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James McHugh Construction Co. v. International Fidelity Insurance Co.

United States District Court, N.D. Illinois, Eastern Division

September 29, 2016

James McHugh Construction Co., Plaintiff,
v.
International Fidelity Insurance Co., Defendant.

          MEMORANDUM OPINION AND ORDER

          John Robert Blakey United States District Judge.

         Plaintiff James McHugh Construction Company (“McHugh”) initiated this breach of contract action against Defendant International Fidelity Insurance Company (“IFIC”) in the Circuit Court of Cook County on March 21, 2014. Compl. [1-1] at 6. IFIC removed the case to this Court on April 3, 2014 [1], and fact discovery was completed by July 8, 2015 [52].

         The parties have filed cross-motions for summary judgment [59, 62] on the limited question of whether McHugh's claim against IFIC is time-barred. As explained below, disputed factual issues remain regarding the date the applicable claims accrued; accordingly, both motions are denied.

         I. Background[1]

         This case arises out of the construction of two condominiums at 600 North Lake Shore Drive in Chicago, Illinois. PSOF ¶ 1. McHugh was the general contractor charged with supervising the construction of both condominiums. Id. In that capacity, McHugh subcontracted with Builders Architectural Products (“BAP”). Id. ¶ 2. BAP was obligated to install windows, doors and related elements at the condominiums. Id. The subcontract included a one year warranty on BAP's work, gave McHugh the right to complete BAP's work in the event of a default, and provided for indemnification. Id. ¶¶ 3-6. In connection with the subcontract between McHugh and BAP, IFIC issued two performance bonds on October 12, 2006 and June 13, 2007, respectively. Id. ¶ 7. The bonds identify IFIC as the surety, BAP as the bond principal, and McHugh as the obligee. DSOF ¶ 6.

         Throughout the construction process, BAP failed to meet expectations regarding both the timing and substance of its work. PSOF ¶ 11. BAP's two principle shortcomings pertained to problems with window components and balcony doors. DSOF ¶¶ 8, 13, 26. On August 25, 2007, McHugh provided IFIC with a quality control report outlining problems with BAP's work. PSOF ¶ 20. In that letter, McHugh advised IFIC that BAP was in default “due to their failure to meet the project schedule and their failure to properly complete installation of the subcontract work.” Id. On August 31, 2007, IFIC expressed its expectation “that [McHugh] and our Principal [BAP] will work together to resolve any outstanding issues.” Id. ¶ 21; Ex. 6.

         Despite IFIC's assurances, McHugh's concerns regarding BAP's performance continued. On April 3, 2008, McHugh again advised IFIC that BAP was failing to meet completion dates or fix its defective work. PSOF ¶ 22. McHugh also informed IFIC that if BAP did not take corrective action McHugh would retain another company in its stead. Id. On April 7, 2008, IFIC asked McHugh for more information in order to investigate the matter, reserved its rights, and instructed McHugh to not act without its consent. Id. ¶ 23.

         As part of IFIC's investigation, on March 16, 2009, IFIC requested information concerning BAP's work on the project. Id. ¶ 24. On April 2, 2009, McHugh outlined BAP's various issues and advised IFIC that BAP's performance had been untimely throughout the entire project. Id. ¶ 25. Specifically, McHugh informed IFIC that BAP was thirteen months behind the contractually stipulated date for substantial completion of work on the north condominium tower and eight months behind the contractually stipulated date for substantial completion of work on the south condominium tower. Id.

         On December 31, 2009, McHugh notified BAP that unless BAP completed their work within seven days, McHugh would be forced to retain another contractor to finish the job. Id. ¶ 26. McHugh copied IFIC on this correspondence. Id.

         On January 5, 2010, McHugh notified IFIC that BAP was in default of their contractual obligations. Id. ¶ 27. McHugh also advised IFIC that, if BAP did not quickly fix the work, McHugh would have to complete the work and deduct the costs from any remaining amounts owed to BAP. Id. McHugh also noted that if the remaining amounts owed to BAP were insufficient to cover the costs of completing BAP's work, McHugh would make a claim under the bonds. Id. On January 7, 2010, IFIC once again expressed its expectation “that [McHugh] and our Principal [BAP] will work together to resolve any outstanding issues.” Id. ¶ 28; Ex. 7.

         On January 13, 2010, 600 LSD LLC, the properties' developer, provided McHugh with an inspection list detailing the balcony and window issues. Id. ¶ 22. On January 27, 2010, the developer sent another email to McHugh enumerating additional issues with multiple units throughout the project. Id. ¶ 24. In early February of 2010, McHugh was notified that the issues identified in the developer's email would be addressed through the project's window and door supplier, Traco. Id. ¶ 25. On February 12, 2010, McHugh informed BAP's counsel of defects remaining in BAP's work and stated that these defects possibly reflected either negligence or work left purposefully incomplete. Id. ¶ 26. On February 15, 2010, the developer sent yet another list outlining BAP's defects to McHugh. Id. ¶ 27.

         The developer eventually retained a consultant (Curtainwall Design Consultants, Inc. or “CDC”) to inspect BAP's work on the project. PSOF ¶ 29. According to a field report issued by CDC, defects still existed on March 4, 2010, despite BAP's attempts to address the balcony and window issues. DSOF ¶¶ 31-32.

         In April of 2010, CDC advised McHugh of additional defects in BAP's work. PSOF ¶¶ 33-43. The parties dispute whether these problems were “new” or related to the overarching BAP issues from 2007-2010. R. PSOF ¶¶ 33-43.

         On July 1, 2010, McHugh notified IFIC that if BAP did not commence corrective work by July 9, 2010, McHugh would seek to recover costs from IFIC to complete the remaining work. PSOF ¶ 44. On July 2, 2010, IFIC reserved its rights and asked McHugh for more information to investigate the claim. Id. ¶ 45. On July 12, 2010, after BAP failed to begin corrective work, McHugh advised IFIC that arrangements were being made for another contractor to perform the work and that a claim would be made by McHugh under the bonds. Id. ¶ 46. On July 13, 2010, McHugh sent IFIC an estimate of the repair costs for the defective work, which totaled $329, 728.92. PSOF ¶ 47. In this letter, McHugh reiterated that it would proceed with the corrective work and make a claim under the bonds. Id. On July 22, 2010, IFIC responded to McHugh by reserving its rights, questioning the decision to incur repair costs, and disputing McHugh's “currently unliquidated claim” against IFIC. DSOF ¶¶ 36-39; Ex. CC. The parties dispute whether this correspondence in July of 2010 constituted a formal claim by McHugh against IFIC under the bonds. See, e.g., R. PSOF ¶ 47.

         BAP continued to work on the project until they walked off the job in October 2010. PSOF ¶¶ 50-51, 54. BAP eventually filed for bankruptcy on March 2, 2011. Id. ¶ 54. McHugh completed the process of finishing BAP's work in late 2012. Id. ¶ 55. On April 12, 2013, McHugh submitted a claim to IFIC for the cost of completing BAP's work, which totaled $966, 338.41. Id.

         On May 7, 2013, IFIC reserved its rights and asked McHugh for more information in order to investigate the claim. Id. ¶ 56. On September 26, 2013, McHugh responded to IFIC's request. Id. ¶ 57. In that letter, McHugh stated that IFIC had possessed notice of McHugh's claim since 2007 and that McHugh had previously provided much of the requested documentation to IFIC in March 2009 and July 2010. Id.

         On January 17, 2014, IFIC denied McHugh's claim, invoking a statute of limitations defense. DSOF ¶ 42. On March 20, 2014, McHugh responded by initiating this lawsuit against IFIC in the Circuit Court of Cook County, alleging that it was entitled to recovery of $966, 338.41 under the bonds plus costs, pre-judgment interest, and attorneys' fees. Id. ¶ 44.

         II. Legal Standard

         Summary judgment is appropriate if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law. Spurling v. C & M Fine Pack, Inc., 739 F.3d 1055, 1060 (7th Cir. 2014). The party seeking summary judgment has the burden of establishing that there is no genuine dispute as to any material fact. See Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). Further, summary judgment is not appropriate if the evidence is such that a reasonable jury could return a verdict for the non-moving party, and the Court must construe ...


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