Illinois Legal Update Patrick M. Miller, Partner ILLINOIS Legal - PowerPoint PPT Presentation

Illinois Legal Update Patrick M. Miller, Partner

ILLINOIS Legal Update ► Case Law Update: – Limitations periods applicable to construction related and indemnification claims – Strict application of affidavit requirements in Mechanic’s Lien Act ► Legislative Update: – Dispute resolution in condo association vs developer claims – Mechanic’s lien subordination 2

3 Case Law Update

Fireman’s Fund Ins. Co. v. Rockford Heating & Air Conditioning, Inc. , 2014 IL App (2d) 130566 ► Project: New commercial building – Developer/Builder installed temporary hanging furnaces to allow floor installation work to proceed during winter – Developer/Builder hired HVAC trade contractor to install ventilation system for furnaces ► Problem: Ventilation system failed causing fire loss ► Lawsuit: Insurer for Developer/Builder paid loss and sued HVAC trade contractor for negligence as subrogee 4

Fireman’s Fund Ins. Co. v. Rockford Heating & Air Conditioning, Inc. , 2014 IL App (2d) 130566 ► Relevant limitations periods: – 4 year statute of limitations (735 ILCS 5/13-214(a)) on construction related claims • “(a) Actions based upon tort, contract or otherwise against any person for an act or omission of such person in the design, planning, supervision, observation or management of construction, or construction of an improvement to real property shall be commenced within 4 years from the time the person bringing an action, or his or her privity, knew or should reasonably have known of such act or omission.” – 5 year statute of limitations (735 ILCS 5/13-205) on generic injuries to real property 5

Fireman’s Fund Ins. Co. v. Rockford Heating & Air Conditioning, Inc. , 2014 IL App (2d) 130566 ► HVAC trade moved to dismiss because negligence claim was filed 4 years and 3 months after fire, relying on 4 year limitations period as a complete defense ► Insurer for Developer/Builder argued 5 year statute of limitations applied because ventilation system for the furnaces was only temporary and was not “the design, planning, supervision, observation or management of construction , or construction of an improvement to real property” 6

Fireman’s Fund Ins. Co. v. Rockford Heating & Air Conditioning, Inc. , 2014 IL App (2d) 130566 ► Trial court’s ruling: – 4 year limitations period applied – HVAC trade’s motion to dismiss granted ► Appellate court affirmed: – Decision turned on definition of “improvement” and whether the ventilation system was an “integral part of the entire operation.” – Temporary nature of an improvement makes no difference – “the ventilation system, although a temporary installation, was an essential step in the installation of an improvement to the property and that, under the language in section 13-214(a), Rockford Heating’s activities fall under its purview.” – The legislature intended to have the 4 year statute apply to “ anyone who is involved” in the construction of an improvement 7

Gillespie Comm. Unit School Dist. No. 7 v. Wight & Co., 2014 IL 115330 (2014) ► Project: New elementary school in Benld, Illinois (Macoupin County), completed in 2002 ► Problem: Mine subsidence beneath school in 2009 caused extensive structural damage and building was condemned 8

Gillespie Comm. Unit School Dist. No. 7 v. Wight & Co., 2014 IL 115330 (2014) ► Lawsuit: School District sued Architect for: – professional negligence, – breach of implied warranty, and – fraudulent misrepresentation 9

Gillespie Comm. Unit School Dist. No. 7 v. Wight & Co., 2014 IL 115330 (2014) ► What happened? – Architect was hired to provide pre-design and construction services, which included a charge to “investigate and examine the extent of mining in the Gillespie/Benld region.” – Architect hired Engineer to investigate risk of mine subsidence – Engineer provided Architect a detailed Letter specifically explaining the “relatively high risk of subsidence” in the area with maps and historical examples of subsidence events – Engineer later provided a Subsurface Investigation Report, vaguely discussing the risk without also attaching the detailed Letter – Architect provided the Engineer’s Report to the School District, but not the detailed Letter – School District decided to proceed with construction at the site 10

Gillespie Comm. Unit School Dist. No. 7 v. Wight & Co., 2014 IL 115330 (2014) ► Architect’s contract (AIA) contained a claim accrual provision (Article 1.3.7.3) establishing all causes of action accrued on date of substantial completion ► Relevant limitations periods: – 4 year statute of limitations (735 ILCS 5/13-214(a)) on construction related claims • “(e) The limitations of this Section shall not apply to causes of action arising out of fraudulent misrepresentations or to fraudulent concealment of causes of action.” – 5 year statute of limitations (735 ILCS 5/13-205) on fraudulent misrepresentation claims 11

Gillespie Comm. Unit School Dist. No. 7 v. Wight & Co., 2014 IL 115330 (2014) ► School District’s 2009 lawsuit alleged Architect’s failure to include the Engineer’s Letter specifically outlining the subsidence risks induced a false belief by the School District concerning the likelihood of a problem ► Architect moved for summary judgment, arguing: – The contractual claim accrual provision started the clock on the School District’s claims in 2002 (date of substantial completion), and therefore: • 4 year limitations period barred professional negligence and implied warranty claims • 5 year limitations period barred fraud claim 12

Gillespie Comm. Unit School Dist. No. 7 v. Wight & Co., 2014 IL 115330 (2014) ► Trial and Appellate Courts agreed – School District did not challenge contractual claim accrual provision or application of 4 year limitations period – Instead argued the fraud claim survived because no limitations period applied based on language in 5/13-214(e) ► Supreme Court made clear that: – 5/13-214(e) does not mean a fraud-based construction claim may be brought at any time – It merely means the 4 year construction limitations provision does not apply to fraud-based construction claims, which are subject to the 5 year period in 5/13-205 – Court specifically withheld ruling on whether contractual claim accrual provisions apply to fraud claims 13

15th Place Condominium Ass’n v. South Campus Development Team, LLC , 2014 IL App (1st) 122292 ► Project: Twin condominium towers in University Village, approx. 900 units, constructed in 2003-04 ► Problem: Water infiltration due to improperly sloped balconies, poor flashing, etc.

15th Place Condominium Ass’n v. South Campus Development Team, LLC , 2014 IL App (1st) 122292 ► Lawsuit: – Construction defect action brought against Developer by condo association in 2008 – Developer filed third party claims against Architect and GC seeking, among other things, implied and contractual indemnification against the underlying defect claims • Tolling agreement signed in 2009, third-party complaint filed in 2011 15

15th Place Condominium Ass’n v. South Campus Development Team, LLC , 2014 IL App (1st) 122292 ► Key contract provisions: – Claim accrual provision establishing all causes of action accrued on date of substantial completion – Express contractual indemnification provision in GC’s contract favoring Developer 16

15th Place Condominium Ass’n v. South Campus Development Team, LLC , 2014 IL App (1st) 122292 ► Relevant limitations periods: – 2 year statute of limitations (735 ILCS 5/13-204(b)) on implied indemnity claims – 4 year statute of limitations (735 ILCS 5/13-214(a)) on construction related claims – 10 year statute of limitations (735 ILCS 5/13-206) on generic written contract claims 17

15th Place Condominium Ass’n v. South Campus Development Team, LLC , 2014 IL App (1st) 122292 ► Architect and GC moved to dismiss the indemnification claims arguing: – The contractual claim accrual provision applied to third party indemnification claims – The 2 year limitations period barred implied indemnity against Architect – The 4 year limitations period barred express indemnity against GC since this is a construction contract ► Developer argued: – Claim accrual provision did not apply to third party indemnification claims because if it did those claims would expire before the Developer may be sued • Therefore, claim did not accrue until Developer was served with lawsuit – 10 year limitations period applied to express indemnity claim 18

15th Place Condominium Ass’n v. South Campus Development Team, LLC , 2014 IL App (1st) 122292 ► Trial court ruling: – Claim accrual provision enforceable and applied, even to third party indemnification claims that did not materialize before limitation period expired – 2 year limitations period barred implied indemnity against Architect – 4 year limitations period barred express indemnity against GC ► Court of Appeals affirmed in part and reversed in part: – Affirmed contractual claim accrual provisions enforceable in IL, even for third party indemnification claims, where contracting parties are sophisticated entities – Affirmed 2 year limitations provision barred implied indemnity claim against Architect 19