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12/28/95 FEDERAL INSURANCE COMPANY AS SUBROGEE

December 28, 1995

FEDERAL INSURANCE COMPANY AS SUBROGEE OF MIDWEST STOCK EXCHANGE, PLAINTIFF-APPELLANT,
v.
TURNER CONSTRUCTION COMPANY, CHICAGO CONDITIONAIRE COMPANY, M.J. CORBOY COMPANY, A DIVISION OF MORRISON, INC., CONTINENTAL/TURNER, A JOINT VENTURE, CONTINENTAL OFFICES LTD., DEFENDANTS, AND SESCO, INC., AND RIGGIO CAULKING CO., INC., DEFENDANTS-APPELLEES.



Appeal from the Circuit Court of Cook County. Honorable Jennifer Duncan-Brice, Judge Presiding.

The Honorable Justice Theis delivered the opinion of the court: Hoffman, P.j., and Cahill, J., concur.

The opinion of the court was delivered by: Theis

The Honorable Justice THEIS delivered the opinion of the court:

The plaintiff, Federal Insurance Company ("Federal") as subrogee of Midwest Stock Exchange ("Midwest"), appeals the trial court's order granting summary judgment on counts XI, XII, XIII and XIV of their complaint. Federal sued defendants, Sesco, Inc. ("Sesco"), and Riggio Caulking Co., Inc. ("Riggio"), for water damage to Midwest's computer system. Federal alleges that the damage was caused by a water pipe which ruptured due to defendants' failure to complete exterior caulking in a timely fashion. The trial court granted defendants' motion for summary judgment finding that Federal failed to establish duty, proximate cause and its status as a third-party beneficiary to the construction contracts. On appeal, Federal argues that: (1) defendants owed duties in tort to Midwest; (2) Midwest was a third-party beneficiary of the defendants' construction contracts; and (3) the trial court erred in considering the affidavit of defendant Sesco's construction superintendent. We affirm.

On October 12, 1982, Exchange Center Corporation ("Exchange") leased space in an unconstructed development to the Midwest Stock Exchange with an occupancy date deadline of April 1, 1985. Exchange then contracted with Continental/Turner for the construction of this new development at One Financial Place in Chicago, Illinois. The development included a multistory office tower and an annex to the Midwest Stock Exchange. The annex provided Midwest, the anchor tenant, with a new trading floor.

Pursuant to a subcontracting agreement, Sesco was to perform all work and provide all material for the erection of the development's exterior granite walls. In November of 1983, Sesco entered into a subcontracting agreement with Riggio, whereby Riggio was to provide and install the sealant between the exterior granite blocks of the structure's exterior facade. As such, Riggio was responsible for cleaning the joints between the granite blocks, installing a backer rod for the caulking and caulking the joints themselves.

Riggio began its caulking work in August of 1984. Dissatisfied with the speed of Riggio's work, Sesco wrote to Riggio on October 5, 1984, concerning the necessity of completing the work. On November 22, 1984, the project architect, Skidmore, Owings & Merrill, drafted correspondence to the city of Chicago certifying that the building was suitable for tenant occupancy. On November 23, 1984, however, Riggio responded to Sesco's concerns indicating that the structure would not be sealed and caulked until December 22, 1984.

The record indicates that the owner and general contractor were aware of Riggio's performance. The architects wrote letters to the owner and general contractor expressing their concerns over the effects of the cold on the construction site. The building manager stated in his deposition that city inspectors expressed similar concerns upon their inspections of the building.

Despite this, Midwest was permitted to move into the building in mid-December. Specifically, Midwest moved an expensive computer system into the fourth floor of the Tower. There is no evidence in the record that Midwest, the owner or general contractor ever notified defendants that Midwest or any other tenant would be moving in at that time. The contracts between Riggio and Sesco and Sesco and Continental/Turner did not require completion of the insulation by December 25, 1984.

On December 25, 1984, a water supply line leading to a fifth-floor sink located immediately adjacent to the exterior east elevation froze and ruptured. In addition, three sprinkler heads activated on the seventh floor of the building. Water allegedly pouring from the ruptured waterline penetrated the floor and caused substantial damage to Midwest's computer system below.

Michael Dust, Continental's building manager, determined that the rupture was due to the lack of caulking on the east exterior wall behind the sink. Riggio conceded that the east elevation was not completely caulked and weather sealed as of December 25, 1984.

Federal paid its insured, Midwest, approximately $1 million to replace the damaged computer system. The terms of Midwest's insurance policy provide that Federal is subrogated to the rights of Midwest. In addition to suing the owner, general contractor and other subcontractors for damages, Federal sued Sesco and Riggio for the damage to the computer system.

In counts XI and XIII, Federal claimed that defendants negligently performed the caulking work which was the proximate cause of the computer damage. In counts XII and XIV, Federal claimed that it could recover in contract as a third-party beneficiary to the construction subcontracting agreements. The trial court granted defendants' motions for summary judgment as to counts XI and XIII, finding that Federal failed to establish that defendants owed Midwest a duty to complete the structure by December 25, 1984. Alternatively, the court held that Federal failed to establish proximate cause. Similarly, the court granted summary judgment as to counts XII and XIV, holding that Federal was not a third-party beneficiary to the subcontracting agreements. In its motion for reconsideration, Federal abandoned its claim that the damage resulted from defendants' improper workmanship, claiming instead that the damage was caused by defendants' failure to complete the job in a timely fashion. The court denied Federal's motion.

On appeal, Federal argues that: (1) the defendants owed duties in tort to Midwest; (2) Midwest was a third-party beneficiary of the defendants' construction contracts; and (3) the trial court erred in considering the affidavit of defendant Sesco's ...


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