying to the other company. Many times, the business that is insured plays a role in deciding which insurance company will be faced with the prospect of both defending a claim and possibly paying out on it. Choosing between the companies, tendering defense of the claim to one and not the other is known as “targeting tender”. Targeting tender is a crucial tool for policy holders. In a choice between your policy and the policy of a sub, choosing to be defended under the sub’s policy can keep your premiums down and reduce costs over the long-term.

In a recent Illinois case, State Auto Property Casualty Insurance Co. v. Springfield Fire & Casualty Co. (Doc. No. 4-08-0977) the fourth district has held that where a company has two policies that it has purchased, as well as a situation where under contract one company is named on another company’s policy, it still has a right to select which of the policies it is seeking coverage under and which it is not. This is the case even where one of the policies may have a provision saying that if the insured is covered by more than one policy, it will be “other-insurance” and should be considered as excess insurance. But a crucial element to maintaining the right to “deselect” one of the policies is that it can never be triggered or tendered towards to begin with.

In essence, the court has stated that the right to select coverage is not superceded by an insurance policy’s “other-insurance” provision so long as the insured never triggers one of the policies. Basically, one of the policies has to never be activated by the tender of defense. Additionally, unlike the requirements of targeting tender when more than one insurer has been selected, the act of tendering in a situation where only one is active does not require the letter requesting coverage to inform the insurer that it is being looked to as the sole insurer for the matter.

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Restrictive covenants can make or break the real estate purchase/financing underlying the project. They run the gamut of justifications from restrictions for safety and public welfare all the way to terms for convenience of access and rules governing aesthetic choices. Generally they are enforced by the courts and a recent Appellate Court case shows that there may be creative alternatives for circumventing restrictions that might otherwise keep a project from going forward.

The restrictive covenant that a developer wanted to invalidate in Vo-Land, LLC, v. The Village of Bartlett (Doc. No. 1-08-0632) was an agreement to keep land developed in 1987 from being used as something other than open-space.

Vo-Land was the subsequent owner of a 107 acre parcel of property in the Village of Bartlett. In 1987, the previous owner had entered into a covenant with the Village that allowed it to construct 1,875 residential unites on its property provided that 96 acres of the site be maintained as a golf course or other open space. Vo-Land later took ownership of the property.

In 2004, Vo-Land sought to amend the zoning for the property and wanted to close the golf course, reduce the 96 acre open space mandate to 51 acres and build 350 new residential units on the remaining golf course land. The Village board denied Vo-Land’s request and refused to release the restrictive covenant and also denied Vo-Land’s request to have the zoning of the parcel amended.   That wasn’t the end to Vo-Land’s quest.

The owner brought an action asking the court to void the restrictive covenant, or, in the alternative, to force the village to allow it to apply for amended zoning – a petition for disconnection for the property from the village pursuant to Section 7-3-6 of the Illinois Municipal Code.

“Section 7-3-6 of the Illinois Municipal Code provides that property owners may have land disconnected from a municipality by court proceeding if the property: "(1) contains 20 or more acres; (2) is located on the border of the municipality; (3) if disconnected, will not result in the isolation of any part of the municipality from the remainder of the municipality, (4) if disconnected, the growth prospects and plan and zoning ordinances, if any, of such municipality will not be reasonably disrupted, (5) if disconnected, no substantial disruption will result to existing municipal service facilities, such as, but not limited to, sewer systems, street lighting, water mains, garbage collection and fire protection, (6) if disconnected the municipality will not be unduly harmed through loss of tax revenue in the future." 65 ILCS 5/7-3-6 (West 2002). The Code further provides that "[i]f the court finds that the allegations of the petition are true and that the area of land is entitled to disconnection it shall order the specified land disconnected from the designated municipality." 65 ILCS 5/7-3-6 (West 2002).”

The trial court supported the validity of the covenant and even went so far as to hold that Vo-Land was estopped from challenging its validity. The previous owner had agreed to keep the restrictive covenants conditions in place for 35 years in exchange for being allowed to develop portions of the property. Much like any other form of contract, Vo-Land would not be allowed the benefit of the zoning variance that allowed the initial construction without the open-space restrictions that gave a benefit to the village. The appellate court agreed.

The appellate court also agreed that Vo-Land was entitled to have its property disconnected from the municipality, thus rendering the restrictive covenant moot. Of the six factors listed above, the village fought the disconnection based on the third factor arguing that a water station would become isolated if the 107 acres were no longer part of the village. The water station was actually across a road from the acreage and that road, with a highway right-of-way owned by the village, was the only place that the village actually touched the water station’s parcel as well. The courts found that disconnecting the Vo-Land land would not lessen the touching between the water station property and the village.

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In limiting and answering a certified question regarding Section 5(b) statements under the Illinois Mechanic’s Lien Act, the First District has opened the door to another interesting question in light of the Illinois Supreme Court’s recent Weather-Tite decision.

The case is Crawford Supply Company v. Schwartz, et al. (Doc. No. 1-09-0900) and the question presented was:

“Where a subcontractor asserts a claim for lien on an owner-occupied single-family residence and serves a 90-day notice as provided in Section 24 of the Mechanics Lien Act, does the subcontractor’s failure to serve a 60-day notice as provided in Section 5(b) of the Mechanics Lien Act render the claim for lien invalid?”

The scope of the question was narrowed by the court:

“We interpret the certified question to ask only whether plaintiff’s failure to serve a 60-day notice as provided in section 5(b) of the Act renders plaintiff’s claim for lien invalid as a matter of law.” (Slip Op. at 8).

The answer to the question was “no,” but the resulting discussion implied that a payment turned over to a general contractor that was not passed on to the sub might constitute prejudice to a home-owner under Section 5(b)(iii) of the Act. If it does, then its possible that Section 5(b)(iii) would allow for a different outcome than Weather-Tite (an owner paying the sub’s fee twice where the fee didn’t get to the sub the first time), which did not implicate 5(b)(iii) or owner-occupied single-family residences.

In Crawford, a sub sued the owner of a single-family owner-occupied residence to foreclose on a mechanic’s lien that it filed when it wasn’t paid for the plumbing supplies it delivered. The sub did not provide the home-owner with the 60-day notice required under Section 5(b)(ii) of the Act which requires that a sub on a project at an owner-occupied single-family residence provide the owner or agent with a statutorily specified notice and warning letting the owner know the name and address of the sub, the dates or its work, and the type of work. Owner-occupied single-family residences are different where many owners are not considered the sophisticated construction owner/consumers of commercial or large scale residential projects; the Act, along with other statutes, affords the unsophisticated owner a few added protections.

The owner moved to dismiss the action brought by the sub arguing that the failure to provide the required 60-day notice invalidated the lien. The trial court certified the question above. The appellate court held that the failure to serve the 60-day notice did not invalidate the lien. To hold as much contradicted with Section 5(b)(iii) and would read it out of the Act.

Section 5(b)(iii) states that the failure to serve the 60-day notice after the 60-day time-period will preserve the lien “only to the extent that the owner has not been prejudiced by payments made before receipt of the notice.”

The owner in Crawford had argued that since it never received the 60-day notice, the lien was invalid, although the owner had received the 90-day notice subcontractors must file under Section 24 of the Act (the court found that a 90-day notice substantially complied with the requirement for a 60-day notice). The appellate court found that because there had not yet been any evidence of prejudice and the 90-day Section 24 notice sufficed, Section 5(b)(iii) meant that the lien was not invalid as a matter of law and the claim made by the sub could go forward.

What is important here is that twice during the discussion of the matter the court noted that the owner had not yet introduced evidence of prejudice, and that prejudice might be shown by arguing that the owner had already made payment to the general for the sub’s work because the sub failed to provide the Section 5(b)(ii) notice. 

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In July of this year Governor Quinn signed the Illinois Green Buildings Act (20 ILCS 3130/1 et seq.) into law. The bill outlines instructions and guidelines for Green Building Standards to be used in the development, design and construction of Capital Development Board projects. The bill mandates that the projects conform to LEED, Green Globes or some other “equivalent certification.” In addition to the bill, the CDB has instituted Green Building Guidelines for State Construction which do not offer the same “out” language of “or equivalent certification” as the Act and instead mandate LEED NC, with no exception for another standard.

It’s a safe assumption that we’re all in favor of sustainable development and design… even if we weren’t it’s a safe assumption that “green building laws” have a rational basis sufficient to withstand scrutiny with regard to pushing for that sustainable goal. What is unclear is whether state sponsorship of a private entity’s green rating system to the exclusion of other systems can be countenanced where it means that the competing rating systems are adversely affected and could possibly lead to the citizenry being denied the right to express the viewpoint of a comparable “green rating system.”

There are currently not any specific federal standards for the regulation of “green rating systems.”   Private entities advance different methods, systems, goals and ratings which have yet to be either subjected to government oversight and accountability or run through the gamut of consumer protection lawsuits that could shed light on the practices and procedures for making a decision to favor one material over another, one method to an alternative.

While LEED has undoubtedly advanced to the front of the pack with the dominant market share in sustainable building standards, it is still a system run by a private organization that is advancing its method against others. A government’s singular implementation of the LEED system not only excludes other systems from competing for or consideration in government projects (profits are made from the certification process), it may also silence dissent regarding alternative private viewpoints about sustainability. If there is no government or regulated objective standard regarding a green rating system, what and how it must accomplish, why is one private individual’s viewpoint any less valid, or entitled to less consideration than another’s by the state? 

Where is the recourse, outlet, or method for appealing a decision about what is “sustainable” or “green”? Where is access to the public forum for expression of “sustainable” or “green” by other private entities or individuals? 

As we push toward sustainable construction and, hopefully, the eventual state and local regulations enacted after careful study of environmental issues that it will entail, it is best to recognize lessons learned from our past about letting private entities become quasi-state actors or the codification of one viewpoint to the exclusion of another.

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2009 has been an exciting year for Section 5 of the Illinois Mechanics Lien Act. The Illinois Supreme Court’s Weather-Tite decision set the record straight regarding the failure of an owner to withhold the funds delineated in a Section 5 statement, and the 2^nd District’s recent case of Weydert Homes, Inc. v. Kammes, is reiterating some of the other basic rules regarding the Section 5 statement.

Apart from holding that the Section 5 statement must be sealed/signed by an officiant as we discussed yesterday, Weydert is worth reading for the court’s discussion of a few other salient points:

• Perfection of the lien claim is not tied to providing a Section 5 statement. Whether or not an owner has requested the statement and whether or not it has been provided by the contractor are irrelevant issues to determining whether the lien is properly recorded under the statute.
• Provision of a Section 5 statement is predicate to enforcing the lien claim. The court refused in Weydert to address the absurdity of an owner continually requesting Section 5 statements to preclude a valid foreclosure by the GC. The holding did reaffirm the notion that the failure to provide the statement upon a valid request would defeat a lien claim.
• An owner must require the statement before paying the contractor any monies. This means that asking for the statement and then paying money before the statement is received may waive the protections.
• The failure to provide the Section 5 statement may not preclude a claim for breach of contract or quantum meruit if the owner is not prejudiced by the possibility of additional, undisclosed, subcontractor claims arising after the enforcement of breach of contract or quantum meruit actions have begun.

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Here’s a bit of trivia for today. The name of the clause at the foot of an affidavit or any other oath administered by an official that describes when where and in front of which official the oath was sworn is called the “jurat.” Jurat stems from the latin, juratum “sworn,” which conjugates from the verb jurare “to swear.”

This small clause and the seal of the notary or other official are very important. They distinguish and oath from simple swearing under the Illinois Oaths and Affirmations Act (5 ILCS 255/0.01 et seq.).

While many of us in everyday life make very little distinction between swearing to something before God and swearing to something before another person, the law makes a distinction between written attestations made in front of a person with the authority to administer oaths and simply making the oath, written or not, without the presence of such authority.

Oaths differ from affidavits:

"An oath, which has been defined as any form of attestation by which a person signifies that he or she is bound in conscience to perform an act faithfully and truthfully, is distinguished from an affidavit, which is a voluntary written statement of fact under oath sworn to or affirmed by the person making it before some person who has authority under the law to administer oaths and officially certified by the officer under his or her seal of office. The difference between an affidavit and an oath is that an affidavit consists of a statement of fact, which is sworn to as the truth, while an oath is a pledge." 58 Am. Jur. 2d Oath & Affirmation §3 (2009).

And not all oaths are equal… which is the point of this first post regarding the recent case of Weydert Homes, Inc. v. Kammes, et al., (2^nd Dist. Doc. No. 2-08-0768).

The sanctioned method of demonstrating that the oath was made in front of the proper authority is the presence of the officiant’s seal in the jurat.  Proving that the attestation is a proper “oath” becomes more difficult without the seal.

The distinction between an oath with a completed jurat and one without such an attestation is critical to today’s case and to future assurances that Section 5 of the Illinois Mechanic’s Lien Act (770 ILCS 60/5) has been complied with.

Section 5 of the Act requires that the statement to the owner, made by the contractor at the request of the owner before amounts are paid which delineates the monies owed to the subcontractors must be “in writing, under oath or verified by affidavit.” In Weydert, a general contractor seeking to assert a mechanic’s lien claim provided a statement to the owner. The GC claimed that the statement was a Section 5 statement, and the owner argued that the statement could not be a proper Section 5 statement where the GC’s president had signed the statement which said that it was “under oath”, but the jurat at the bottom of the statement had not been completed.

The trial court dismissed the mechanic’s lien claim. The issue was presented to the appellate court.   The appellate court also invalidated the lien and found that there was a distinction between both affidavits and oaths under the mechanic’s lien act because the word “or” was used in the language of Section 5.   The appellate court also held that Illinois’ law codified the requirements of an oath under the Oaths and Affirmations Act. The Oaths and Affirmations act requires that a required oath shall be administered by a person empowered to administer such oaths, namely, a court, judge, clerk of court, county clerk, deputy county clerk, Secretary of State, notary public, certified shorthand reporter or a commissioned officer in active service of the US armed forces.

The failure to have the jurat completed meant that the statement did not comport with Section 5.

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