September 2014 – Construction Law

Expansion of Statute of Limitations in Illinois under 15th Place Condominium Association v. South Campus Development Team, LLC

Sep 23 2014

By Daniel E. Raymond and Jesse G. Shallcross, K&L Gates, Chicago

General contractors and developers beware—suits for breach of express indemnity now have a longer shelf life in Illinois.

In 15th Place Condominium Association v. South Campus Development Team, LLC, the Appellate Court for First District of Illinois held that a claim for breach of an express indemnity clause contained in a construction contract is subject to a ten-year statute of limitations instead of four.[1] The subject of the dispute was a contract between 15th Place Condominium Association (the “Association”) and South Campus Development Team (the “Developer”) to develop two condominium towers (the “Project”). The Developer contracted with Linn-Mathes, Inc. (the “General Contractor”), who would act as general contractor.[2] The contract between the Developer and the General Contractor included an express indemnity clause and a cause of action accrual provision.[3] By 2003 and 2004, the Project was substantially completed, and, in 2005, the Developer turned over the property to the Association.[4]

Unhappy with the Project, the Association sued the Developer for breach of the implied warranty of fitness and habitability, breach of fiduciary duty, and negligence in 2008.[5] In turn, in 2011, the Developer filed a third-party complaint against the General Contractor for breach of express indemnity, among other claims.[6] At the trial level, the General Contractor successfully argued that the Developer’s claim for breach of express indemnity was untimely and barred by the four-year statute of limitations for construction-related claims.[7]

The appellate court, however, disagreed. Relying on the Illinois Supreme Court’s ruling in Travelers Casualty & Surety Co. v. Bowman, the court overturned the trial court and applied the ten-year statute of limitations for contract claims.[8] In Travelers, the Illinois Supreme Court instructed that when determining whether to apply the ten-year statute of limitations for contract claims or the four-year statute of limitations for construction-related claims, courts must look to the nature of the claim—meaning whether the claims emanates from construction-related activity or a contractual obligation.[9] Applying this test to the express indemnity clause at issue, the court determined that the nature of the claim was for failure to indemnify, a contractual obligation, not from any “act or omission relating to construction activity.”[10] Thus, the ten-year statute of limitations applied and the Developer’s claim for breach of express indemnity was not barred by the passage of time.

[1] 2014 IL App (1st) 122292.

[2] Id. ¶¶ 5-7.

[3] Id. ¶ 43.

[4] Id. ¶ 39.

[5] Id. ¶ 7.

[6] Id. ¶ 10.

[7] Id. ¶¶ 17-20.

[8] Id. ¶ 45.

[9] Id. ¶ 46.

[10] Id. ¶ 52.

Pennsylvania Supreme Court Rules that Subsequent Homeowners Are Not Entitled to Implied Warranty of Habitability

Sep 19 2014

By Christopher A. Barbarisi and Loly G. Tor, K&L Gates, Newark

In Conway v. Cutler Group Inc.,[1] the Pennsylvania Supreme Court reversed a decision by the Superior Court and held that the builders’ implied warranty of habitability does not run to subsequent purchasers of homes, significantly limiting homebuilders’ potential liability to subsequent owners.

In Conway, the homeowners, Michael and Deborah Conway, purchased a three-year-old home from the original owners, who had purchased the home new from the builder. After allegedly discovering water infiltration and construction defects in the home, the Conways filed suit against the builder for breach of the homebuilders’ implied warranty of habitability. The trial court dismissed the Conways’ complaint, finding that the Conways’ claim for breach of the implied warranty was barred due to lack of privity. On appeal, the Superior Court reversed, finding that the implied warranty of habitability should exist independently of a contract between the builder and homeowner because the warranty is based on public policy considerations, is designed to “equalize the disparate positions” of the builder and homeowner, and exists independently of any builder representations.

In reversing the Superior Court, the Pennsylvania Supreme Court considered the history of the implied warranty of habitability and its adoption by the Court in Elderkin v. Gaster.[2] In Elderkin, the Court rejected the doctrine of caveat emptor and instead placed the burden of risk on a builder “‘that a home which he has built will be functional and inhabitable in accordance with contemporary community standards.’”[3] The Court also recognized that the implied warranty in Elderkin was based on the existence of a contract between the builder and the homeowner (which, of course, does not exist with a subsequent purchaser) and was limited to situations where the parties are not in privity. After discussing the varying decisions reached by courts in other jurisdictions on this issue, the Court declined to depart from its position that the implied warranty of habitability is grounded in contract and requires privity between the parties to be enforced. It concluded that whether to extend the warranty of habitability to subsequent homeowners is a question of public policy properly left to the legislature. Thus, unless and until Pennsylvania’s General Assembly decides otherwise, an action for breach of implied warranty of habitability requires contractual privity between the parties, eliminating a potential source of liability to homebuilders.

[1] J-41-2014 (Pa. Aug. 18, 2014).
[2] 288 A.2d 771 (Pa. 1972).
[3] J-41-2014 at *4 (quoting Elderkin, 288 A.2d at 777).

Biggest Risk of Corruption in The Construction Industry: The Global Picture

Sep 18 2014

By Elizabeth Robertson, Laura Atherton and Dylan G. Moses, K&L Gates, London

The construction industry is big business. A recent study[1] has predicted that global construction output will increase by more than 70%, to US$15 trillion per year worldwide, by 2025. The dominant sources of this growth will be three countries in particular, China, India and the U.S., with much of the remainder in the emerging markets.

This growth is a cause for celebration, but it will not come without challenges[2]. Some of those countries where the highest growth is predicted are also perceived as having the highest levels of corruption[3].

To read the full Whitepaper, click here.

1 The Global Construction 2025 by Global Perspectives and Oxford Economics.

2 The Chartered Institute of Buildings found that 49% of respondents to a 2013 survey thought that corruption was common within the UK construction industry.

3 China is listed at number 80 and India is listed at number 94 out 177 countries ranked by Transparency International on their corruption perceptions index in 2013.

Issues to Consider When Doing Business in Qatar

Sep 04 2014

As part of K&L Gates’ commitment to continuing professional development, the construction and disputes resolution lawyers in our Doha office regularly discuss relevant legal issues that arise while advising clients in Qatar, giving presentations about issues with Qatar law and lessons learned from live matters.

The attached slides features a presentation by Alex Brightman about issues to consider relating to the registration of the local branch of an international construction company who wants to do business in Qatar.

To view the presentation, click here.

Archive:September 2014