Illinois Construction Law Blog

News & Notes 11/20/08

abrandt@fgpp.com (FGPP) — Thu, 20 Nov 2008 13:52:51 -0600

Senate Bill 2725 which was originally introduced as a bill regarding the Conveyances Act, and which has been through several permutations on differing subjects in the past year has now been amended by the Illinois House of Representatives as a proposed bill that would halt certain mortgage foreclosures and any evictions for 90 days from the date it is signed. If passed, the bill would still need to go back to the Senate for approval.
The Skyline is now reporting that the Trump Spire won’t be lifted into place until mid-December, which probably ruins your plans to watch it during an outdoor picnic. The article sets the tentative date for the weekend of December 13 and 14.
There’s an article over at Greener Buildings about the Green Building Impact Report 2008 that will be of interest to those looking for a report delineating the actual reduction in environmental impact that green buildings (read LEED) have achieved.

JP Morgan v. Earth Foods - Be Assured of Your Surety

abrandt@fgpp.com (FGPP) — Wed, 19 Nov 2008 13:07:23 -0600

The laws applying to personal guarantees have been shifted a bit by the recent case of JP Morgan Chase Bank, NA v. Earth Foods, Inc. (2^nd Dist. Doc No. 2-07-0045). In JP Morgan, a defendant who had signed a personal guarantee to a bank for loans advanced to a business wanted to avail himself of a statute that specifically referenced sureties and not guarantees. The business he guaranteed had defaulted in its principle contract with the bank and the bank sought to get the money through the guarantee since no money could be had from the now defunct business. Prior to the business getting a notice of default, the guarantor sent a letter to the bank that warned the business was depleting its inventory which was collateral for the loan and demanded that the bank take action. If the statue applied, then he would potentially have a defense to the bank’s suit against him on the note where he had arguably complied with the statute. If the statute didn’t apply, he would have no defense to the bank’s demand that he honor the guarantee.

The dispute centered around the interpretation of the Sureties Act (740 ILCS 155):

“Sec. 1. When any person is bound, in writing, as surety for another for the payment of money, or the performance of any other contract, apprehends that his principal is likely to become insolvent or to remove himself from the state, without discharging the contract, if a right of action has accrued on the contract, he may, in writing, require the creditor to sue forthwith upon the same; and unless such creditor, within a reasonable time and with due diligence, commences an action thereon, and prosecutes the same to final judgment and proceeds with the enforcement thereof, the surety shall be discharged; but such discharge shall not in any case affect the rights of the creditor against the principal debtor.”

The guarantor argued that the sureties act applied to his personal guaranty and that he had an arguable defense to the bank’s attempt to collect on the guaranty because he had complied with the statute and sent the note. The trial court disagreed and denied him this defense in granting summary judgment for the bank on the grounds that the defendant was a guarantor and not a surety. The guarantor appealed and the appellate court issued its determination and after a long recitation of the possible differences between the both guarantors and sureties (an history and discussion worth reading), held that a guarantor was the same as a surety for the purposes of the act and that the defendant could assert the defense.

While the question didn’t seem to hinge on too many specifics in the actual contracts between the two parties, the court did take time to note that any legal distinction between the two was nullified by the terms of the contract at issue which allowed that the creditor could pursue the guarantor without first pursuing the principal. (This is important given that the classical difference between a surety and a guarantor involved the surety’s obligation as joint and several and the guarantor’s obligation as derivative and actionable only when the principal cannot pay).

The lesson is to know your rights and make sure you’re on top of them in sending the right messages to your creditors if you are a guarantor and in protecting yourself by trying to contract around this statute if you are a creditor.

Additionally, the application of the Act to guarantees raises a few more questions than answers, for instance, does the case apply only to personal guarantees, or can we extend the act to multiple types of sureties from people and from corporations? What about in the construction context? Does this change the nature of surety bonds in the state? Can we apply this case to those who contract to ensure the work of another? Has the distinction between these two words been done away with?

With all this in mind, we thought it might be worthwhile to see where some other statutes have made or obviated the distinction and if it becomes a functioning rule, where the Illinois legislature might need to clean house a little:

Section 49 of the Illinois Credit Union Act (205 ILCS 305) lists the terms as separate and distinct when defining a “security” under the Act but does not explain that distinction:

“Security. In addition to generally accepted types of security, the endorsement of a note by a surety, comaker or guarantor, or assignment of shares or wages, in a manner consistent with the laws of this State, shall be deemed security within the meaning of this Act. A credit union shall give each surety, guarantor or comaker a copy of the instrument evidencing the indebtedness. The adequacy of any security shall be determined by the Credit Committee, credit manager or loan officer, subject to this Act and the bylaws of the credit union. The surety, guarantor or comaker may, but need not, be a member of the credit union making the loan.”

In defining the operations of certain insurers and companies, the Illinois Insurance Code (215 ILCS 5) notes the distinction at Section 4 Class 2 (g) and at Section 121-3(b):

“(g) Fidelity and surety. Become surety or guarantor for any person, copartnership or corporation in any position or place of trust or as custodian of money or property, public or private; or, becoming a surety or guarantor for the performance of any person, copartnership or corporation of any lawful obligation, undertaking, agreement or contract of any kind, except contracts or policies of insurance; and underwriting blanket bonds. Such obligations shall be known and treated as suretyship obligations and such business shall be known as surety business.

“(b) The making of or proposing to make, as guarantor or surety, any contract of guaranty or suretyship as a vocation and not merely incidental to any other legitimate business or activity of the guarantor or surety.”

Article XV part 12 of the Mortgage Foreclosure Act (735 ILCS 5/15‑1204) defines a “Guarantor” in terms that include a surety agreement:

“Sec. 15‑1204. Guarantor. "Guarantor" means any person who has undertaken to pay any indebtedness or perform any obligation of a mortgagor under a mortgage or of any other person who owes payment or the performance of other obligations secured by the mortgage, which undertaking is made by a guaranty or surety agreement of any kind.”

The General Definitions and Principles of Interpretation Section of the Uniform Commercial Code (810 ILCS 5/1-201(39)) settles the matter within the code by defining the two congruously:

“(39) "Surety" includes a guarantor or other secondary obligor.”

However, it is likely that you can still waive the provisions of this act through language in your surety/guarantee. City National Bank of Murphysboro, Il. v. Reiman, 236 Ill.App.3d 1080 (5^th Dist., 1992). You’d just want to make sure you’re doing that explicitly. And if you find yourself as a surety or guarantor, you may want to take a stab at complying with the provisions of the Act when you become aware that the entity you’ve vouched for will be running into financial troubles in the immediate future. Who knows, maybe some clever attorneys with willing clients might see if the act could be extended to other types of financial backing.

As always, having a surety or personal guaranty gets you one step closer to an actual payment, especially in a market where shell LLCs are created and dissolved for the simplest of transactions… and being aware of this new information should help you negotiate a better deal.

Don't Forget to Apportion a Lien Filed Against a Condo Association

abrandt@fgpp.com (FGPP) — Fri, 14 Nov 2008 14:48:19 -0600

Pepper Construction Company is being sued for its work constructing the high-rise condo building over at 720-726 Randolph in Chicago. The complaint alleges multiple counts including:

Delays on the project
Faulty workmanship
Slandering the title to the land
Breach of warranty
Breach of their contract with the owner
And fraudulent concealment of defective work

This may be the first in a series of suits over this property, the City View Tower.

Starting on page 23 of the complaint, you’ll see an interesting claim regarding the mechanic’s lien and its something worth noting if you’re either involved in the construction of condominium projects (high-rise or not) or if you’re developing them. There are multiple cases presently before the courts regarding this issue. The Condominium Property Act requires that mechanic’s liens be apportioned – Section 9.1. So, in addition to making sure the strict timing requirements of the Mechanic’s Lien Act are followed, anyone seeking to file their lien against a condominium property (any property where the condominium declaration has been recorded) should familiarize themselves with Section 9.1 before filing.

News and Divis v. Woods Edge Homeowners' Association

abrandt@fgpp.com (FGPP) — Thu, 13 Nov 2008 12:26:25 -0600

The Skyline is reporting that Sunday’s anticipated capping of the Trump Tower has been postponed, indefinitely.

Chicago Real Estate Daily is reporting on the new mortgage foreclosure rates and figures for October.

For those of you involved in contracting for snow and ice removal on residential properties: In a case from the First District, Divis v. Woods Edge Homeowners’ Association (Doc. No. 1-08-0411), the court has held that the Snow and Ice Removal Act (745 ILCS 75/1) applies to a company that contracted with the condominium homeowners association for the removal of ice and snow and that the company could assert the act as an affirmative defense to a suit brought by a condominium resident against the association, the management entity and the company that was contracted to remove the ice and snow for a fall that he suffered when he slipped after exiting his unit.

Protect Yourself And Make Sure You're Getting The Insurance You Contract For

abrandt@fgpp.com (FGPP) — Tue, 11 Nov 2008 12:16:11 -0600

Any discussion of your project is going to involve insurance. Whether you’re naming someone as an additional insured or being named as one is a part of every construction project. Making sure that you get what you want is not as easy as you might think. And the recent case of United Stationers Supply Co. v. Zurich American Ins. Co. et al, (Illinois, Doc. No. 1-07-2779) is proof that you need to pay attention to what you’ve contracted for and what you’ve received as proof that those obligations have been fulfilled.

In this case, the plaintiff sought a declaration from the court that the insurance company for its general contractor was required to defend and indemnify it after an employee of the company was injured while working on a construction project to replace a roof at the plaintiff’s plant. The injured worker alleged he was supervised and managed by the general contractor and injured while using the general contractor’s equipment. The employee had sued the general contractor and the general in turn had sued the plant owner (the plaintiff in this action) for contribution. The plaintiff requested that the insurance company that supplied a commercial general liability policy to the general contractor defend and indemnify the plaintiff in the underlying injury action and the insurance company denied that it had any obligation to do so. The parties filed an action seeking a declaration that their version of the obligations of the insurance company was the correct one and the lower court found that the insurance company had no duty to defend or indemnify the plaintiff.

The reasons for that lack of duty are important to anyone entering a contract related to a construction project. The general contractor and the plaintiff had entered into a contract which had terms that required the general contractor to obtain specific types of insurance, i.e. Workmen’s Compensation, Contractual Liability Insurance, Automobile Liability Insurance, and Hazardous Materials Insurance. Nowhere in the contract was the general contractor required to obtain Commercial General Liability insurance. In fact, the contract only required that the general obtain Contractual Liability Insurance with the requirement that it be endorsed to cover the indemnity agreement (a standard indemnity agreement) between the parties which required the general to indemnify the plaintiff. The contract also required that the general contractor furnish a certificate of insurance that named the plaintiff as an additional insured and did not require or specify which type of insurance the plaintiff was to be named as an additional insured.

The manner in which the First District made its findings is attributable to the vague nature of the contract. As is usually the case, that ambiguity provides a learning point.

With regard to the fact that the plaintiff was named on the certificate of insurance for the CGL policy, but not on the actual endorsement to the policy or required by contract to be named as an additional insured for the policy, the court pointed out something you will likely see on all your certificates. Take a look at this sample certificate, particularly the language in the upper right hand corner:

This certificate is issued as a matter of information only and confers no rights upon the certificate holder. This certificate does not amend, extend or alter the coverage afforded by the policies below.

The court looked to that language and applied it to the coverage in this matter finding that the certificate did not alter the coverage and that the specific language put the plaintiff on notice that coverage is governed by the terms of the insurance policy and not the certificate. Remember, the certificate isn’t the policy and the endorsement needs to be clear.

Second, the court found that none of the contractual language implied that the plaintiff would be added as an additional insured to the CGL policy.

With this reasoning in mind the court found:

Based on the foregoing, we find as a matter of law that United Stationers is not an additional insured under the CGL policy because: (1) United Stationers is not specifically listed as an additional insured in the policy; (2) the construction contract requiring D.C. Taylor to purchase insurance on behalf of United Stationers did not specifically require the purchase of a commercial general liability policy; (3) there is no evidence of intent by the parties that United Stationers was to be added as an additional insured; and (4) the disclaimer language in the certificate of insurance put United Stationers on notice that the CGL policy language governed coverage of additional insureds.

Because the contract was not clear, and the certificate disclaimed any change to liability, the plaintiff was not covered under the policy.

As a side note, this is a small difference between the new ConsensusDocs and the AIA 201 – 2007 general conditions. The ConsensusDocs 200 uses specific names for the types of policies required by the contract, i.e. CGL, Employer’s Liability, Business Automobile Liability, and does not require that the parties name anyone as an additional insured, but offers the option of selecting additional insured coverage in Section 10.5. The AIA 201 identifies the types of claims against which the contractor should have coverage (Section 11.1.1) and requires that the owner be named in the commercial liability coverage as a default (Section 11.1.4). Both contracts require that certificates be furnished to the owner, but under the present case, a certificate may not be enough.

The lessons are simple for a company looking to ensure legally binding coverage on their construction project in Illinois, there are two lessons from this case:

1) Contracts should mandate that every type of insurance required is named in the contract, including terms like “commercial general liability” or others describing the coverage needed with specificity.

2) Request that you be named on the endorsement and get a copy of the endorsement or make sure it has language sufficiently broad enough to include you as someone who has required the insured to name them as an additional insured – not just requesting a certificate of insurance.

Proof That Copyrighting Your Work Is Important

abrandt@fgpp.com (FGPP) — Thu, 30 Oct 2008 09:14:51 -0600

The law provides creators a myriad of opportunities for protecting themselves and their innovations. We’ve written before and kept our readers abreast of the opportunities to copyright work and the steps the U.S. Copyright Office is taking to ensure an easy process for engineers, architects, and other design professionals to protect their rights. Having a registered copyright on your design opens the door to protections under the federal copyright act which ads another option that you and your attorney have in case someone uses your design without permission.

We realize that harping on this matter likely won’t convince you that it is in your best interest, which is why we are happy to be able to provide you with proof that it may become necessary.

This recent complaint, filed on October 24, details an interesting scenario. The plaintiff is an architect who designed a single family home in connection with a sub-division development in the Chicago suburbs. The general contractor allegedly then took those plans and used them on a house in a different subdivision without the plaintiff’s approval. The plaintiff brought a cause of action for statutory damages against those believed to be infringing his copyright and has requested an injunction from the court to stop the practice.

The lesson is especially important for those drafting plans for use on projects that could easily be turned around and built somewhere else such as single-family homes and smaller condominium projects. With the minimal fee for filing and obtaining copyright, it makes sense to pay the fee and get this added protection.

Your BIM Contracting Options Just Got Bigger

abrandt@fgpp.com (FGPP) — Fri, 24 Oct 2008 10:33:46 -0600

As we wrote about before, the new AIA BIM and IPD documents have now been released and are available for download. The new documents are:

E202-2008 - A New Building Information Modeling (BIM) Protocol Exhibit
C196 and C197 – 2008 - Two New Integrated Project Delivery (IPD) Agreements
A441 and C441 – 2008 - Two Additional Design-Build (DB) Agreements
B207 – 2008 - An On-Site Project Representation.

The documents are available at the AIA website. They will be of interest to anyone participating in BIM projects and looking for a comparison or alternative to the ConsensusDocs BIM forms.

Mechanics Liens Are Another Tool for Repayment... When They're Done Right

abrandt@fgpp.com (FGPP) — Tue, 21 Oct 2008 15:41:05 -0600

Any business engaged in the construction industry in Illinois should be aware of the rules and requirements for filing a mechanics lien, or at least have someone they can reach out to in order to answer those questions.

The statute is possibly the best method available to any contractor, architect, sub any other person working on a project for ensuring payment. It creates an encumbrance on the land that allows not only for foreclosure, but also forces subsequent buyers to deal with the encumbrance before moving forward by either bonding around the lien or attempting to extinguish it. Whether the claim is for $1,000 in work or for $10,000,000, no matter what the amount, if the requirements are met, you can avail yourself of the act and pursue payment. Depending on the exact situation, the act may force you to get something filed and deliver notice anywhere from 90 days to four months after your last date of work, and knowing and complying with the act’s guidelines helps ensure another method for getting paid (the act also allows for attorney’s fees). If you don’t you will lose your rights and while the amounts of each account receivable may not seem like a lot, if everyone starts to skimp on the receivables, the effect of non-payment can become calamitous to your business. In the current economic climate, even if you know that payment is down the road, it’s best not to sit on these rights and lose them… talk to someone and get it done right. Because if its not done right, you could end up like the plaintiff in Speedy Gonzalez Landscaping, Inc. v. O.C.A. Construction, Inc., (1^st Dist., Doc. No. 1-07-2370).

The plaintiff was a sub-contractor hired to perform services for the removal, hauling and disposal of rock and gravel from a site for the construction of a new school. The plaintiff performed its work and sought payment for some $637,382.53 that it was owed. Because the project was for a public building improvement built with public funds, section 23 of the Illinois Mechanics Lien Act applied. The plaintiff complied with the applicable notice required by the section for delivering notice of its lien to the Public Building Commission of Chicago. The plaintiff then properly filed its complaint against the defendants asking for an accounting within the applicable 90-day time limit from the filing of the notice, but failed to abide by the statute and also deliver a copy of the complaint to the public body within the time limits. The GC filed a motion to dismiss the claim based on the failure of the plaintiff to follow the applicable time requirements and the court granted the motion, thereby barring the plaintiff from its count for a mechanics lien. The appellate court upheld the decision of the trial court.

For the simple failure to provide a copy of the complaint to the right person, the plaintiff has lost its mechanics lien claim.

Indemnification Doesn't Necessarily Mean Attorney's Fees

abrandt@fgpp.com (FGPP) — Thu, 25 Sep 2008 11:22:00 -0600

Michael Downs v. Rosenthal Collins Group, LLC, (Ill. App. 1^st, Doc. No. 1-08-0636) will be of interest to anyone reviewing their own contracts. The case involves a contract's indemnity provision and whether or not it included an indemnification for attorney’s fees.

In a prior action, the plaintiff, a CEO and Member of a limited liability company, had been sued for breach of his fiduciary duties and breach of contract. He successfully defended those claims and then filed a separate action against the corporation for breaching their agreement to indemnify him by not paying him for the attorney’s fees he expended in the prior case.

The agreement’s indemnification provision read:

“21.2 The Company shall indemnify each Member for any act performed by such Member with respect to Company matters permitted by this Agreement and/or Majority Approval, but in no event for fraud, willful misconduct, negligence or an intentional breach of this Agreement.”

The plaintiff argued that because only the word indemnify was used, it should be interpreted to have a broad meaning that included attorney’s fees. The court analogized this case to a case where the word “defend” had been used in the indemnification agreement… “to protect, defend, indemnify and hold harmless” and noted that the agreement in this matter failed to use such language. Combining the contract’s lack of specificity regarding attorney’s fees and noting that the American system of jurisprudence favored parties bearing their own costs and attorney’s fees unless otherwise agreed, the court found that attorney’s fees were not included in the agreement. The court went on to state that a well-settled bright-line rule on the issue provided certainty in the law and would put parties on notice to include precise language on attorney fees when negotiating their contracts.

The lesson is to ensure that you’ve included or at least considered whether you want an attorney fee provision in your indemnification clause. Although the court in this case seems to agree that the word “defend” added to the word indemnify may have made things come out differently, it would be best to specifically request the fees and/or costs that you want.

New AIA Contract Docs

abrandt@fgpp.com (FGPP) — Thu, 25 Sep 2008 08:03:02 -0600

ConsensusDocs released their BIM addendum a while back and the AIA has now announced the release of six new IPD and BIM documents which include a BIM Exhibit that should help facilitate direct communication of each party's duties and an on-site project representation document that should be interesting. A full press release from the AIA can be read here.

It's impossible to keep the excitement that surrounds BIM projects from spilling over into construction's legal sphere. The challenges of contracting for a collaborative exercise and answering the new questions that are raised in an atmosphere that could become an entirely open and instant exchange of information will likely end up creating the need for many future revisions and additions to all the collaborative agreements.

Environmental Barrier v. Slurry Systems

abrandt@fgpp.com (FGPP) — Mon, 22 Sep 2008 10:31:25 -0600

Chances are that if you’ve been through an arbitration you’re going to have a strong opinion about it. It’s even likely that your experience has influenced you enough to include or delete arbitration clauses from your contracts. Splitting the baby in two is a normal result and the parties are expected to air their grievances up front - it is, after all, an alternative to the litigation process, and should not be treated as a precursor to some other form of conflict resolution, and the opinion in the matter of Environmental Barrier Co., LLC v. Slurry Systems, Inc. (7^th Circ. Doc. No 06-3910) is no exception.

An arbitration claim was filed by a company that had purchased some of the assets of a subcontractor during the subcontractor’s bankruptcy. The original arbitration claim was for $657,273.50 against the general contractor by the company that had purchased the sub’s contract in the bankruptcy (the “sub-purchaser”), and the final arbitration award was $388,919.88. After the sub-purchaser moved to confirm the award in court, the general raised a new issue: that there had been no agreement to arbitrate between the parties. The seventh circuit addressed the issue and found in favor of the sub-purchaser. The court raised policy concerns about allowing a party to sit on the issue of arbitrability throughout an arbitration and then to raise it after the parties have completed the arbitration process and have moved on to court.

“This is not a tactic we can accept, for sound policy reasons. It is terribly wasteful of the arbitrator’s time, the parties’ time, and the court’s time. Anyone who wants to object to arbitrability is entitled to make her position known to the arbitrator and the other party; the other party may then, if it wishes, respond with a petition for an order to compel arbitration under the Federal Arbitration Act…and obtain a judicial determination on arbitrability. In addition, keeping the arbitrability card close to the chest would allow a party like [the general contractor] to take a wait-and-see approach: if it had liked [the arbitrator’s] decision, it would have remained silent, but since it did not, it is now complaining about arbitrability.”

The court is correct, and this is a lesson for anyone getting ready to participate in an arbitration, or considering the merits of not participating. The time to object is in the beginning. The legal process, including arbitration, is about the resolution of disputes and not tactical gamesmanship.

Construction Manager Found Not Responsible for Job Site Injury

abrandt@fgpp.com (FGPP) — Mon, 08 Sep 2008 10:21:27 -0600

In another development in the area of job site safety in Illinois, a Cook County trial Judge has found that a construction manager cannot be held liable for an injury suffered by a worker when he fell into a trench. The opinion is attached here.

The court reasoned that the construction manager, Ambitech Engineering, did not have sufficient control over the plaintiff's work to create a duty to him despite contractual language obligating Amitech to motinor job site safety. The court also found insufficent evidence of knowledge of any dangerous conditions on the part of Ambitech. This case, like dozens of others like it, demonstrate that the courts will continue to scrutinize personal injury claims against construction managers and general contractors on a case by case basis. We will continue to monitor this developing area of law and expect that sometime soon the Illinois Supreme Court will speak on the topic.

KAWASAKI MOTORS FINANCE v. VANAGAS, et al. (N.D. Ill., Doc. No. 07 C 5844)

abrandt@fgpp.com (FGPP) — Tue, 19 Aug 2008 18:04:57 -0600

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.

AUTO-OWNERS INSURANCE COMPANY v. CHORAK & SONS, INC. (N.D. Ill., Doc. No. 07 C 4454)

abrandt@fgpp.com (Ashley Brandt) — Thu, 14 Aug 2008 12:15:32 -0600

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.