Empress Casino Joliet Corp v. W. E. O'Neil Construction Co.
68 N.E.3d 856
Ill. App. Ct.2017Background
- Empress Casino Joliet renovated its property under an AIA-based construction contract with W.E. O’Neil as general contractor; the contract required the owner to carry builder’s-risk/property insurance and contained an express waiver-of-subrogation (AIA §11.4.5/11.4.7) and deductible allocation (§11.4.1.3).
- Empress had three insurers: Axis (project-specific builder’s risk) and National Fire and Lloyd’s (general all-risk property policies covering the casino). The insurers paid Empress $81,150,000 after a March 20, 2009 fire.
- Empress sued multiple contractors and consultants (negligence, willful and wanton, and breach of contract claims) to recover insurers’ payouts plus Empress’s deductibles; the three insurers filed separate subrogation suits. Cases were consolidated.
- Defendants moved for summary judgment arguing the contract’s waiver of subrogation bars plaintiffs’ claims; the trial court granted summary judgment for all defendants on all claims.
- On appeal, plaintiffs challenged (1) application of the waiver to Averus (a preexisting vendor that cleaned ducts under an oral contract), (2) enforcement of the waiver where willful and wanton misconduct was alleged, (3) whether the waiver covers National Fire and Lloyd’s general policies (not just Axis), (4) whether defendants’ breaches of the contract negate the waiver, and (5) whether Empress waived recovery of its deductibles.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Averus is covered by contract waiver of subrogation | Averus had a separate preexisting oral cleaning contract and was not a contractor under the AIA contract, so the waiver does not apply | Article 6 allows owner to award separate contracts on site under AIA terms; Averus is a “separate contractor” | Reversed as to Averus — Averus is not within the defined classes (owner/contractor/subcontractor/sub-subcontractor or AIA separate contractors) because its agreement was a preexisting, non-AIA oral cleaning contract; waiver does not apply to Averus |
| Whether waiver of subrogation is unenforceable as against public policy where willful and wanton misconduct alleged | Plaintiffs: public policy should prevent enforcement of waivers when heightened misconduct is alleged | Defendants: waiver shifts risk to insurer and is enforceable; waiver is not an exculpatory clause absolving liability entirely | Affirmed — waiver of subrogation is enforceable even for willful/wanton allegations; waiver allocates risk to insurer and is not a true exculpatory clause |
| Whether waiver applies to general property policies (National Fire, Lloyd’s) or only to the builder’s risk (Axis) | Empress and the two insurers: waiver limited to builder’s risk for the Work; general policies obtained earlier are not covered | Defendants: contract language ("or other property insurance applicable to the Work" and §11.4.5) covers separate/all-risk policies adjacent to site | Affirmed — waiver applies to National Fire and Lloyd’s; §11.4.7 and §11.4.5 unambiguously capture other property policies applicable to the Work; insurer policy language also disclaims rights the insured waived prior to loss |
| Whether defendants’ alleged material breaches (e.g., time is of the essence, insurance/indemnity clauses) nullify waiver | Plaintiffs: breaches should prevent enforcement of the waiver | Defendants: waiver and indemnity/liability insurance obligations are consistent and waiver controls for covered property loss | Affirmed — breaches argued do not create an exception; waiver applies to covered losses regardless of indemnity provisions; no showing that delays or other breaches rendered waiver unenforceable |
| Whether Empress waived right to recover its deductibles under general policies | Empress: deductible provision in §11.4.1.3 applies only to builder’s risk and not to preexisting general policies | Defendants: §11.4.1.3 speaks of "property insurance" generally and obligates owner to pay deductibles | Affirmed — Empress is responsible for deductibles under the contract; §11.4.1.3 applies to property insurance broadly, not limited to builder’s risk |
Key Cases Cited
- Thompson v. Gordon, 241 Ill. 2d 428 (interpretation of contracts: plain language controls)
- Intergovernmental Risk Management v. O’Donnell, Wicklund, Pigozzi & Peterson Architects, Inc., 295 Ill. App. 3d 784 (AIA waiver-of-subrogation applies to property losses regardless of cause and can reach other applicable policies)
- Village of Rosemont v. Lentin Lumber Co., 144 Ill. App. 3d 651 (waiver of subrogation bars contractual and tort claims and allocates property loss to insurer)
- Ralph Korte Construction Co. v. Springfield Mechanical Co., 54 Ill. App. 3d 445 (parties may assume risk of loss by contract and rely on insurance)
- Hartford v. Burns International Security Services, Inc., 172 Ill. App. 3d 184 (waiver of subrogation is not a true exculpatory clause)
- Bastian v. Wausau Homes, Inc., 635 F. Supp. 201 (waiver of subrogation shifts loss to insurer; not unenforceable exculpatory clause)