Empress Casino Joliet Corporation v. W.E. O'n Neil Construction Co.
2016 IL App (1st) 151166
| Ill. App. Ct. | 2016Background
- Empress Casino hired W.E. O’Neil as general contractor under an AIA-based construction contract requiring the owner to obtain builder’s-risk/property insurance and containing a broad waiver of subrogation (§§ 11.4.5, 11.4.7).
- Empress had three insurers: Axis (builder’s risk for the renovation) and National Fire and Lloyd’s (preexisting general all-risk property policies). After a March 20, 2009 fire during renovation, insurers paid $81,150,000 total to Empress.
- Empress sued the general contractor, subcontractors, architect, engineer, and Averus (a preexisting vendor who cleaned kitchen ducts); the three insurers later sued directly by subrogation. Plaintiffs alleged negligence, willful/wanton conduct, and breach of contract (Averus excluded from breach claims).
- 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 the plaintiffs argued (1) waiver did not apply to Averus (separate preexisting oral contract); (2) waiver should not bar willful/wanton claims on public-policy grounds; (3) waiver did not apply to National Fire and Lloyd’s policies; (4) defendants’ contract breaches or the "time is of the essence" failure should invalidate the waiver; and (5) Empress did not waive recoveries for its deductibles.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether waiver of subrogation applies to Averus (preexisting oral cleaning contract) | Averus was not a contractor/subcontractor under Article 6 and never agreed to the AIA waiver, so waiver doesn’t apply | Article 6 allows the owner to award separate contracts and treat separate contractors as subject to the same conditions, bringing Averus within the waiver | Waiver did NOT apply to Averus because Averus worked under a separate preexisting oral agreement not made under the AIA "Conditions of the Contract" and never agreed to the waiver; summary judgment against Averus reversed and remanded |
| Whether waiver bars claims for willful and wanton misconduct (public policy exception) | Public policy prohibits enforcing waivers/exculpatory clauses against heightened misconduct; thus willful/wanton claims should proceed | A waiver of subrogation is not an exculpatory clause but an allocation of risk to insurance; parties may contractually waive subrogation even for fire caused by misconduct | Waiver enforceable; Illinois permits parties to allocate fire loss to insurance regardless of fault; waiver of subrogation is not an unenforceable exculpatory clause, so willful/wanton claims barred by the waiver |
| Whether waiver applies to preexisting general property policies (National Fire & Lloyd’s) or only to builder’s risk (Axis) | Waiver was intended to cover only the builder’s risk for the Work; general policies preexisted and include construction exclusions, so waiver shouldn’t bind National Fire/Lloyd’s | Construction contract language (§§ 11.4.7, 11.4.5) expressly covers "other property insurance applicable to the Work" and requires waiver when owner insures adjacent property during the project | Waiver applies to National Fire and Lloyd’s: §11.4.7 covers "other property insurance applicable to the Work," and §11.4.5 triggers waiver where owner "insures properties at or adjacent to the site" during the project; insurers’ own policy language disclaims rights the insured waived pre-loss |
| Whether defendants’ material breaches (including delay) or overlapping indemnity/liability provisions excuse enforcement of the waiver; and whether Empress’s deductible recoveries were waived | Breaches (e.g., failure to finish on time) or conflicting indemnity/liability terms should void the waiver; deductible payment obligation limited to builder’s risk only, so Empress can recover deductibles from others | The waiver governs allocation of property-loss risk to Empress’s insurance and explicitly supersedes indemnity; §11.4.1.3 makes owner responsible for property deductibles generally | Waiver not excused by alleged breaches or by time-is-of-the-essence argument; indemnity/liability provisions do not create an exception to the waiver (waiver controls). Empress is responsible for deductibles under §11.4.1.3 (applies to property insurance generally), so Empress cannot recover those deductible amounts from defendants |
Key Cases Cited
- Intergovernmental Risk Management v. O’Donnell, Wicklund, Pigozzi & Peterson Architects, Inc., 295 Ill. App. 3d 784 (Illinois App. Ct.) (AIA §11.4 waivers apply to fire losses regardless of origin; "other property insurance applicable to the Work" can trigger waiver)
- Village of Rosemont v. Lentin Lumber Co., 144 Ill. App. 3d 651 (Ill. App. Ct.) (waiver of subrogation shifts property-loss recovery to insurer and bars direct claims among contracting parties)
- Ralph Korte Construction Co. v. Springfield Mechanical Co., 54 Ill. App. 3d 445 (Ill. App. Ct.) (parties may assume the risk of loss between themselves for fire and other perils)
- Hartford v. Burns International Security Services, Inc., 172 Ill. App. 3d 184 (Ill. App. Ct.) (distinguishing waiver of subrogation from unenforceable exculpatory clauses)
- Bastian v. Wasau Homes, Inc., 635 F. Supp. 201 (N.D. Ill.) (waiver of subrogation shifts risk to insured’s carrier and is not an unenforceable exculpatory provision)
- Third Swansea Properties, Inc. v. Ockerlund Construction Co., 41 Ill. App. 3d 894 (Ill. App. Ct.) (distinguished — waiver issues turn on whether insured obtained coverage; not applicable where insurer paid recovery)