Empress Casino Joliet Corp v. W. E. O'Neil Construction Co.
2016 IL App (1st) 151166
Ill. App. Ct.2016Background
- Empress Casino contracted with W.E. O’Neil for a large renovation (AIA-based construction contract with insurance and waiver-of-subrogation provisions). Subcontractors included Jameson (sheet metal) and Global (sprinklers); Averus had a separate, preexisting oral cleaning contract with Empress.\
- Empress maintained (1) a builder’s risk policy for the project with Axis and (2) general all-risk property policies with National Fire and Lloyd’s; the insurers paid $81,150,000 after a March 20, 2009 fire.\
- Empress sued multiple defendants (negligence, willful-and-wanton, and breach of contract claims) to recover its deductibles and insurers’ subrogated payments; the insurers filed a direct subrogation action. Cases were consolidated.\
- The construction contract (AIA A201-1997-based) required owner property insurance, allocated deductibles to the owner, and contained an express waiver of subrogation (§§ 11.4.5, 11.4.7) including "other property insurance applicable to the Work." Article 6 addressed separate contractors.\
- Defendants moved for summary judgment asserting the contractual waiver of subrogation barred plaintiffs’ claims; the trial court granted summary judgment to all defendants.\
- On appeal the plaintiffs challenged (a) application of the waiver to Averus (separate contractor), (b) enforceability of the waiver against willful-and-wanton claims, (c) whether the waiver covered National Fire and Lloyd’s policies (not just the builder’s risk), (d) whether defendants’ breaches nullified the waiver, and (e) Empress’s obligation to absorb deductibles.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Did the construction-contract waiver of subrogation apply to Averus (preexisting oral cleaning contract)? | Waiver cannot apply because Averus had a separate preexisting oral contract and was not a contractor on the AIA-based renovation. | Article 6 permits the owner to award separate contracts under identical/substantially similar conditions, bringing such entities within the waiver. | Reversed as to Averus: waiver did not apply to Averus given its separate, non-AIA oral contract and lack of privity with the contractor. |
| Is waiver unenforceable as against public policy for willful and wanton misconduct? | Public policy should bar enforcement of waivers/exculpatory terms where heightened misconduct (willful/wanton) is alleged. | Waiver of subrogation is not an exculpatory clause but a risk-allocation agreed by parties; it applies regardless of fault. | Held for defendants: waiver of subrogation enforceable and bars willful-and-wanton claims (waivers allocate risk to insurer; not true exculpatory clauses). |
| Does the waiver cover general property insurers (National Fire and Lloyd’s) or only the builder’s risk (Axis)? | Waiver limited to builder’s risk (work-related coverage) and should not strip National Fire/Lloyd’s of subrogation rights. | Contract language (§§11.4.5, 11.4.7) and policy language bind all property insurers that insured property "at or adjacent to the site" or were otherwise "applicable to the Work." | Held for defendants: waiver applies to National Fire and Lloyd’s (both §11.4.7 "other property insurance applicable to the Work" and §11.4.5 cover separate existing policies). |
| Do alleged material breaches by defendants (e.g., time is of the essence, insurer/indemnity provisions) invalidate the waiver? | Defendants materially breached, so owner should not be bound by contractual waiver. | Insurance and indemnity provisions serve different risk functions and do not nullify the owner’s waiver of subrogation. | Held for defendants: breaches/indemnity clauses do not negate the waiver; waiver applies to contract and tort claims. |
| Is Empress obligated to pay deductibles under the construction contract for National Fire/Lloyd’s losses? | Deductible clause applies only to builder’s risk; Empress should recover deductibles under its general property policies. | Section 11.4.1.3 obligates Owner to pay costs not covered because of deductibles for "property insurance" generally. | Held for defendants: Empress must pay deductibles; §11.4.1.3 applies to property insurance generally, not only builder’s risk. |
Key Cases Cited
- Outboard Marine Corp. v. Liberty Mut. Ins. Co., 154 Ill. 2d 90 (standard for summary judgment and contract interpretation)\
- Intergovernmental Risk Mgmt. v. O’Donnell, Wicklund, Pigozzi & Peterson Architects, Inc., 295 Ill. App. 3d 784 (AIA waiver of subrogation applies to fire losses regardless of cause and can reach non-builder policies)\
- Village of Rosemont v. Lentin Lumber Co., 144 Ill. App. 3d 651 (waiver of subrogation bars breach-of-contract and other claims; allocates loss to insurer)\
- Ralph Korte Constr. Co. v. Springfield Mech. Co., 54 Ill. App. 3d 445 (construction-contract insurance-allocation principle)\
- Hartford v. Burns Int’l Sec. Servs., Inc., 172 Ill. App. 3d 184 (waiver of subrogation is not a true exculpatory clause and is enforceable)\
- Third Swansea Props., Inc. v. Ockerlund Constr. Co., 41 Ill. App. 3d 894 (distinguished — owner lacked insurance so case did not control here)