Empress Casino Joliet Corp v. W. E. O'Neil Construction Co.

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Appellate Court Date: 2017.02.15

12:17:52 -06'00'

Empress Casino Joliet Corp. v. W.E. O’Neil Construction Co.,

2016 IL App (1st) 151166

Appellate Court EMPRESS CASINO JOLIET CORPORATION, Plaintiff-Appellant,

Caption v. W.E. O’NEIL CONSTRUCTION COMPANY, an Illinois

Corporation, LINDEN GROUP, INC., an Illinois Corporation, R.L.

MILLIES & ASSOCIATES, INC., an Indiana Corporation, GLOBAL

FIRE PROTECTION COMPANY, an Illinois Corporation,

JAMESON SHEET METAL, INC., an Illinois Corporation, and

AVERUS, INC., f/k/a FACILITEC CENTRAL, INC., a Wisconsin

Corporation, Defendants-Appellees.—NATIONAL FIRE AND

MARINE INSURANCE COMPANY, a Nebraska Corporation,

LLOYD’S SYNDICATE 1414 (Ascot), a British Underwriting

Syndicate, and AXIS INSURANCE COMPANY, an Illinois

Corporation, as Subrogees of Empress Casino Joliet Corporation, an

Illinois Corporation, Plaintiffs-Appellants, v. W.E. O’NEIL

CONSTRUCTION COMPANY, an Illinois Corporation, LINDEN

GROUP, INC., an Illinois Corporation, R.L. MILLIES &

ASSOCIATES, INC., an Indiana Corporation, GLOBAL FIRE

PROTECTION COMPANY, an Illinois Corporation, JAMESON

SHEET METAL, INC., an Illinois Corporation, and AVERUS, INC.,

f/k/a FACILITEC CENTRAL, INC., a Wisconsin Corporation,

Defendants-Appellees.

District & No. First District, Third Division

Docket Nos. 1-15-1166, 1-15-1184

Filed November 16, 2016

Rehearing denied December 21, 2016

Decision Under Appeal from the Circuit Court of Cook County, Nos. 2012-L-012077,

Review 2014-L-003223; the Hon. John P. Callahan, Jr., Judge, presiding.

Judgment Affirmed in part; reversed and remanded in part.

Counsel on Mark A. Rabinowitz and Kevin P. Caraher, of Cozen O’Connor, PC,

Appeal and David E. Walker and Douglas Walker, of Walker Wilcox

Matousek LLP, both of Chicago, for appellants Empress Casino Joliet

Corp., National Fire and Marine Insurance Co., and Lloyd’s Syndicate

1414 (Ascot).

Randy Green, of Dugan Brinkmann, Maginnis & Pace, and Thomas

A. McDonald, of McDonald Law Firm, both of Chicago, for appellant

Axis Insurance Co.

Robert J. Franco and Christopher M. Cano, of Franco & Moroney,

LLC, of Chicago, for appellee W.E. O’Neil Construction Co.

Robert Marc Chemers, Richard M. Waris, and Donald Patrick Eckler,

of Pretzel & Stouffer, Chtrd., of Chicago, for appellee Jameson Sheet

Metal, Inc.

William P. Pistorious and Mark J. Sobczak, of Clausen Miller, of

Chicago, for appellee Global Fire Protection Co.

Ryan T. Johnson and Clare J. Quish, of Schuyler, Roche & Crisham,

P.C., of Chicago, for appellee Linden Group, Inc.

Dan L. Boho and Steven R. Swofford, both of Hinshaw & Culbertson,

LLP, of Chicago, for appellee Averus, Inc.

James W. Ozog and David J. O’Connell, of Golberg Segalla LLP, of

Chicago, for appellee R.L. Millies & Associates, Inc.

Panel PRESIDING JUSTICE FITZGERALD SMITH delivered the

judgment of the court, with opinion.

Justices Lavin and Cobbs concurred in the judgment and opinion.

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OPINION

¶1 This cause of action arises from a fire that occurred during an extensive renovation project,

at Empress Casino Joliet (hereinafter the casino) on March 20, 2009. As a result of the fire, the

casino, which is owned by the insured plaintiff, Empress Casino Joliet Corporation

(hereinafter Empress), sustained extensive damages. Empress received $81,150,000 in

insurance payments from three separate insurers—Axis Insurance Company (hereinafter

Axis), National Fire and Marine Insurance Company (hereinafter National Fire), and Lloyd’s

Syndicate 1414 (Ascot) (hereinafter Lloyd’s)—under three separate insurance policies. The

Axis policy was a “builder’s risk” policy specific to the renovation project, while the National

Fire and Lloyd’s policies provided general property coverage for the casino. At issue in this

appeal are the subrogation rights of the three insurers.

¶2 Specifically, in this appeal Empress and the three insurers appeal the trial court’s grant of

summary judgment against them in two underlying consolidated actions against numerous

defendants that they claim were responsible for the fire. The first cause of action (case No.

2012 L 012077) was filed by Empress against W.E. O’Neil Construction Co. (hereinafter W.E.

O’Neil), Global Fire Protection Company (hereinafter Global), Jameson Sheet Metal Inc.

(hereinafter Jameson), the Linden Group, Inc. (hereinafter Linden), R. L. Millies & Associates,

Inc. (hereinafter Millies), and Averus, Inc. (hereinafter Averus), and asserted claims for

$83,700,000 in damages to cover: (1) the $2,550,000 deductibles that Empress incurred as a

result of the fire and (2) the $81,150,000 in payments that the three insurers made for

Empress’s covered losses and for which they should have been subrogated. The second action

(case No. 2014 L 003223) was filed by the three insurers (Axis, National Fire, and Lloyd’s)

against the same defendants and asserted their subrogation claims. Both actions alleged claims

of negligence and willful and wanton misconduct against all of the defendants, and claims for

breach of contract against all of the defendants, except for Averus.

¶3 After the two cases were consolidated, the circuit court granted summary judgment in

favor of all the defendants, on all claims, holding that a waiver of subrogation clause contained

in the construction contract for the casino renovation project prevented all the plaintiffs from

asserting their respective subrogation claims. The plaintiffs now appeal.

¶4 On appeal, all of the plaintiffs (Empress, Axis, National Fire, and Lloyd’s) argue that the

trial court erred when it found that the waiver of subrogation clause in the renovation

construction contract applied to the defendant, Averus, since Averus operated under a separate

pre-existing oral contract and was not involved in the renovation project. All of the plaintiffs

also assert that the trial court erred when it found that the waiver of subrogation clause

prevented them from proceeding with their willful and wanton misconduct claims because

public policy should bar enforcement of such exculpatory clauses where heighted misconduct

is alleged.

¶5 In addition, Empress, National Fire, and Lloyd’s argue that the waiver of subrogation

clause is limited to Axis’s builders risk policy and does not apply to Empress’s general

property insurance policies with National Fire and Lloyd’s. In the alternative, Empress,

National Fire, and Lloyd’s argue that to the extent that waiver of subrogation might apply, it is

limited to those losses related to the work (i.e., the renovation project), as it is defined in the

construction contract. In addition, Empress, National Fire, and Lloyd’s argue that the

defendants’ material breaches of the construction contract should bar enforcement of the

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waiver of subrogation clause. Finally, Empress asserts that it never waived its right to recover

its deductibles under its general property insurance policies with National Fire and Lloyd’s.

For the reasons that follow, we affirm in part and reverse in part.

¶6 I. BACKGROUND

¶7 The record below us is voluminous. For purposes of clarity, we will set forth only those

facts and procedural history relevant for this appeal.

¶8 A. The Parties

¶9 In 2008, Empress, which owned and operated the casino complex located in Joliet, Illinois,

began performing extensive renovations to its property. For this purpose, Empress entered into

a construction contract with O’Neil as the general contractor. O’Neil then hired, inter alia,

subcontractors Jameson (for HVAC and sheet metal work) and Global (for sprinkler

installment). Linden was the architect and Millies the mechanical, electrical, and plumbing

engineer (responsible for inter alia, the fire sprinkler and mechanical systems) for the

renovation project. The parties do not dispute that prior to the renovation project, Empress had

entered into a separate contract with Averus for Averus periodically to perform cleaning and

maintenance services at the casino, including the cleaning and removal of cooking grease and

other combustible residue from ductwork in and above the kitchen. Averus continued to

perform these services for Empress during the renovation project.

¶ 10 B. The Renovation Project Construction Contract

¶ 11 The parties agree that on September 15, 2008, Empress entered into a construction contract

with O’Neil for the renovation project. That contract was comprised of, inter alia: (1) the

American Institute of Architects (AIA) Standard Form of Agreement Between Owner and

Contractor (AIA Document A111-1997) and (2) the General Conditions of the Contract for

Construction (AIA A21-1997) (hereinafter the construction contract). Relevant to the issues in

this appeal, as to insurance coverage, the construction contract required Empress as the

“Owner” to maintain both liability (section 11.2) and property (section 11.4) insurance. With

respect to property insurance section 11.4 provides in pertinent part:

Ҥ 11.4.1 Unless otherwise provided, the Owner shall purchase and maintain, in a

company or companies lawfully authorized to do business in the jurisdiction in which

the Project is located, property insurance written on a builder’s risk ‘all-risk’ or

equivalent policy form in the amount of the initial GMP, plus value of subsequent

Contract modifications and cost of material supplied or installed by others, comprising

total value for the entire Project at the site on a replacement cost basis without optional

deductibles. Such property insurance shall be maintained, unless otherwise provided in

the Contract Documents or otherwise agreed in writing by all persons and entities who

are beneficiaries of such insurance, until final payment has been made as provided in

Section 9.10 or until no person or entity other than the Owner has an insurable interest

in the property required by this Section 11.4 to be covered, whichever is later. This

insurance shall include interest of the Owner, the Contractor, Subcontractors, and

Sub-subcontractors in the Project.”

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¶ 12 Section 11.4.1.1 further provides that the property insurance shall be on “an ‘all risk’ or

equivalent policy form and must include, “without limitation, insurance against the perils of

fire (with extended coverage) and physical loss or damage, including *** [inter alia], theft,

vandalism, malicious mischief, collapse, earthquake, flood, windstorm, falsework, testing and

startup.” The property insurance also must cover “reasonable compensation” for services and

expenses incurred by the architect and contractor “as a result of such insured loss.”

¶ 13 Section 11.4.1.2 further explicitly provides that if the owner chooses not to purchase

property insurance, the owner must inform the contractor in writing of such a decision before

the work begins so that the contractor may obtain such insurance and protect its interest (as

well as the interests of the subcontractors and sub-subcontractors) in the work, as well as

increase the price tag on the renovation project, to cover the cost of having to obtaining such

insurance itself.

¶ 14 The contract also allocates who will be responsible for payment of deductibles after the

property insurance is obtained. Section 11.4.1.3 explicitly states that “If the property insurance

requires deductibles, the Owner shall pay costs not covered because of such deductibles.”

¶ 15 In addition, the contract contains an explicit waiver of subrogation clause. Specifically,

sections 11.4.5 and 11.4.7 state in pertinent part:

Ҥ 11.4.5 If during the Project construction period the Owner insures properties,

real or personal or both, at or adjacent to the site by property insurance under policies

separate from those insuring the Project, or if after final payment property insurance is

to be provided on the completed Project through a policy or policies other than those

insuring the Project during the construction period, Owner shall waive all rights in

accordance with the terms of Section 11.4.7 for damages caused by fire or other causes

of loss covered by this separate property insurance. All separate policies shall provide

this waiver of subrogation by endorsement or otherwise.

***

§ 11.4.7 Waiver of Subrogation. 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, separate

contractors described in Article 6, if any and any of their subcontractors,

sub-subcontractors, agents and employees, for damages caused by fire or other causes

of loss to the extent covered by property insurance obtained pursuant to this Section

11.4 or other property insurance applicable to the Work, except such rights as they have

to proceeds of such insurance held by the Owner as fiduciary. The Owner or

Contractor, as appropriate, shall require of the Architect, Architect’s consultants,

separate contractors described in Article 6, if any, and the subcontractors,

sub-contractors, agents and employees of any of them, by appropriate agreements,

written where legally required for validity, similar waivers each in favor of other

parties enumerated herein. The policies shall provide such waivers of subrogation by

endorsement or otherwise. 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 damage.”

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¶ 16 Article 6 referenced above is titled “Construction By Owner or by Separate Contractors.”

Section 6.1 of that article, states in pertinent part:

“[T]he Owner reserves the right to perform construction or operations related to the

Project with the Owner’s own forces, and award separate contracts in connection with

other portions of the Project or other construction or operations on the site under

Conditions of the Contract identical or substantially similar to these including those

portions related to insurance and waiver of subrogation.”

In addition, section 6.1.2 of that article provides that “[w]hen separate contracts are awarded

for different portions of the Project or other construction or operations on the site, the term

‘Contractor’ in the Contract Documents in each case shall mean the Contractor who executes

each separate Owner-Contractor Agreement.” Finally, section 6.1.4 states that:

“when the Owner performs *** operations related to the Project with the Owner’s own

forces, the Owner shall be deemed to be subject to the same obligations and to have the

same rights which apply to the Contractor under the Conditions of the Contract,

including without excluding others, those stated in [inter alia] Article[ ] *** 11 ***.”

¶ 17 C. Empress’s Insurance Policies

¶ 18 At the time of the fire, Empress had in place three insurance policies. Specifically, for

purposes of the renovation project, Empress purchased a “builder’s risk policy” from Axis.

This policy was in effect from December 22, 2008, to December 22, 2009. The Axis policy

provided coverage for “direct physical ‘loss’ to Covered Property caused by or resulting from

any of the Covered Causes of Loss.” Under the policy “Covered Property” was defined as,

inter alia, “[b]uildings or structures (including foundations, underground flues, pipes or

drains) while under construction, erection or fabrication at the project site shown in the

Coverage Form Declarations.” The Axis policy contained explicit language indicating that

Axis (as the insurer) “may waive [its] rights against another party in writing” prior to a loss to

covered property.

¶ 19 In addition to the Axis policy, at the time of the incident, Empress also had in place two

general “all-risk” property insurance policies for the casino with National Fire and Lloyd’s.

Both policies were in effect for the period between August 8, 2007, and December 31, 2010.

National Fire was responsible for 90% of the property coverage, and Lloyd’s for 10%. The

parties do not dispute that Lloyd’s policy incorporates by reference the wording of the National

Fire policy so that the language of the two policies is essentially the same. Specifically, the

policies “insure[ ] against all risk of direct physical loss or damage to property insured by this

policy occurring during the policy period except as hereinafter excluded.” The policies define

“property” as “real or personal property,” including,” inter alia, “improvements and

betterments”; “property in the care, custody or control of the Insured or for which the Insured is

legally liable to insure”; “property of the Insured in the care, custody or control of others”;

“property while in the incidental course of construction, installation, erection or assembly”;

“demolition and increased cost of construction”; and “debris removal.”

¶ 20 The policies further provided that “[u]nder no circumstances shall insurer be liable for

cover, nor drop down in the event of erosion of aggregate for the following,” inter alia,

“Property in the Course of Construction (except for incidental Course of Construction) being

property in due course of construction, renovation, erection, installation, or assembly.”

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“Incidental Course of Construction” is separately defined in National Fire’s policy as “total

contracted works costs of $10,000,000 or lower.”

¶ 21 In addition, both National Fire and Lloyd’s policies contain a “Subrogation” provision,

which states in relevant part that they as “[t]he Insurer[s] will not acquire any rights of

recovery that the Insured has expressly waived prior to loss, nor will such waiver affect the

Insured’s rights under the Policy.”

¶ 22 D. The Fire and the Complaints

¶ 23 On March 20, 2009, during the first phase of the renovation project, large portions of the

casino were destroyed by a fire. After Empress received $81,150,000 in insurance proceeds

from Axis, National Fire, and Lloyd’s,1 on October 23, 2012, it filed a complaint against the

defendants to recoup damages for itself and for its insurers, resulting from the fire (case No.

2012 L 012077).

¶ 24 According to Empress’s complaint, the fire was started when a Jameson employee, Mike

Haberzetle, was welding ductwork in the kitchen area. Haberzetle was attaching new ductwork

to the existing duct for the kitchen hood exhaust and started welding the existing ductwork

even though the duct was coated with grease and other residue from cooking. During the

welding the existing duct ignited on the inside, causing extensive damage to the casino

complex. In a written statement, which is part of the record on appeal, Haberzetle described the

incident as follows:

“I was welding in the new kitchen area attaching new duct to the existing [duct] for the

kitchen hood exhaust. The existing duct started on fire on the inside. I took the lift

down to the ground, went for the fire extinguisher, [but] it was not on the pole for it. So

I went to get another and tell Lance [the foreman] about it. When I got back to put it

out, it was out of control and we called the fire department.”

¶ 25 In its complaint, Empress further alleged that during the welding operations, O’Neil and

Jameson both failed to provide the necessary fire watch required as protection during hot work.

Specifically, Empress complained that O’Neil and Jameson did not have a fire extinguisher

near Haberzetle and permitted or participated in the decision to allow the welding to occur

when fire sprinklers in other areas of the casino were out of operation. In addition, Empress

alleged that O’Neil and Jameson failed to maintain the required clearance between the welding

operations and combustibles.

¶ 26 Empress also alleged that the architect, Linden, and the mechanical engineer, Millies,

failed to provide for sprinklers in the concealed attic/truss spaces above the kitchen as required

by the building code. Similarly, Empress alleged that the sprinkler subcontractor, Global, had

installed the non-compliant sprinkler system.

¶ 27 As to Averus, Empress alleged that four months prior to the incident, Averus purportedly

spent five hours performing cleaning services at the casino and submitted a written report to

Empress stating that it had spent this time cleaning the “kitchen hot line” and certifying that the

“ductwork [was] clean.” Nonetheless, according to the complaint, the ductwork in the kitchen

was coated with grease.

1

According to the insurers’ complaint, National Fire paid $64,215,000, Lloyd’s paid $7,135,000,

and Axis paid $9,800,000 to Empress for the fire damage.

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¶ 28 Accordingly, Empress alleged that as a result of the defendants’ negligence, and willful

and wanton misconduct, the fire resulted in $83,695,000 in damages. Accordingly, Empress

sought $81,150,000 for the insurers and the remainder to cover Empress’s deductibles.

¶ 29 The three insurers—Axis, National Fire, and Lloyd’s—subsequently filed a direct

subrogation suit against the defendants, seeking to recover the same damages as those in the

Empress lawsuit (case No. 2014 L 003223). The allegations in the insurers’ complaint were

identical to those in Empress’s complaint. These two cases were later consolidated. Empress

subsequently amended its complaint and added breach of contract claims against all the

defendants, except for Averus.

¶ 30 E. Discovery

¶ 31 The parties proceeded with discovery, during which the following relevant deposition

testimony was obtained.

¶ 32 Norman Nelms, Empress’s vice president for design and construction, testified, inter alia,

that the casino renovation project was budgeted at $50 million and involved both the

renovation of the land and vessel portion of the casino. Nelms stated that Empress hired Linden

as project architect to develop the renovation design and that Linden in turn hired Millies as

mechanical engineer.

¶ 33 In his deposition, Nelms acknowledged that after the design was discussed but before the

project began, he was aware of certain problems with the fire safety of the casino. Specifically,

Nelms knew that the dry pipe system in the casino’s pavilion was unable to hold pressure

effectively and was therefore compromised. Nelms did not know if the area above the kitchen

duct in the pavilion was sprinklered. He stated, however, that he was aware that the pavilion

area had a functional wet system (sprinklers) in case of fire. He explained that the wet system

covered all of the “below ceiling” spaces in the pavilion and the dry system covered all of the

spaces in the pavilion above the ceiling (i.e., the attic space). Nelms also testified that the

casino engaged in fire watches but did not know details as to how these were conducted.

¶ 34 Nelms next explained that, during the renovation project, the responsibility for the safety of

the job site fell to the general contractor, O’Neil, who had control of the job site. Nelms

explained that this responsibility was accorded to O’Neil by way of (1) the construction project

(2) O’Neil’s own safety program and (3) industry custom and practice. Nelms averred that

since renovation always involved some aspects of demolition, there would necessarily be times

when the sprinkler system would have to be out of commission. Therefore, there were special

safety considerations for the project for which O’Neil was responsible, including anything

related to protecting customers, the building, and the workers during the renovation. Nelms

explained that Empress’s role in terms of safety would have been to collaborate with O’Neil.

¶ 35 During his deposition, Nelms was shown a Site Assessment Report for February 11, 2009

(about a month before the fire), which states that if any element of the fire protection system

has to come down due to renovation activities, Empress’s casino security guards would

perform fire watch walks in those areas. Nelms averred that this report evidenced the

“collaboration” that was required between O’Neil and Empress during the renovation. He

admitted, however, that he did not know if the Empress security guards ever actually

performed those walks.

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¶ 36 Nelms acknowledged that the responsibility for the presence of fire extinguishers on site

was shared by Empress and O’Neil, with O’Neil being responsible for the fire extinguishers

within the construction zone, and Empress for those in the remainder of the facilities.

¶ 37 Nelms had no personal knowledge as to how the fire occurred but testified that it was his

opinion that the “unfortunate accident” occurred by “a lapse of judgment or supervision” by

either Jameson or O’Neil. He explained that the welder should have had better instruction, a

fire extinguisher should have been present, or hot work permits should have been properly

obtained.

¶ 38 Nelms was next questioned about the content of the construction contract Empress entered

into with O’Neil. He acknowledged that the contract contained a liquidated damages provision

and that section 4.3.10 contained a waiver of consequential damages (namely that the

contractor and owner waive claims against each other for consequential damages arising out of

or relating to the contract). Nelms also acknowledged that contracts of this nature usually

involve a concept known as “flow down,” which means that whatever is contained in the

contract is “flowed down” to the lower tier to the subcontractors, so that whatever burdens are

placed on a general contractor and whatever benefits are given to the general contractor flow

down to the subcontractors without creating privity of contract between the subcontractors and

the owner.

¶ 39 With respect to the waiver of subrogation provision in the contract, Nelms admitted that it

was his understanding that Empress provided builders risk insurance coverage for the

renovation, but he did not understand what this type of insurance entailed or what type of

subrogation rights were obtained or triggered thereunder. He also admitted that the casino had

property insurance but could not speak as to what that insurance covered.

¶ 40 In his deposition, Jacques Arragon, Empress’s director of risk management, next testified,

inter alia, that he was responsible for negotiating and drafting all of the insurance portions of

the construction contract between Empress and O’Neil. Arragon acknowledged that for

purposes of the renovation project, Empress ensured that it had a builder’s all-risk insurance

policy (with Axis), which had a miscellaneous property under construction supplement with a

threshold sublimited to $10 million.

¶ 41 Arragon stated that the waiver of subrogation clause in the construction contract was a

modification from the original AIA form. According to Arragon, the purpose of that provision

was to have Empress protect the interests of the owner, contractor, subcontractors and

sub-subcontractors of the project by way of builder’s risk insurance. Arragon testified that it

was his understanding that section 11.4.7 of the construction contract applied only to the

builder’s risk policy because it covered only insurance relating to work—i.e., the renovation

project. According to Arragon, the work was supposed to be covered by the builder’s risk

insurance, while the remainder of the adjacent buildings where the renovation was not taking

place were to be covered by Empress’s general property insurance policies. Arragon conceded,

however, that section 11.4.5 of the construction contract applied to the two property insurance

policies issued by Lloyd’s and National Fire and that it includes a requirement that Empress

waive any subrogation claims as to these two policies. Arragon, however, could not remember

whether any special endorsements for such mandatory waivers under section 11.4.5 were ever

completed.

¶ 42 Arragon admitted that, since the fire, Empress has changed its insurance coverage template

to have higher builder’s risk insurance and not have multiple insurers on the same loss

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covering different things. Rather, now, Empress obtains property insurance and builder’s risk

under just one program.

¶ 43 With respect to his knowledge of any problems at the casino prior to the fire, Arragon

testified he could not recall if he was aware of any fire safety issues. When presented with the

February 23, 2009, site assessment report, Arragon acknowledged that he ordered that report

be prepared but testified that, because the report was overall satisfactory, he relied on the fact

that Empress’s security guards would perform some of the fire watches and accordingly did

nothing further about it.

¶ 44 Arragon also explained in his deposition that a hot works permit is a document used during

the renovation that states when there will be any type of hot works, including welding, and

whether the area where such welding will occur is secured (i.e., if there are any combustibles

within a specific distance, whether fire extinguishers are available, etc.). The hot works

permits must be signed by an individual responsible for the safety of the hot works site.

Arragon admitted that after the fire, upon his order, Empress has strengthened its hot works

permit process.

¶ 45 In his deposition, Donald Stewart, vice president of the fire protection division of Averus,

testified that Averus was responsible for cleaning the hoods at the casino since 2008.

According to Stewart, there was no written contract between Averus and Empress for services.

Instead, Averus submitted a signed proposal and received a verbal approval from Empress to

perform the services. A copy of Averus’s proposal is included in the record below us and is a

two-page document, which is neither in AIA format nor includes any reference to a waiver of

subrogation. What is more, Stewart explicitly admitted in his deposition that in coming to their

verbal agreement, there was never any discussions between Averus and Empress about any

waiver of subrogation. In addition, no one ever asked Stewart to sign a waiver of subrogation

form. Stewart also acknowledged that when Averus entered into the agreement with Empress,

Averus was operating under the National Fire Protection Association (NFPA) 96 standard as to

the frequency of the cleanings it recommended in its proposals and that under those rules it was

required to clean any contaminated portions of the exhaust system or provide Empress with a

written report specifying all areas that were inaccessible or not cleaned.

¶ 46 In his deposition, Stewart further admitted that at the time of the fire, Averus was working

directly for the casino and that it was not a subcontractor to anyone relative to the ongoing

renovation project.

¶ 47 Stewart stated that, prior to the fire, the last time Averus cleaned the buffet kitchen exhaust

hood was on October 19, 2008. On the advice of his attorney, Stewart refused to answer

counsels’ questions about when Averus last cleaned the horizontal main line in the pavilion

area.

¶ 48 In his deposition John Russell, president of O’Neil, next testified, inter alia, that he was

principally responsible for negotiating the construction contract between O’Neil and Empress,

with some help from Nelms and Arragon. Russell testified that it was his understanding, both

from the language of the contract and the negotiations he had with Empress’s principals, that

during the renovation project O’Neil would have access to all of Empress’s insurance policies

(including builder’s risk, property, use, etc.). Specifically, Russell averred that when read as a

whole, section 11.4 of the construction contract clearly required Empress to purchase builder’s

risk insurance and make available to O’Neil insurance for any adjacent property, as well as

insurance for any loss of use. According to Russell, section 11.4.1 required Empress to provide

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the builder’s risk insurance. Section 11.4.1.3 confirmed that Empress was responsible for all

deductibles associated with its policies and required Empress to purchase insurance for loss of

use and make it available to O’Neil. This section also included a waiver of subrogation.

According to Russell, section 11.4.5 further required Empress to provide O’Neil with

insurance for adjacent properties and included a waiver of subrogation. Under section 11.4.7,

Empress waived subrogation for any damage caused by fire. Finally, section 11.4.1.2 provided

that if Empress did not provide any of those coverages, it would have an obligation to notify

O’Neil so that it could purchase the insurance and change the order to increase the price of the

renovation project.

¶ 49 Russell also testified in his deposition that it was his understanding that Empress would

waive any rights to subrogation under the contract. He testified that his objective in negotiating

is to make sure, if at all possible, that his company transfers all of the risk that is available to the

owner’s policies. Otherwise, O’Neil needs to purchase additional polices and burden the

project with additional costs. Accordingly, Russell expected that the standard text of the AIA

would be in play.

¶ 50 Russell further testified that the renovation project was not limited to any particular area of

the casino complex and that O’Neil’s work encompassed the whole property.

¶ 51 In his deposition Joseph Cassacio, an officer of National Fire, testified, inter alia, that the

sublimit of $10 million contained in National Fire’s property insurance policy for Empress was

intended to delineate between minor and large construction projects. Specifically, if a

construction project involved costs of up to $10 million, then those costs would be covered

under the National Fire policy. Cassacio admitted, however, that National Fire paid Empress

insurance proceeds after the fire for the “loss of the property that was next door” and caused by

that fire.

¶ 52 In addition, Cassacio testified that it was his opinion that National Fire had not waived any

subrogation rights under the construction contract. While Cassacio acknowledged that the

National Fire policy states that if the insured (Empress) has waived its rights to recover prior to

a loss then the insured cannot pursue subrogation, he testified that such a waiver must be

express (by naming the additional insured and by way of endorsement of the existing insurance

policy). According to Cassacio any waiver of subrogation in the construction contract applies

only to the builder’s risk policy. Specifically, Cassacio asserted that section 11.4.5 of the

construction contract does not pertain to National Fire because National Fire’s policy was not

obtained during the renovation project and there was no endorsement of any such waiver by

National Fire.

¶ 53 F. Summary Judgment

¶ 54 After discovery, the defendants moved for summary judgment, arguing that the plaintiffs’

claims were barred by the waivers of subrogation in the construction contract.2 In support of

their motion for summary judgment the defendants attached the following exhibits: (1) their

2

Although the defendants initially filed their motion for summary judgment only against Empress

in case No. 12 L 12077, all the parties agreed, and the trial court subsequently ordered, that the

defendants’ motion for summary judgment (as well as the parties’ briefs with respect to that motion) be

considered as a motion for summary judgment brought by all defendants against all plaintiffs in both

cases (Nos. 12 L 12077 and 14 L 3223).

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two complaints; (2) the construction contract; (3) Empress’s three insurance policies; (4)

Empress’s discovery responses (admitting to having received the insurance proceeds from the

insurers); and (5) the depositions of Nelms, Arragon, and Cassacio.

¶ 55 The plaintiffs filed their response to the motion for summary judgment, arguing, inter alia,

that under the plain language of the construction contract (1) the waiver of subrogation clause

did not apply to the two property insurers (National Fire and Lloyd’s) or to Averus and (2)

Empress did not waive its right to recover its deductibles. In support they attached, inter alia,

(1) the depositions of Stewart and Russell, (2) a subcontract with Jameson, (3) the AIA official

guide, and (4) Haberzetle’s statement.

¶ 56 After reviewing the extensive briefs filed by the parties, and having heard oral arguments

on the issues raised, on March 30, 2010, the trial court granted summary judgment in favor of

the defendants. In doing so, the court held that the plain language of the construction contract

reveals the parties’ intent that Empress assume the risk of loss for any fire loss and look to its

different insurance policies as the single source of recovery. Accordingly, the court concluded

that Empress had agreed to waive all rights to subrogation against all possible at-fault parties.

In addition, the court found that pursuant to the plain language of the construction contract,

Empress was responsible for its own insurance deductibles. The plaintiffs now appeal.

¶ 57 II. ANALYSIS

¶ 58 Before addressing the merits, we begin by noting the well-established principles regarding

grants of summary judgment. “Summary judgment is a drastic measure of disposing of

litigation” (Bruns v. City of Centralia, 2014 IL 116998, ¶ 12) and should only be granted “if

the movant’s right to judgment is clear and free from doubt” (Outboard Marine Corp. v.

Liberty Mutual Insurance Co., 154 Ill. 2d 90, 102 (1992)). See also Schade v. Clausius, 2016

IL App (1st) 143162, ¶ 18. Summary judgment is proper where “the pleadings, depositions,

and admissions on file, together with the affidavits, if any, show that there is no genuine issue

as to any material fact and that the moving party is entitled to a judgment as a matter of law.”

735 ILCS 5/2-1005(c) (West 2012); see also Carlson v. Chicago Transit Authority, 2014 IL

App (1st) 122463, ¶ 21; Fidelity National Title Insurance Co. of New York v. West Haven

Properties Partnership, 386 Ill. App. 3d 201, 212 (2007) (citing Home Insurance Co. v.

Cincinnati Insurance Co., 213 Ill. 2d 307, 315 (2004)); Virginia Surety Co. v. Northern

Insurance Co. of New York, 224 Ill. 2d 550, 556 (2007). In determining whether the moving

party is entitled to summary judgment, the court must construe the pleadings and evidentiary

material in the record in the light most favorable to the nonmoving party and strictly against the

moving party. Schade, 2016 IL App (1st) 143162, ¶ 17; see also Happel v. Wal-Mart Stores,

Inc., 199 Ill. 2d 179, 186 (2002). “Although the burden is on the moving party to establish that

summary judgment is appropriate, the nonmoving party must present a bona fide factual issue

and not merely general conclusions of law.” Morissey v. Arlington Park Racecourse, LLC, 404

Ill. App. 3d 711, 724 (2010). “A genuine issue of material fact exists where the facts are in

dispute or where reasonable minds could draw different inferences from the undisputed facts.”

Morrissey, 404 Ill. App. 3d at 724; see also Espinoza v. Elgin, Joliet & Eastern Ry. Co., 165 Ill.

2d 107, 114 (1995) (“[W]here reasonable persons could draw divergent inferences from the

undisputed material facts or where there is a dispute as to [the] material fact, summary

judgment should be denied and the issue decided by the trier of fact.”). Our review of the trial

court’s entry of summary judgment is de novo. See Village of Palatine v. Palatine Associates,

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L.L.C., 2012 IL App (1st) 102707, ¶ 43; see also Ragan v. Columbia Mutual Insurance Co.,

183 Ill. 2d 342, 349 (1998); Outboard Marine, 154 Ill. 2d at 102.

¶ 59 On appeal, the plaintiffs make numerous contentions of error, in some instances pertaining

to all of them and in others only to some. For purposes of clarity, we begin by addressing those

arguments raised by all of the plaintiffs.

¶ 60 A. Averus

¶ 61 First, all of the plaintiffs (Empress, Axis, National Fire, and Lloyd’s) argue that the trial

court erred when it granted summary judgment in favor of Averus, on the basis of the waiver of

subrogation clause in section 11.4.7 of the construction contract, where that clause could not

have applied to Averus, since Averus operated under a separate pre-existing oral agreement

with Empress and its work in the casino was not related to the renovation project. The

defendants, on the other hand, assert that pursuant to article 6 of the construction contract,

Averus, who was hired by Empress to perform “other operations on site,” became a

“contractor” for purposes of the waiver of subrogation in section 11.4.7. For the reasons that

follow, we disagree with the defendants.

¶ 62 In interpreting a contract, our primary objective is to effectuate the intent of the parties.

Thompson v. Gordon, 241 Ill. 2d 428, 441 (2011); see also Gallagher v. Lenart, 226 Ill. 2d 208,

232 (2007). In doing so, we first look to the plain language of the contract to determine the

parties’ intent. Thompson, 241 Ill. 2d at 441; see also Gallagher, 226 Ill. 2d at 233. If the words

in the contract are clear and unambiguous, we must give them their plain, ordinary and popular

meaning. Thompson, 241 Ill. 2d at 441 (citing Central Illinois Light Co. v. Home Insurance

Co., 213 Ill. 2d 141, 153 (2004)). However, if the language of the contract is ambiguous, we

may look to extrinsic evidence to determine the parties’ intent. Thompson, 241 Ill. 2d at 441;

Gallagher, 226 Ill. 2d at 233. Language in a contract is ambiguous if it is “susceptible to more

than one meaning.” Thompson, 241 Ill. 2d at 441. However, mere disagreement between the

parties concerning a provision’s meaning will not automatically render such language

ambiguous. Thompson, 241 Ill. 2d at 443. Rather, instead of focusing on one clause or

provision in isolation, we, as the reviewing court, must read the entire contract in context and

construe it as a whole, viewing each provision in light of the other ones. See Gallagher, 226 Ill.

2d at 233; see also Thompson, 241 Ill. 2d at 441. In doing so, we will not add language or

matters to a contract about which the instrument is silent, nor add words or terms to the

agreement to change the plain meaning, as expressed by the parties. Sheehy v. Sheehy, 299 Ill.

App. 3d 996, 1001 (1998).

¶ 63 In the present case, section 11.4.7 of the construction contract provides in pertinent part:

“Waivers of Subrogation. 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 separate contractors described in Article 6 *** for damages caused

by fire or other causes of loss to the extent covered by property insurance obtained

pursuant to this Section 11.4 or other property insurance applicable to the Work ***.”

¶ 64 Further, article 6, which is titled “Construction by Owner or by Separate Contractors,”

states in relevant part:

Ҥ 6.1.1 The Owner reserves the right to perform construction or operations related

to the Project with the Owner’s own forces, and to award separate contracts in

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connection with other portions of the Project or other construction or operations on the

site under Conditions of the Contract identical or substantially similar to these

including those portions related to insurance and waiver of subrogation.”

¶ 65 In addition, section 6.1.2 provides that “[w]hen separate contracts are awarded for different

portions of the Project or other construction or operations on the site, the term ‘Contractor’ in

the Contract Documents in each case shall mean the Contractor who executes each separate

Owner-Contractor Agreement.” Finally, section 6.1.4 states that “when the Owner performs

*** operations related to the Project with the Owner’s own forces, the Owner shall be deemed

to be subject to the same obligations and to have the same rights which apply to the Contractor

under the Conditions of the Contract, including without excluding others, those stated in

[inter alia] Article[ ] *** 11.”

¶ 66 Construing these sections of the contract as a whole, we find that under the plain language

of the construction contract, Averus does not fall into the category of entities to which the

waiver of subrogation applies. The plain language of section 11.4.7 makes clear that the waiver

is limited to a class of defined participants, including (1) the owner, (2) the contractor, (3) the

subcontractor, (4) the sub-subcontractors, and (5) their respective agents and employees, as

well as “separate contractors described in Article 6.” The construction contract clearly

identifies Empress as the owner and O’Neil as the contractor. In addition, the contract defines a

“subcontractor” as an “entity who has a direct contract with the Contractor to perform a portion

of the Work at the site” and a “sub-subcontractor” as an “entity who has a direct or indirect

contract with the Contractor to perform a portion of the Work at the site.” As such, since

Averus admittedly had no direct contract with either O’Neil or any of O’Neil’s subcontractors,

Averus does not fall into the category of either subcontractor or a sub-subcontractor. Similarly,

because Averus admitted that it had a separate and preexisting contract with Empress to

periodically clean ductwork in the casino, it was neither Empress’s employee nor agent.

Accordingly, aside from the class defined by article 6, Averus does not fall into any of the

defined categories to which the waiver would apply.

¶ 67 The defendants nonetheless argue that because section 6.1.1 of the contract permits

Empress to “award separate contracts” in connection with “other *** operations on the site,”

Averus is a “separate contractor” within the meaning of article 6 so as to fall within the

purview of the waiver of subrogation clause. The defendants, however, conveniently forget to

mention that section 6.1.1 conditions Empress’s award of separate contracts for the

performance of “other construction or operations on the site” to those operations “under

Conditions of the Contract identical or substantially similar to these including those portions

related to insurance and waiver of subrogation.” “Conditions of the Contract” are explicitly

defined in the construction contract, and include General, Supplementary and Other

Conditions. The “General Conditions” are defined as the AIA Document A201-1997, as

modified, and the “Supplementary and Other Conditions” are defined as those issued and

incorporated via Change Orders. Accordingly, it is clear from the plain language of section

6.1.1 that separate contracts for “other operations on site” do not include just any operations

conducted at the casino but, rather, must be made under a contract identical or similar to AIA

Document A201-1997, i.e., they must be related to construction. This is further evidenced by

the very title of article 6, which indicates that it applies to “Construction by Owner or by

Separate Contractors.” (Emphasis added.) For that same reason, section 6.1.4 confers on

Empress obligations to its separate contractors “under the Conditions of the Contract,” and

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including waiver of subrogation, only where Empress “performs *** operations related to the

Project with [its] own forces.” (Emphasis added.) Since, in the present case, Averus’s vice

president Stewart admitted that it operated under a completely separate, pre-existing, oral,

non-AIA contract with Empress to clean the casino ductwork, Averus cannot now avail itself

of the waiver of subrogation provision in section 11.4.7. In addition, Stewart admitted in his

deposition that in negotiating Averus’s contract with Empress, the parties never discussed or

contemplated any waiver of subrogation.

¶ 68 Accordingly, under these circumstances, the trial court erred when it granted summary

judgment in favor of the defendant Averus.

¶ 69 B. Waiver of Subrogation for Willful and Wanton Misconduct

¶ 70 With respect to the remaining defendants, the plaintiffs (Empress, Axis, National Fire, and

Lloyd’s) all collectively assert that the trial court erred in granting summary judgment pursuant

to the waiver of subrogation clause because public policy in Illinois bars the enforcement of

exculpatory clauses where heighted misconduct is alleged. The plaintiffs assert that because

they proceeded with claims for willful and wanton misconduct, the court should have found the

waiver of subrogation provision unenforceable. For the reasons that follow, we disagree.

¶ 71 The general purpose of a waiver of subrogation provision is to permit parties to a

construction contract to exculpate each other from personal liability in the event of property

loss or damage to the work occurring during construction, relying instead on the insurance

purchased by one of the parties to provide recovery for that loss. Intergovernmental Risk

Management v. O’Donnell, Wicklund, Pigozzi & Peterson Architects, Inc., 295 Ill. App. 3d

784, 791 (1998); see also Village of Rosemont v. Lentin Lumber Co., 144 Ill. App. 3d 651

(1986). Such provisions shift the risk of loss to the insurance company to facilitate timely

completion of the project and avoid the prospect of time-consuming and expensive litigation,

regardless of which party is at fault. See Intergovernmental Risk, 295 Ill. App. 3d at 793; see

also Village of Rosemont, 144 Ill. App. 3d at 660 (“ ‘The insurance clause shifts the risk of loss

to the insurance company regardless of which party is at fault.’ [Citation.]” ); Ralph Korte

Construction Co. v. Springfield Mechanical Co., 54 Ill. App. 3d 445 (1977).

¶ 72 In Intergovernmental Risk, this court had an opportunity to address an argument similar to

the one raised here by the plaintiffs. In that case, the plaintiffs argued that an AIA construction

contract, with a waiver of subrogation clause identical to the one here, could not apply to

damages caused by either “negligent” or “wrongful acts” of the defendant. Intergovernmental

Risk, 295 Ill. App. 3d at 792. This court disagreed, finding that the waiver of subrogation

provision was contingent upon the types of perils that could result in property damage and loss

and not on what caused those perils (i.e., the manner by which the perils were caused).

Intergovernmental Risk, 295 Ill. App. 3d at 795-96. As the court explained:

“[The waiver of subrogation clause] identifies the types of perils that could cause

property damage and loss. It identifies fire as a distinct peril. It does not differentiate

between the manner in which that peril arises, that is, whether by acts of God or by the

intentional or unintentional, negligent or reckless acts of human beings. In point of fact,

fire loss could result from any of these acts, although as noted in one case it ‘nearly

always [is] caused by negligence.’ [Citation.] To the extent that this provision does

purport to enumerate different types of human conduct that could cause losses of

property, it does so with respect to nonfire-related physical loss or damage; and, even

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there, it purports only to be inclusive, not preclusive. Moreover, strong argument can

be made that even with respect to those property losses the focus is not upon the

differing human motivations behind the conduct causing the damage but upon the

different types of hazards resulting from categories of human conduct conventionally

treated as separate underwriting coverages.” Intergovernmental Risk, 295 Ill. App. 3d

at 795-96.

Accordingly, the court in that case concluded that under the express language of the contract,

the owner was required to obtain “property insurance that insured against damage to property

caused by fire regardless of the fire’s origin or cause” (emphasis added), and as such, the

waiver of subrogation extended to the fire loss, regardless of how the fire had been started.

Intergovernmental Risk, 295 Ill. App. 3d at 796.

¶ 73 We agree with the rationale in Intergovernmental Risk and find it directly applicable to the

cause at bar. Just as in Intergovernmental Risk, the parties here negotiated the construction

contract using the AIA form. In doing so, they obligated Empress, as the owner, to purchase

insurance covering “without limitation, insurance against the perils of fire (with extended

coverage) and physical loss or damage, including *** [inter alia], theft, vandalism, malicious

mischief, collapse, earthquake, flood, windstorm, falsework, testing and startup.” In addition,

the parties explicitly negotiated a waiver of subrogation for damages caused by fire.

Specifically, pursuant to section 11.4.5 they agreed that, “if during the Project construction

period” Empress insured its properties, it would “waive all rights in accordance with the terms

of Section 11.4.7 for damages caused by fire or other causes of loss.” Section 11.4.7 further

explicitly provided that Empress and O’Neil would 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, separate contractors described in Article 6, if any

and any of their subcontractors, sub-subcontractors, agents and employees, for damages

caused by fire or other causes of loss to the extent covered by property insurance obtained

pursuant to this Section 11.4.” In addition, the parties agreed that the waiver of subrogation

would “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 damage.”

¶ 74 Just as in Intergovernmental Risk, we hold that the parties here expressly foresaw the

potential of property loss occurring due to fire and chose to impose on Empress the duty to

insure against any such loss (regardless of fault), expressly waiving all rights against each

other for damages caused by such perils. See Intergovernmental Risk, 295 Ill. App. 3d at 796;

see also Village of Rosemont, 144 Ill. App. 3d at 661 (construing similar waiver of subrogation

provision to hold that “the parties expressly waived all rights against each other for damages

caused by perils covered under the policy” and “intended to allocate property loss to an insurer

and to limit the recourse of the plaintiff, the party acquiring the policy, solely to the insurance

proceeds”); Ralph Korte, 54 Ill. App. 3d at 447 (interpreting waiver of subrogation provision to

mean that “the parties had agreed, in effect, to assume the risk of loss as between themselves

due to fire or other perils, to the extent each party was covered by insurance”). Nothing in the

language of the waiver of subrogation clause indicates that the parties intended there to be an

exception for fires caused by willful and wanton conduct. Since “[t]he law and the public

policy of Illinois permit and require that competent parties be free to contract with one

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another,” we conclude that the trial court properly applied the waiver of subrogation clause to

bar the plaintiffs’ claims attempting to recoup losses they incurred as a result of the fire.

Liccardi v. Stotl Terminals, Inc., 178 Ill. 2d 540, 549 (1997); see also Saba Software, Inc. v.

Deere & Co., 2014 IL App (1st) 132381, ¶ 60 (“Illinois’s public policy strongly favors

freedom to contract [citation] and broadly allows parties to determine their contractual

obligations. [Citation.] Hussein v. L.A. Fitness International, L.L.C., 2013 IL App (1st)

121426, ¶ 11. As a result, we exercise sparingly the power to declare a private contract void as

against public policy.” (Internal quotation marks omitted.)).

¶ 75 In coming to this conclusion, we further find that in making their public policy argument,

the plaintiffs confuse waivers of subrogation with exculpatory clauses. The law in Illinois is

well settled that a waiver of subrogation is not an exculpatory clause. See, e.g., Allstate

Indemnity Co. v. ADT LLC, 110 F. Supp. 3d 856, 862 (N.D. Ill. 2015) (“[S]ubrogation waivers

are not true exculpatory provisions. They merely allocate risk of loss; they do not immunize

the wrongdoer from all liability, nor do they require the injured parties to give up all their

claims or leave them uncompensated.”); see also Hartford v. Burns International Security

Services, Inc., 172 Ill. App. 3d 184 (1988); Bastian v. Wausau Homes, Inc., 635 F. Supp. 201

(N.D. Ill. 1986).

¶ 76 Similar to the present case, in Hartford, 172 Ill. App. 3d 184, the plaintiff insurer argued

that a waiver of subrogation in a contract for security services for the Board of Trade Building

was an exculpatory clause that should be deemed void (as against public policy) both under

New York and Illinois law. This appellate court disagreed, holding:

“Here, we are dealing with two corporations which voluntarily entered into a contract

at arm’s length, with full freedom to do so. The waiver provision in question here is not

a true exculpatory clause. It is merely an agreement between the parties to shift most of

the risk of loss to a third party, namely: the [insured Building’s] insurance company,

i.e., [the plaintiff insurer]. The clause did not immunize [the Building] from all liability

nor did it require [the insured Building] to give up all claims against [the defendant].

The [insured Building] gave up only its rights against the [defendant] to the extent that

it was insured. Thus, the waiver provision *** does not violate Illinois public policy

***.” Hartford, 172 Ill. App. 3d at 190.

¶ 77 In coming to this decision, the court in Hartford relied in part on the decision in Bastian,

635 F. Supp. 201. In that case the plaintiff home purchasers alleged that a waiver of

subrogation clause in a sales contact was an unenforceable exculpatory clause because it was

unconscionable and violated Illinois public policy. See Bastian, 635 F. Supp. at 202. Applying

Illinois law, the federal court in that case disagreed, explaining the distinction between a

waiver of subrogation and an exculpatory clause:

“The clause in question here is not even a true exculpatory clause. With it the

parties agree to shift most of the risk of property loss to a third party, namely the

Bastians’s insurance company; or, worded another way, by the clause Wausau became

an additional beneficiary of the Bastians’s insurance policy. [Citation.] Such a clause

does not leave the injured party uncompensated. Indeed, the Bastians have already

been largely compensated for their loss, albeit from their own insurance rather than by

Wausau.” Bastian, 635 F. Supp. at 203.

¶ 78 In making their argument, the plaintiffs here fail to cite to any Illinois decision in which the

court refused to enforce an insurance subrogation waiver on the basis that willful and wanton

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misconduct was alleged. Rather, the majority of the decisions they cite discuss contractual

exculpatory provisions. See, e.g., Oelze v. Score Sports Venture, LLC, 401 Ill. App. 3d 110

(2010) (exculpatory clause in membership agreement signed by a member who tripped on a

rope ladder during a tennis match); Garrison v. Combined Fitness Centre, Ltd., 201 Ill. App.

3d 581 (1990) (exculpatory clause in a health club membership agreement signed by a member

who was injured while lifting weights); Downing v. United Auto Racing Ass’n, 211 Ill. App. 3d

877 (1991) (release signed by a pit crew member who was struck by a car during a race);

Falkner v. Hinckley Parachute Center, Inc., 178 Ill. App. 3d 597 (1989) (exculpatory clause

within a release signed by a parachutist who died when his parachute became entangled).

¶ 79 The only Illinois case the plaintiffs offer in support of their argument is Third Swansea

Properties, Inc. v. Ockerlund Construction Co., 41 Ill. App. 3d 894 (1976). Although at first

blush that decision appears factually similar, a thorough reading reveals that it is not a waiver

of subrogation case. In Third Swansea, the plaintiffs, owners (and lessor-occupants) of a

property on which a bakery addition was being erected and that was damaged by fire during the

construction, sued, inter alia, a subcontractor involved in the project. Third Swansea, 41 Ill.

App. 3d at 895. While the contract at issue contained a waiver of liability clause, it also

obligated the plaintiffs to obtain insurance, which they apparently failed to do so, leaving them

uncompensated for their loss. See Third Swansea, 41 Ill. App. 3d at 896-97. Although the court

in Third Swansea concluded that the plaintiffs could proceed against the subcontractor with

their willful and wanton claims, it found that it was unable to determine from the record

presented whether the insurance, if it had been obtained by the plaintiffs, would have been so

comprehensive so as to bar the plaintiffs’ subrogation action or whether it would have covered

only the subcontractor’s interest in the project and thus allowed the action for damages directly

against the subcontractor. Since the parties here do not dispute that Empress had three

insurance policies in place at the time of the renovation project, and that the three insurers

collectively reimbursed Empress for its fire losses, Third Swansea is inapplicable.

¶ 80 Therefore, we conclude that nothing in our State’s law or public policy prevents competent

parties to a construction contract to negotiate a full waiver of subrogation rights (regardless of

fault) among themselves, so as to require one of them to obtain insurance and have the insurer

provide the sole recovery for the identified loss. Accordingly, we conclude that the waiver of

subrogation clause in the construction contract was applicable to bar the plaintiffs’ willful and

wanton claims and permit the trial court to enter summary judgment. As such, we must next

determine whether that clause applies to all three insurers, and if so to what extent.

¶ 81 C. Application of Waiver to the Two Property Insurance Policies

¶ 82 Axis concedes that under the plain language of the construction contract, the waiver of

subrogation provision applies to it as the builder’s risk insurer. Empress, National Fire, and

Lloyd’s agree and further contend that the waiver provision is limited to Axis’s builder’s risk

insurance policy and therefore does not apply to either of Empress’s property insurance

policies with National Fire and Lloyd’s. We disagree.

¶ 83 The plain language of the construction contract is clear and contemplates that the waiver of

subrogation applies both to the specific renovation builder’s risk insurance and the general

property insurers.

¶ 84 Under section 11.4.1 of the contract, Empress was obligated to purchase and maintain until

final payment (i.e., the completion of the project) “property insurance written on a builder’s

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risk ‘all-risk’ or equivalent policy form.” Section 11.4.1.1 enumerated the types of coverage

that must be included “without limitation” in such a builder’s risk policy and included perils

like fire. Section 11.4.7 further set forth the waiver of subrogation, obligating the parties to

waive all rights against each other for “damages caused by fire or other causes of loss to the

extent covered by property insurance obtained pursuant to this Section 11.4 of other property

insurance applicable to the Work.” Section 11.4.5 contains an additional waiver of subrogation

provision and further obligates Empress to waive all rights in accordance with the terms of

section 11.4.7 “for damages caused by fire or other causes of loss covered by” any “separate

property insurance,” if “during the Project construction period [it] insures properties, *** at or

adjacent to the site by property insurance under policies separate from those insuring the

Project, or if after final payment property insurance is to be provided on the completed project

through a policy or policies other than those insuring the Project during the construction

period.”

¶ 85 Reading the aforementioned language of the construction contract as a whole, for the

reasons that shall be more fully articulated below, we hold that pursuant to both section 11.4.7

and 11.4.5, Empress unambiguously agreed to waive any and all of National Fire’s and Lloyd’s

subrogation rights.

¶ 86 With respect to the waiver contained in section 11.4.7, the contract here is identical to the

one at issue in Intergovernmental Risk. In that case, just as here, the plaintiffs argued that the

section 11.4.7 waiver of subrogation did not apply to the all-risk insurance policies because

they were not “builder’s all-risk policies” purchased specifically for the construction project

but rather were policies that had been purchased by the Village more than 10 years before the

renovation construction project began. Intergovernmental Risk, 295 Ill. App. 3d at 796. In

rejecting the plaintiffs’ argument, the court in Intergovernmental Risk first noted that the

plaintiffs’ interpretation of the waiver of subrogation would have the effect of rendering the

phrase in section 11.4.7 “or other property insurance applicable to the Work” redundant and

meaningless since it would not allow for any alternative form of insurance implied by the word

“or.” Intergovernmental Risk, 295 Ill. App. 3d at 796-97.

¶ 87 The court then relied on the interpretation of similar provisions by courts of other

jurisdictions, which also found that general all-risk policies obtained prior to execution of the

construction contract constituted “other property insurance applicable to the Work” (internal

quotation marks omitted) triggering the waiver of subrogation contained in section 11.4.7. See

Intergovernmental Risk, 295 Ill. App. 3d at 797 (quoting Lloyd’s Underwriters v. Craig &

Rush, Inc., 32 Cal. Rptr. 2d 144, 146 (Ct. App. 1994), and citing E.C. Long, Inc. v. Brennan’s

of Atlanta, Inc., 252 S.E.2d 642 (Ga. Ct. App. 1979), and Haemonetics Corp. v. Brophy &

Phillips Co., 501 N.E.2d 524 (Mass. Ct. App. 1986)).

¶ 88 The court in Intergovernmental Risk further recognized that the issue was not “whether the

policies [we]re called ‘all-risk’ or ‘general liability’ ” but rather “whether those policies

cover[ed] the risk and losses delineated in the construction agreement between the [parties].”

Intergovernmental Risk, 295 Ill. App. 3d at 797-98.

¶ 89 We agree with the rationale of Intergovernmental Risk and see no reason to depart from it

in this case.

¶ 90 Empress, National Fire, and Lloyd's nonetheless argue that Intergovernmental Risk is

inapplicable to the cause at bar because, unlike in that case, the National Fire and Lloyd’s

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policy explicitly contained language excluding coverage for construction projects in excess of

$10 million. We disagree.

¶ 91 While it is true that the two policies contain language limiting insurance coverage for

property in the course of construction to incidental course of construction (defined as projects

of $10,000 million or less), the term “property” in those policies is very broadly defined and

also includes, without limitation, “property in the care, custody or control of the Insured or for

which the Insured is legally liable to insure” and “property of the Insured in the care, custody

or control of others.” Since Empress’s vice president for design and construction, Nelms,

admitted that during the construction, Empress placed the casino in the care and control of

O’Neil and, under the construction contract, was legally liable to insure its property during the

renovation, we are unpersuaded by National Fire and Lloyd’s argument attempting to limit the

policy’s coverage. What is more, National Fire and Lloyd's ignore the fact that the language of

their policies’ own subrogation clause explicitly provides that they “will not acquire any rights

of recovery that the Insured has expressly waived prior to a loss.” Since Empress agreed to

waive any subrogation rights against the defendants prior to the fire, by way of the construction

contract and by the express terms of their own policies, National Fire and Lloyd’s are also

bound by that waiver.

¶ 92 Accordingly, applying the rationale of Intergovernmental Risk to the facts of this case, we

conclude that the waiver of subrogation clause in section 11.4.7 applied equally to National

Fire’s and Lloyd’s policies. See Intergovernmental Risk, 295 Ill. App. 3d at 798; see also

Haemonetics Corp., 501 N.E.2d at 525-26.

¶ 93 However, even if we were to ignore the holding in Intergovernmental Risk and were to

construe “other property insurance applicable to the Work” in section 11.4.7 as excluding

National Fire’s and Lloyd’s policies, the two property insurers would nonetheless be bound by

the waiver of subrogation prescribed in section 11.4.5. That section provides that a section

11.4.7 waiver of subrogation is triggered “if during the Project construction period [Empress,

as] the Owner insures properties, real or personal or both, at or adjacent to the site by property

insurance under policies separate from those insuring the Project.” (Emphases added.)

¶ 94 Contrary to National Fire and Lloyd’s position, this provision has no temporal

requirement. The owner is not required to purchase the separate insurance policy after the

project has already begun. The key word of this section is “insures.” The plain language of

section 11.4.5 does not state that the waiver applies if the owner procures policies during the

construction period. Rather, the paragraph’s present tense use of “insures” suggests only that

the separate policy is in existence during the project, not that it was procured during the

project. See Hunt Construction Group, Inc. v. Hun School of Princeton, No. 08-3550, 2010

WL 3724279, at *13 (D.N.J. Sept. 16, 2010).

¶ 95 In the present case, there is no dispute that Empress had in existence separate property

“all-risk” insurance policies with National Fire and Lloyd during the renovation project. What

is more, National Fire’s designated representative, Cassacio, admitted in his deposition that

National Fire “paid for the loss to [Empress’s] property that was next door [to the casino]” (i.e.,

adjacent to the site). Accordingly, given this concession, Empress and National Fire cannot

contest that the plain language of section 11.4.5 contemplated their policies and triggered the

waiver of subrogation clause in section 11.4.7.

¶ 96 Empress, National Fire, and Lloyd’s nevertheless contend that we should not focus on the

language of the subrogation waivers but rather begin our analysis with the language of section

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11.4, requiring Empress to obtain insurance. They contend that because both the waiver of

subrogation (section 11.4.7) and the separate property insurance (section 11.4.5) clauses are

included in section 11.4, and that section requires Empress to procure “builder’s risk all-risk”

only for the work and not Empress’s entire property (i.e., buildings adjacent to the casino), the

scope of the waiver should be just as narrow and apply (1) only to the work and (2) only to the

damages related to the work (i.e., the value of the materials, tools, and labor incorporated into

the renovation project and not the extra expenses, such as business interruption). We disagree.

¶ 97 In that respect, we note that the majority of jurisdictions that have had the opportunity to

address this issue have rejected the “work or non-work” distinction proposed here by the

plaintiffs. See Board of Commissioners v. Teton Corp., 30 N.E.3d 711, 716 (Ind. 2015);

Lexington Insurance Co. v. Entrex Communication Services, Inc., 749 N.W.2d 124, 135 (Neb.

2008); Federal Insurance Co. v. Woodruff Construction, No. 12-0821, 2012 WL 5954588

(Iowa Ct. App. Nov. 29, 2012); ASIC II Ltd. v. Stonhard, Inc., 63 F. Supp. 2d 85 (D. Me.

1999); Lloyd’s Underwriters, 32 Cal. Rptr. 2d 144; Housing Investment Corp. v. Carris, 389

So. 2d 689 (Fla. Dist. Ct. App. 1980); E.C. Long, Inc. v. Brennan’s of Atlanta, Inc., 252 S.E.2d

642 (Ga. Ct. App. 1979); Willis Realty Associates v. Cimino Construction Co., 623 A.2d 1287

(Me. 1993); Haemonetics, 501 N.E.2d 524; Employers Mutual Casualty Co. v. A.C.C.T., Inc.,

580 N.W.2d 490 (Minn. 1998); Chadwick v. CSI, Ltd., 629 A.2d 820 (N.H. 1993); Westfield

Insurance Group v. Affinia Development, LLC, 2012-Ohio-5348, 982 N.E.2d 132; Trinity

Universal Insurance Co. v. Bill Cox Construction, Inc., 75 S.W.3d 6 (Tex. App. 2001). The

rationale has been that if the waiver extended only to damages to the work, there would be no

need to include the waiver in section 11.4.5 for damages to property adjacent to the site

covered by policies separate from those described in section 11.4.7. See Federal Insurance,

2012 WL 5954588, at *4 (holding that “[s]ection 11.4.5 clearly provides for waiver of all

rights for damages covered by any property insurance policies ‘separate from those insuring

the project’ that cover the ‘properties, real or personal or both, at or adjacent to the site,’ ” and

rejecting any work-non-work distinction, noting that it would “render section 11.4.5 of no

effect to the construction project because the policies described in section 11.4.5 are ‘separate

from those insuring the project’ and include ‘property *** adjacent to the site’ ”); see also

Teton, 30 N.E.3d at 717 (holding that “the AIA contract provides that even when the Owner

has both builders-risk coverage for the work and separate property insurance for ‘adjoining or

adjacent’ property, its subrogation waiver *** extends to ‘fire or other perils covered by this

separate property insurance policy’ ” because the separate provision would be “an anomaly

within the AIA contractual scheme” if the parties already expected the liability insurance to

cover “non-work damages”); see also Lexington, 749 N.W.2d at 134-35 (“We understand ***

[section 11.4.5] to mean that if the owner acquires a separate property insurance policy to

cover non-Project property—a policy that did not cover the Project or Work property—and the

non-Project property is damaged, the owner waives subrogation rights for the insurer as to

those damages. So even though the damage occurred to non-Work property, the owner waived

subrogation rights because the damages were insured.”).

¶ 98 We agree with the rationale of these decisions and see no reason to depart from it here.

Accordingly, we conclude that the waiver of subrogation clause in section 11.4.5 applied to

National Fire’s and Lloyd’s policies.

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¶ 99 D. Breach of Contract

¶ 100 Empress, National Fire, and Lloyd’s next contend that the defendants’3 multiple breaches

of the construction contract should bar enforcement of the waiver of subrogation clause.

Specifically, citing to the “time is of the essence clause,” the three plaintiffs first argue that

because completion of the renovation project on “time” was a material provision of the

construction contract, and was never fulfilled as a result of the fire, the plaintiffs should not be

forced to fulfill their waiver of subrogation obligations under the agreement. Furthermore, the

three plaintiffs assert that because the construction contract required the contractor to obtain

liability insurance and to indemnify the owner for claims arising out of the performance of the

work, it conflicted with the waiver of subrogation clause, and therefore the waiver is not

enforceable. For the reasons that follow, we disagree.

¶ 101 At the outset, we note that contrary to the plaintiffs’ assertion, the waiver of subrogation

provision is not limited to negligence actions but can apply with equal force to contract claims.

See Village of Rosemont, 144 Ill. App. 3d at 665-66 (holding that a waiver of subrogation

provision applied to bar breach of contract, implied warranty, and strict liability claims). As

already explained above in more detail, the parties here agreed that any casualty loss resulting

from a fire would be borne solely by Empress’s property insurance and that accordingly

Empress expressly waived all claims against the defendants arising from such a loss covered

by such insurance. The fire was related to performance on the contract and therefore the loss

and damage from the fire were all covered under the property insurance policies Empress was

required to maintain. As such, the waiver of subrogation bars the breach of contract claims as

well. See Village of Rosemont, 144 Ill. App. 3d at 665-66.

¶ 102 Turning specifically to the plaintiffs’ arguments, with respect to the “time is of the

essence” clause, we find that the plaintiffs have failed to present any facts establishing that this

provision was material to the contract or, for that matter, any rationale to support the position

that the defendants’ failure to complete the project within the contemplated time frame would

or should somehow negate the waiver of subrogation provision. It is well-settled that the mere

fact that the parties include a “time is of the essence” provision in a contract does not

automatically make the provision material. See Asset Recovery Contracting, LLC v. Walsh

Construction Co. of Illinois, 2012 IL App (1st) 101226, ¶ 73 (holding that “even where the

contract contains an express clause stipulating that ‘time is of the essence,’ Illinois courts will

inquire into the situation of the parties and the underlying circumstances to determine whether

a delay in performance resulted in a ‘material breach’ ” (internal quotation marks omitted)).

¶ 103 We similarly reject the plaintiffs’ contention that the provisions of the construction

contract requiring the contractor to obtain liability insurance and to indemnify Empress for

claims arising out of the performance of the work conflicted with the waiver of subrogation

clause, so as to render those provisions an exception to the waiver. This same argument was

raised and rejected by the plaintiffs in Village of Rosemont, 144 Ill. App. 3d at 663. In that case,

the appellate court held that the waiver of subrogation clause was part of the owner’s property

insurance obligations while the insurance and indemnity provision were tied to the contractors’

liability insurance obligations. Village of Rosemont, 144 Ill. App. 3d at 663. The court

3

The allegations in Empress’s complaint for breach of contract were made against all the

defendants, except for Averus. The breach of contract issues raised on appeal accordingly also exclude

Averus.

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explained that it was apparent that the liability insurance and the indemnification provisions

were “entirely consistent with the explicit waiver of claims” in the waiver of subrogation

clause, since they were intended to provide a different type of coverage (i.e., contractor’s

liability insurance versus property insurance due to fire loss). Village of Rosemont, 144 Ill.

App. 3d at 663. The same is true here, where the type of insurance the defendant contractor was

required to obtain under the construction contract, and to which the three plaintiffs cite,

included liability insurance (such as workers’ compensation and employers’ liability,

commercial auto, umbrella, and contractor’s equipment), while the property insurance and

waivers of subrogation required Empress to maintain coverage for property loss in the event of,

inter alia, fire damage to the renovation project and to waive its subrogation rights. Moreover,

the express language of the waiver of subrogation makes clear that the waiver will trump any

indemnification obligations. See supra ¶ 15 (“ ‘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, *** and whether or not the person or entity had an

insurable interest in the property damage.’ ”). To accept the plaintiffs’ interpretation, in

contravention of the already established rule in Village of Rosemont, so as to create an

exception to the waiver of subrogation for contractor’s liability insurance, would render the

waiver of subrogation, which was intended to shift the risk of loss to the owner’s insurance

company, meaningless.

¶ 104 The plaintiffs do not cite to any Illinois authority to the contrary. Instead they rely on

Liberty Mutual Insurance Co. v. Perfect Knowledge, Inc., 752 N.Y.S.2d 677 (App. Div. 2002),

a case decided by the New York appellate court. In light of already existing Illinois precedent

to the contrary discussed above, we need not, however, consider that decision as it is not

binding upon this court. See, e.g., In re M.H., 2011 IL App (1st) 110196, ¶ 58 (“this court is not

bound by decisions from other jurisdictions”).

¶ 105 E. Empress’s Deductibles

¶ 106 Lastly, on appeal, Empress alone asserts that it never waived its right to recover its

deductibles under its general property insurance policies with National Fire and Lloyd’s.

Specifically, Empress asserts that the language of the construction contract requiring it to pay

deductibles only applies to its builder’s risk policy with Axis. In that respect, Empress

concedes that the language of section 11.4.1.3 states that “if the property insurance requires

deductibles,” Empress will pay “costs not covered because of such deductibles.” Nonetheless,

Empress contends that because section 11.4.1.3 is part and parcel of section 11.4, requiring

Empress to obtain the builder’s risk insurance, this section does not apply to Empress’s

policies with National Fire and Lloyd’s, which were obtained long before the parties entered

into the construction contract. We disagree.

¶ 107 While it is true that section 11.4.1.3 is part of section 11.4 of the construction contract, the

plain language of that section does not limit the deductible requirement to the builder’s

insurance but rather speaks of “property insurance” in general. Contrary to Empress’s

interpretation, the term “property insurance” is used interchangeably in the entirety of section

11.4, obligating Empress to maintain “property insurance,” and at different times connotes

both builder’s risk and general property insurance. See supra ¶ 15. At those instances where

the parties intended to differentiate between the types of property insurance used, they clearly

do so. As already discussed above, section 11.4.5 of the construction contract explicitly

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permits Empress to use its general “property insurance” to insure its property (at or adjacent to

the construction site) for losses resulting from a fire and obligates Empress to waive its

subrogation rights with respect to those policies. Under such a requirement, it makes no sense

to permit Empress to avoid its deductibles on such property insurance. Accordingly, since

nothing in the plain language of section 11.4.1.3 indicates a limitation of the deductible

requirement to the builder’s risk policy, we conclude that Empress is responsible for its

deductibles to National Fire and Lloyd’s.

¶ 108 III. CONCLUSION

¶ 109 For the reasons that follow, we affirm in part the judgment of the circuit court granting

summary judgment to all of the defendants on all claims, except for those involving the

defendant, Averus. We reverse in part that portion of the trial court order with respect to

Averus and remand for further proceedings against that defendant.

¶ 110 Affirmed in part; reversed and remanded in part.

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