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Six Recent Decisions Four By the Illinois Supreme Court and Two by the Illinois Appellate Court

This month we cover six recent decisions four by the Illinois Supreme Court and two by the Illinois Appellate Court: the first is on the economic loss doctrine barring a claim for negligent misrepresentation; the second is on the applicable statute of limitations for failure to pay a bill for construction work; the third is on the applicability of the void ab initio doctrine as it relates to the statute of repose for a legal malpractice claim; the fourth is on the applicability of the Workers' Compensation Act to an employment injury sustained outside the state; the fifth is on the applicability of the Snow and Ice Removal Act in a personal injury claim; and the sixth is on the requirement under the Joint Tortfeasor Act that a contribution claim be asserted by a third-party complaint in a pending action.

1. The Illinois Supreme Court holds that the economic loss doctrine bars a claim for negligent misrepresentation when a title commitment failed to disclose a restrictive covenant on the property.

The Illinois Supreme Court recently held that a title insurer, when it issues a title commitment, is not supplying information for the guidance of others in business transactions, and therefore the economic loss doctrine defeats plaintiff™s claim for negligent misrepresentation. First Midwest Bank, N.A. v. Stewart Title Guaranty Co., No. 100162, 2006 Ill. Lexis 14 (Ill. Jan. 20, 2006).

In July 1995, John and Glenda Bergeron made an offer to purchase residential property in Green Oaks, Illinois, with the intention that the property also be used as the home office of their architectural and interior design business. The Bergerons then applied to First Midwest for a $300,000 loan toward the purchase of the property, making First Midwest aware of the property's planned use. Stewart Title, through its agent, Clear Title, Inc., provided a commitment for title insurance. Pursuant to the commitment, Stewart Title agreed that it would provide a policy of title to the Bergerons in the amount of $425,000, and a lender™s policy of title insurance to First Midwest in the amount of $300,000. After the closing on the property, Stewart Title issued title insurance policies as promised. Neither the title commitment, nor the policies of title insurance, indicated that there were any restrictive covenants recorded against the property.

The Bergerons borrowed an additional $300,000 from First Midwest to be used for the construction of a garage/office structure on the property. Subsequently, the Bergerons obtained a building permit and began construction of the garage/office structure. Additional funds were needed, however, and the Bergerons obtained a wraparound loan from First Midwest in the amount of $752,000 that consolidated and replaced the two previous loans. Intercountry Title provided the title insurance in connection with the wraparound loan. Apparently, through these policies, the Bergerons and First Midwest first learned that there was a restrictive covenant on the property that provided that no part of the property could be used for business or commercial purposes. Because they could not use the property for the purposes for which they had bought it, the Bergerons defaulted on their loan from First Midwest. First Midwest foreclosed on the property, but did not recoup the full amount of the wraparound loan.

First Midwest filed a three-count complaint against Stewart Tile and Clear Title, seeking a declaratory judgment that Stewart Title was liable on the policy of insurance (count I), and also alleging negligent misrepresentation (count II), and fraudulent misrepresentation (count III). The trial court granted Stewart Title™s motion to dismiss counts II and III, and granted Stewart Title summary judgment on Count I. The appellate court affirmed the orders of the trial court.

The only matter before the Illinois Supreme Court was the dismissal of First Midwest™s claim for negligent misrepresentation pursuant to section 2-615 of the Code of Civil Procedure. In that claim, First Midwest was seeking purely economic damages, so the question before the court was whether the economic loss doctrine, as set forth in Moorman Manufacturing Co. v. National Tank Co., 91 Ill.2d 69, 435 N.E.2d 443 (1982), defeated First Midwest™s claim. First Midwest claimed that one of the exceptions to the Moorman Doctrine applied i.e., where the plaintiff™s damages are proximately caused by a negligent misrepresentation by a defendant in the business of supplying information for the guidance of others in their business transactions. First Midwest argued that when a title insurance company issues a title commitment it is an information provider; therefore, when a title insurance company fails to conduct a proper title search and provides inaccurate information concerning the condition or marketability of the property, it may be held liable for negligent misrepresentation. In support of its position, First Midwest relied heavily on Notaro Homes, Inc. v. Chicago Title Insurance Co., 309 Ill.App.3d 246, 722 N.E.2d 208 (1999).

In contrast, Stewart Title argued that a title company, when providing a title commitment, is not in the business of supplying information for the guidance of others. As a result, according to Stewart Title, it had no duty to list all of the defects, liens, and encumbrances affecting the property. Therefore, the exception to the Moorman doctrine did not apply.

The issue the Illinois Supreme Court had to decide was whether Stewart Title had a duty to convey accurate information arising from the fact that, when it issued the title commitment, it was in the business of supplying information for the guidance of others in their business transactions. The court examined the nature of a title commitment to determine the parameters of a title insurer™s duty. In its decision, the court relied on an amicus brief that was filed by the American Land Title Association (ALTA). According to ALTA, First Midwest was treating a title commitment like an abstract of title. The sole purpose of an abstract of title is to provide information regarding the title, including all defects, liens, and encumbrances on a property. However, a title commitment is simply a promise to insure a particular state of title. To the extent a title commitment contains information concerning the title, such information is merely provided to give notice of the limitations to the risk that a title insurer is willing to insure.

The Illinois Supreme Court reviewed the record and studied the particular title commitment at issue. It held that a title insurer is not in the business of supplying information when it issues a title commitment or a policy of title insurance. Accordingly, the negligent misrepresentation exception to the Moorman doctrine did not apply. The Court therefore affirmed the trial court™s dismissal with prejudice of First Midwest™s claim for negligent misrepresentation. To the extent that the court™s decision conflicted with that the appellate court™s decision in Notaro Homes, it is overruled.

2. The ten-year statute of limitations for written contracts applies to a lawsuit relating to defendant™s failure to pay for the construction of a new roof rather than the four-year statute of limitations for cases involving the planning and construction of improvements to real property.

The Illinois Appellate Court, Second District, recently held that the four-year statute of limitations for matters relating to construction on real property only applies to acts or omissions relating to construction and does not apply to a breach of contract claim for failure to pay a bill for construction. Prate Installations, Inc. v. Thomas, No. 2-05-0534, 2006 Ill.App. LEXIS 30, 2006 WL 197978 (Ill. App. Jan. 24, 2006).

Plaintiff contractor sued homeowner for breach of contract and account stated after the homeowner refused to pay for removal of an existing roof and installation of a new roof. Defendants moved to dismiss plaintiff™s complaint pursuant to 735 ILCS 5/2-619(a)(5), arguing that plaintiff™s complaint was time barred under the 735 ILCS 5/13-214(a), which provides a four-year statute of limitations for actions based upon tort, contract, or otherwise against any person in the design, planning, supervision, observation, or management of construction of an improvement to real property. In opposing the motion, plaintiff asserted that the ten-year statute of limitations for actions on bonds, promissory notes, bills of exchange, written leases, written contracts, or other evidence of indebtedness in writing contained in 735 ILCS 5/13-206 applied.

The trial court granted defendant™s motion after finding that the four-year statute of limitations relating to improvements to real property applied. However, the appellate court reversed, holding that the construction statute (735 ILCS 5/13/214(a)) was enacted to protect a party that engages in construction. Since defendant did not engage in any act or omission relating to construction of real property, he was not entitled to the protection provided in that statute. The court determined that defendant was being sued for the alleged failure to pay a bill rather than for an act or omission in the construction of an improvement to property; therefore, the statute of limitation relating to contracts (735 ILCS 5/13-206) applied.

3. The Illinois Supreme Court rejects void ab initio doctrine as it relates to the statute of repose for legal malpractice claim.

The Illinois Supreme Court recently held that the unconditional six-year statute of repose established by public act and declared unconstitutional was reasonably relied upon by plaintiff and, therefore, her legal malpractice action should be allowed to go forward based upon principles of equity. Perlstein v. Wolk, No. 98909, 2006 Ill. LEXIS 315, 2006 WL 355176 (Ill. Feb. 17, 2006).

Plaintiff filed a legal malpractice action against defendants alleging that the defendant attorney and law firm committed malpractice when they improperly prepared plaintiff™s husband™s last will and testament preventing the deceased™s trust from disbursing $300,000 to plaintiff™s son. Relying on the unconditional six-year statute of repose for legal malpractice actions created in Public Act 89--7, plaintiff filed her malpractice action against defendants within six years from the date of defendants™ preparation of her husband™s will.

After Best v. Taylor Machine Works, 179 Ill.2d 367, 689 N.E.2d 1057, 228 Ill.Dec. 636 (1997), declared Public Act 89--7 unconstitutional, defendants filed a motion to dismiss plaintiff™s complaint arguing that in light of the Best ruling, the unconditional six-year statute of repose was void ab initio. According to defendants™ argument, the six-year statute of repose never was and, therefore, the exception to the statute of repose in section 13”214.3(d), which Public Act 89--7 sought to remove, never ceased to have validity. The trial court granted defendants™ motion based on the void ab initio doctrine. The appellate court reversed and the Illinois Supreme Court affirmed the appellate court™s decision.

The Illinois Supreme Court rejected the void ab initio doctrine, which requires that if a statute is declared unconstitutional, the statute is eliminated entirely from consideration of a case and does not take into account the reliance upon the statute while it was in effect. Instead, the court adopted an equitable approach, which permits plaintiff to rely on the statute of repose because it was presumptively valid prior to Best, and because plaintiff filed her action within a reasonable time after Best was decided. Consequently, plaintiff was permitted to pursue her legal malpractice action against defendants.

4. The Illinois Supreme Court holds that the site of contract for hire is the exclusive test for determining the applicability of the Workers™ Compensation Act to an employment injury sustained by a worker outside the state.

The Illinois Supreme Court recently held that the place of the contract for hire is the sole determining factor for the existence of jurisdiction over employment injuries occurring outside the state. Mahoney v. Industrial Commission, No. 100239, 2006 Ill. LEXIS 13, 2006 WL 141524 (Ill. Jan. 20, 2006).

The claimant Mahoney was hired by United Airlines in 1969 to work in Chicago. In 1993, he voluntarily transferred to Orlando, Florida, where he was working at the time of his alleged work-related injuries in 1999 and 2001. At the time of the injuries, the claimant resided, worked, received medical treatment, and paid taxes in Orlando. However, he filed an application for workers™ compensation benefits for both of his injuries in Illinois.

The arbitrator found no Illinois jurisdiction because neither the accident nor the medical treatment occurred in Illinois and the claimant voluntarily transferred to Florida for personal reasons several years before the injuries. The Illinois Industrial Commission affirmed and adopted the arbitrator™s decision, and the circuit court confirmed the Commission™s decision. The appellate court reversed, finding that the plain language of the Workers™ Compensation Act clearly states that the site of the contract for hire is the exclusive test for determining the applicability of the act to persons whose employment is outside Illinois where the contract for hire is made in Illinois.

The Illinois Supreme Court affirmed the decision of the appeals court. The court recognized that the plain, unambiguous language of section 1(b)(2) confers jurisdiction to the Commission over injuries occurring outside Illinois when the contract for hire is made within Illinois. As long as the initial contract remains in force, the Commission retains jurisdiction. The section does not speak to lapse of time, failure to maintain significant contacts, or voluntariness of transfers, and imposes no requirement other than the existence of an employment contract in the state. Accordingly, the Illinois Supreme Court held that the place of the contract for hire is the sole determining factor for the existence of jurisdiction over employment injuries occurring outside the state. Since the claimant™s original contract for hire was still in effect when he was injured in Florida, he was entitled to pursue his claims in Illinois.

5. The Illinois Appellate Court affirms circuit court™s order granting summary judgment in favor of defendants in a personal injury case based on the claim being barred by the Snow and Ice Removal Act.

The Illinois Appellate Court, Third District, recently affirmed a circuit court™s order granting summary judgment in favor of defendants based on the claim being barred by the Snow and Ice Removal Act. Bremer v. Leisure Acres-Phase II Housing Corp., No. 3-05-0112, 2006 Ill.App. LEXIS 7, 2006 WL 120358 (Ill. App. January 12, 2006).

Plaintiff brought a negligence action against an apartment owner and operator alleging that she slipped and fell on a patch of ice outside her apartment. Plaintiff alleged that defendants failed to properly remove ice from the sidewalk surface after assuming the duty to do so. Defendants moved for summary judgment on the basis that plaintiff™s claim was barred by the Snow and Ice Removal Act (Act) (745 ILCS 75/1 et seq.). The trial court granted the motion and the appeals court affirmed.

Plaintiff argued that the Act only barred claims for negligence that occurred on a sidewalk and she fell on a walkway. The appellate court recognized that the term sidewalk is defined as œa walk for foot passengers usu[ally] at the side of a street or roadway: a foot pavement. The court held that that absent a clear distinction that limits the term sidewalk, the word must be afforded its plain and ordinary meaning.

Plaintiff also argued that the legislature intended to provide limited immunity to snow and ice removal because the term abutting the property means that the sidewalk must be a public sidewalk that borders the residential property and does not apply to walkways located entirely within private property. However, the appellate court determined that the Act does not require that the walkway abut public property or lie along the border of the residential property. The court recognized that the ordinary and plain meaning of residential property encompasses the land on which a house or dwelling place has been erected or attached. Thus, the clear language of the statute applies to any sidewalk that reaches or touches the residence, or that borders the residential property in general. The court concluded that the sidewalk at issue borders or abuts the residence. Therefore, the Act applied to the walkway upon which plaintiff fell. The court recognized that its decision facilitates the legislative intent to promote snow removal from such walkways and provide immunity for property owners.

6. The Contribution Act barred plaintiff™s third-party contribution complaint because it was not asserted in the original pending action.

A recent Illinois Supreme Court decision held that plaintiffs, who were denied leave to file a third-party contribution complaint in the original federal action in which they were defendants, were barred the from bringing a separate contribution claim in Illinois court because the Contribution Act required that the contribution claim be asserted in the pending action. Harshman v. DePhillips, No. 99805, 2006 Ill. LEXIS 316 (Ill. Feb. 17, 2006).

Appellants Clinton Harshman, Blachowske Truck Lines, Inc., and Dahl Trucking, Inc., were sued for negligence in the United States District Court for the Northern District of Indiana. A federal magistrate judge denied them leave to file a third-party complaint against Appellee Dr. George E. DePhillips. Appellants argued to the magistrate that refusing to permit them to file their contribution claim in the pending federal action would bar them from bringing the contribution claim in a separate action, pursuant to the Illinois Supreme Court™s interpretation of the Joint Tortfeasor Contribution Act in Laue v. Leifheit, 105 Ill.2d 191, 473 N.E.2d 939 (1984). The federal magistrate judge concluded, however, that Laue was abrogated by statute when the Contribution Act was amended in 1995. According to the magistrate, under current Illinois law, a contribution claim may be brought in a separate action even if it is not filed while the original action is still pending.

Appellants did not ask the magistrate to reconsider his denial of their motion, nor did they seek review of the magistrate™s decision by a federal district judge. Rather, on March 20, 2001, they filed a separate contribution action against the Appellee in the Cook County Circuit Court. On January 6, 2003, the Appellee filed a Section 2-619 motion to dismiss Appellants™ contribution action. The circuit court denied the motion to dismiss, but certified for interlocutory review the following issue: May a contribution claim be brought in accordance with Illinois law in a separate proceeding if the party first attempted to bring the claim in the original proceedings in a separate jurisdiction and was denied leave by that court to file said contribution claim?

The appellate court, citing Laue, answered the certified question in the negative. The Illinois Supreme Court allowed the appeal of the appellate court™s decision, and the court addressed a single issue: whether the Contribution Act barred the plaintiffs from bringing their contribution claim because they did not assert the claim in the original action. Because the matter involved statutory interpretation, the court reviewed the issue de novo.

The Appellants did not argue that Laue should be overruled. Instead, they claimed: (1) that while the statutory language of the Contribution Act (as interpreted by Laue) requires a party to assert its contribution claim in the original action, it does not require that the claim actually proceed™ in the original action; and (2) that judicial economy and fundamental fairness required that the court recognize an exception in these circumstances to the requirement that a contribution claim must be asserted in the original action.

The court rejected both of Appellants™ arguments. Section 5 of the Contribution Act states that a cause of action for contribution among joint tortfeasors may be asserted by a separate action before or after payment, by counterclaim or by third-party complaint in a pending action. 740 ILCS 100/5. The court held that by merely requesting the Indiana federal court for leave to file a third-party contribution complaint, Appellants did not assert the claim in a pending action, as the statute requires. The court reasoned that when a third-party complaint is not filed because a court denies a defendant leave to file, the defendant cannot be said to have asserted a claim by third-party complaint. Appellants™ argument that Section 5 does not expressly provide that a contribution claim actually proceed in the original action was thus immaterial.

The court also held that in these circumstances, judicial economy and fundamental fairness did not require that an exception to Laue be recognized. The court found significant the fact that the Appellants did not ask the magistrate to reconsider his decision, and that they did not seek to have the decision reviewed by a federal district judge. This was particularly detrimental to the Appellants argument, in the Court™s view, in light of the magistrate™s obvious misstatement of Illinois contribution law. As a result, the Illinois Supreme Court affirmed the appellate decision.

Judge Karmeier filed a dissenting opinion, in which he stated that while the public policy reasoning in Laue was unquestionably sound, that case™s statutory analysis was open to question. As a result, Judge Karmeier believed that Laue is of dubious validity and should be overruled.