2016 IL App (3d) 150018
Ill. App. Ct.2016Background
- Harrah’s (owner/operator) and Hnedak Bobo Group, Inc. (HBG, architect) contracted for construction of a Joliet hotel; the contract’s §5.1 labeled an obligation as indemnification covering liabilities and defense costs.
- In 2004 a hotel guest slipped and fell; Mary Sandlin sued Harrah’s, HBG, and others; defendants settled with plaintiff and obtained good-faith settlement findings under Illinois law.
- Harrah’s filed a counterclaim against HBG asserting breach of contract (count I) for contractual contribution/indemnification under §5.1 and statutory contribution under the Illinois Joint Tortfeasor Contribution Act (count II).
- After all parties settled, HBG moved for summary judgment on Harrah’s counterclaim; the trial court granted summary judgment for HBG on both counts; Harrah’s appealed only as to count I (contractual contribution/indemnification).
- The key legal question: whether §5.1 permits Harrah’s to recover defense costs from HBG despite both parties’ good-faith settlements, or whether the contract provision is effectively a contribution clause extinguished by the Contribution Act.
Issues
| Issue | Harrah’s Argument | HBG’s Argument | Held |
|---|---|---|---|
| Whether §5.1’s defense-cost/indemnification obligation is enforceable after good-faith settlements under the Contribution Act | §5.1 is a valid contract term; freedom of contract allows enforcement to recover defense costs despite the Contribution Act | §5.1 functions as a contribution clause (not full indemnity); Contribution Act’s good-faith settlement provisions extinguish contractual contribution | The clause is a contribution provision; contribution rights are extinguished by good-faith settlements under the Contribution Act, so Harrah’s cannot recover defense costs |
| Whether the §5.1 label controls ("indemnification" vs contribution) | The label and contract language create an indemnification/right to defense-cost recovery | Label is not dispositive; courts construe such clauses consistent with statutory limits and public policy | Label does not control; courts interpret the clause as contribution to avoid invalid indemnity and to align with statutory policy |
| Whether Harrah’s freedom-of-contract claim overrides public policy in the Contribution Act | Contractual freedom permits an "opt-out" of Contribution Act effects unless legislature expressly prohibits it | Allowing contract to circumvent the Contribution Act would undermine settlement-promoting policy and statutory scheme | Freedom-of-contract does not trump the Contribution Act; enforcement would subvert the statute’s settlement policy |
| Whether summary judgment was also proper because Harrah’s failed to allocate defense costs attributable to HBG | (Not prevailed on appeal) Harrah’s did not adequately segregate costs | Harrah’s failed to separate defense costs caused by its own conduct from those attributable to HBG | Court affirmed on other grounds (did not need to reach allocation argument) |
Key Cases Cited
- Adams v. Northern Illinois Gas Co., 211 Ill. 2d 32 (settlement of summary judgment standard; de novo review)
- Pierre Condominium Ass’n v. Lincoln Park West Associates, LLC, 378 Ill. App. 3d 770 (contract labeled indemnity construed as contribution; contractual claims extinguished by good-faith settlements under Contribution Act)
- BHI Corp. v. Litgen Concrete Cutting & Coring Co., 214 Ill. 2d 356 (assignments/settlements cannot be used to circumvent Contribution Act)
- Braye v. Archer-Daniels-Midland Co., 175 Ill. 2d 201 (construction-contract provisions interpreted as contribution rather than unenforceable indemnity)
- Liccardi v. Stolt Terminals, Inc., 178 Ill. 2d 540 (similar treatment of contractual allocation vs statutory limits)
- Herington v. J.S. Alberici Construction Co., 266 Ill. App. 3d 489 (construction indemnity construed as contribution; no partial indemnity)