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Intergovernmental Risk Management on Behalf of Village of Bartlett v. O'Donnell

March 04, 1998

INTERGOVERNMENTAL RISK MANAGEMENT ON BEHALF OF THE VILLAGE OF BARTLETT, AND THE TRAVELERS INSURANCE COMPANY AS SUBROGEE OF THE INTERGOVERNMENTAL RISK MANAGEMENT AND THE VILLAGE OF BARTLETT, PLAINTIFFS-APPELLANTS,
v.
O'DONNELL, WICKLUND, PIGOZZI & PETERSON ARCHITECTS, INC., DEFENDANT-APPELLEE, AND AMERICAN MECHANICAL, INC., NELSON INSULATION COMPANY, AND P.B. VERDICO, INC., DEFENDANTS.



APPEAL FROM THE CIRCUIT COURT OF COOK COUNTY. HONORABLE MICHAEL J. HOGAN, JUDGE PRESIDING.

The opinion of the court was delivered by: Justice Gordon

This is a subrogation action filed by the plaintiffs, Intergovernmental Risk Management (IRMA) on behalf of the Village of Bartlett (the Village) and The Travelers Insurance Company (Travelers), as subrogee of IRMA and the Village. IRMA, an insurance pool of Illinois municipalities which included the Village of Bartlett, and Travelers, who provided insurance coverage to the Village under the IRMA program, sought to recover monies they had paid the Village for property damage allegedly caused by the defendants' negligent acts. That property damage was sustained as a result of a fire that occurred on January 28, 1994 at the Village's newly constructed police station. That station was constructed as part of the "Village Hall Expansion Project" (the Project) which consisted of contiguous construction of a police station, an addition to and remodeling of the village hall and a connecting link between the police station and the village hall.

Defendant O'Donnell, Wicklund, Pigozzi and Peterson Architects, Inc. (O'Donnell), one of the defendants named in the subrogation action, provided architectural drawings and specifications for the Project. O'Donnell moved to dismiss the complaint against it pursuant to section 2-619(a)(9) of the Code of Civil Procedure (735 ILCS 5/2-619(a)(9) (West 1994)) arguing that the Village had waived its subrogation rights in the contracts for the Project. The trial court granted O'Donnell's motion to dismiss and in the order of dismissal made a finding of appealability. The plaintiffs bring this appeal pursuant to Supreme Court Rule 304(a) (155 Ill. 2d R. 304(a)).

The written contracts relevant to a Disposition of the instant appeal were the Owner-Architect Agreement between the Village and O'Donnell dated August 16, 1989 and the Owner-Contractor Agreement between the Village and P.B. Verdico, the general contractor dated May 16, 1991. Paragraph 9.4 of the Owner-Architect Agreement provided in pertinent part as follows:

"The Owner and Architect waive all rights against each other and against the contractors, consultants, agents and employees of the other for damages, but only to the extent covered by property insurance during construction * * *."

Paragraph 11.3.1 of the general conditions incorporated into the Owner-Contractor Agreement obligated the Village to purchase and maintain property insurance "in the amount of the initial Contract Sum as well as subsequent modifications thereto for the entire Work at the site". It further provided that the property insurance was to be maintained "until final payment has been made as provided in Paragraph 9.10 or until no person or entity other than the Owner has an insurable interest in the property * * * whichever is earlier." Paragraph 9.10, captioned "Final Completion and Final Payment" provided:

"Upon receipt of written notice that the Work is ready for final inspection and acceptance and upon receipt of a final Application for Payment, the Architect will promptly make such inspection and wh * * * *fn1 Architect finds the Work acceptable under the Contract Documents and the Contract fully performed, the Architect will promptly issue a final Certificate for Payment * * * and that the entire balance found to be due the Contractor and noted in said final Certificate is due and payable."

Paragraph 11.3.1.1 of the general conditions to the Owner-Contractor Agreement provided that the property insurance "be on an all-risk policy form and [that it] insure against the perils of fire and * * * physical loss or damage." The Owner-Contractor Agreement also contained a waiver of subrogation provision. It provided in paragraph 11.3.7 of the general conditions as follows:

"The Owner and Contractor waive all rights against (1) each other and any of their subcontractors, sub-subcontractors, agents and employees, each of the other, and (2) the Architect, Architect's consultants, * * * for damages caused by fire or other perils to the extent covered by property insurance obtained pursuant to this Paragraph 11.3 or other property insurance applicable to the Work * * *. A waiver of subrogation shall be effective as to a person or entity even though that person or entity would otherwise have a duty of indemnification, contractual or otherwise, did not pay the insurance premium directly or indirectly, and whether or not the person or entity had an insurable interest in the property damaged."

The fire, which occurred on January 28, 1994 in the garage portion of the Village's new police station, caused damage in the amount of $114,412.89. IRMA paid the Village $66,802.74, consisting of $50,000 in property damage (paid as a deductible); $16,118.74 paid in machinery rental; and $683.88 in emergency replacement service costs. Travelers paid the Village $47,610.15. IRMA and Travelers then filed the instant complaint seeking subrogation against the various defendants for their negligence.

In its motion to dismiss, defendant O'Donnell argued that the plaintiffs' claims were barred by the Owner-Architect Agreement and the Owner-Contractor Agreement. Specifically, O'Donnell argued that in accordance with the general conditions incorporated into the Owner-Contractor Agreement, the Village was required to purchase and maintain insurance relating to the Project; that in accordance with the Owner-Architect Agreement, the Village waived all rights against O'Donnell for damages to the extent covered by property insurance during construction; and that since the fire occurred during construction and prior to final payment for the Project the resulting loss was covered by the Village's insurance policy and thus all claims relating to that loss had been waived. Attached to its memorandum in support of the motion to dismiss was the affidavit of Bruce C. Ream, vice president and principal of O'Donnell. In his affidavit, Ream explained the Project and identified the contractual documents relative to the Project. He also averred that the fire on January 28, 1994 occurred at the Project during construction and prior to final payment to the general contractor. He averred that the general contractor submitted to O'Donnell its final Application and Certificate for Payment on or around October 31, 1994 and that final payment was not made to the general contractor until after April 17, 1995.

In response, the plaintiffs argued that the waiver of subrogation clauses in the Owner-Architect Agreement and Owner-Contractor Agreement did not apply to the insurance policies issued by them to the Village because these policies were not "builder's risk" or construction insurance policies purchased for the Project and thus were not subject to the waiver provisions of paragraph 11.3 of the Owner-Contractor Agreement. The plaintiffs also argued that the waiver of subrogation provisions did not apply because construction of the Village's police garage was completed and the insurable interest had passed to the Village. The plaintiff's further argued that the waiver was in violation of Illinois law and public policy and was prohibited by language in the Travelers policy which was incorporated into IRMA's policy. Attached to the plaintiffs' response and memorandum at law was the affidavit of Timothy T. Van Driska, a subrogation representative at IRMA. Van Driska averred that IRMA was an insurance pool providing risk management and insurance to Illinois municipalities including the Village of Bartlett. He averred that as a member of IRMA the Village was issued a general liability and property policy in 1983 which has continued in force. Van Driska averred that the IRMA and Travelers policies were not issued as "'builders risk'" or construction insurance for the Project and did "not contain any specific coverage declaration or endorsement for 'the work on this construction project or the contractors' for the Village of Bartlett village hall expansion project." He further averred that even though the Project was in progress at the time of the fire, construction for the police garage facility was fully complete before the fire. Finally, Van Driska averred that IRMA never waived any of its subrogation rights and was not privy to the contracts between the Village and its contractors.

The trial court granted defendant's motion to dismiss finding that, since the work on the Project was not complete at the time of the fire, the clear language of the waiver provisions of the contracts barred the plaintiffs' action.

On appeal, the plaintiffs argue that the trial court abused its discretion in granting defendant's motion to dismiss because: (1) construction on the police garage facility was complete at the time of the fire and the insurable interest as to that building reverted back to the Village; (2) the waiver of subrogation provisions should not apply where the damage was caused by the negligent and wrongful acts of the defendant; (3) the waiver of subrogation provisions should not apply to their policies since those policies were not issued as "builder's all-risk" insurance; and (4) the ...


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