Harleysville Ins. Co. v. Mohr Architecture, Inc.

2021 IL App (1st) 192427

198 N.E.3d 1038

459 Ill.Dec. 661

HARLEYSVILLE INSURANCE CO., as Subrogee of Navigant Development, LLC, Plaintiff-Appellant,

v.MOHR ARCHITECTURE, INC.; Fox Valley Engineering, Inc., n/k/a Fox Valley OCD, Inc.; Bramco Construction Company; Campbell Truss, Inc.; Arch-H, LLC; and Advance Consulting Group International, Defendants-Appellees.

No. 1-19-2427

Appellate Court of Illinois, First District, Second Division.

Filed April 27, 2021

Stuart M. Brody and Bradley M. Hamblock, of Thompson Brody & Kaplan, LLP, of Chicago, for appellant.

Thomas G. Cronin and Brian H. Myers, of Gordon Rees Scully Mansukhani, LLP, of Chicago, for appellee Mohr Architecture, Inc.

Omar Odland and Christopher Zann, of Cincinnati Insurance Company Staff Defense, of Chicago, for appellee Bramco Construction Company.

Hillary L. Weigle and Ellen L. Green, of SmithAmundsen LLC, of Chicago, for appellee Campbell Truss, Inc.

Newton C. Marshall, Douglas R. Garmager, and Michelle M. Blum, of Karbal, Cohen, Economou, Silk & Dunne, LLC, of Chicago, for appellee Arch-H, LLC.

Thomas B. Orlando, Douglas J. Palandech, and Joel B. Daniel, of Foran Glennon Palandech Ponzi & Rudloff PC, of Chicago, for appellee Advance Consulting Group International.

No brief filed for other appellee.

JUSTICE LAVIN delivered the judgment of the court, with opinion.

¶ 1 Navigant Development, LLC (Navigant), owned a restaurant property at 1419 N. Wells Street in Chicago (the property). After two separate tenants completed two separate renovations at the property, defects surfaced with respect to the trusses supporting the property's ceiling. Harleysville Insurance Co. (Harleysville), Navigant's insurer, paid Navigant for repairs and lost rent. Harleysville, as Navigant's subrogee, then brought this action against various contractors and subcontractors involved in the two renovation projects, alleging multiple counts of breach of contract and negligence.

¶ 2 Ultimately, the circuit court granted several defendants’ motions to dismiss and one defendant's motion for summary judgment, finding that Navigant was not an intended third-party beneficiary to contracts between its tenants, contractors, and subcontractors. Consequently, Harleysville could not bring breach of contract claims based on those contracts. Additionally, the economic loss doctrine barred Harleysville's negligence claims. In this interlocutory appeal, Harleysville maintains that Navigant was an intended third-party beneficiary of the contracts at issue and that the economic loss doctrine does not apply. For the following reasons, we affirm the court's judgment.

¶ 3 I. Background

¶ 4 A. Renovation From 2008-09

¶ 5 From about 2008 to 2009, Old Town Entertainment, LLC (Old Town), Navigant's tenant, renovated the property to operate a restaurant and bar called 33 Club.¹ Old Town hired Mohr Architecture, Inc. (Mohr), to design and prepare the renovation plans. In turn, Mohr hired Fox Valley Engineering, Inc., now known as Fox Valley OCD, Inc. (Fox), to perform the engineering work. Old Town also hired Campbell Truss, Inc. (CTI), to maintain and repair trusses during the renovation. According to Harleysville, these entities knew that Navigant owned the property, and Old Town was required to submit all proposed work to Navigant and/or Anthony Tomaska for approval before work commenced. Tomaska was Navigant's sole member and manager as well as a member of Old Town.

¶ 6 B. Renovation From 2011-12

¶ 7 In October 2011, Navigant leased the property to Bottleneck Wells, LLC (Bottleneck), which planned to renovate the property to operate a restaurant called the Old Town Pour House (Pour House). Bottleneck hired Bramco Construction Company (Bramco) to be the general contractor and Arch-H, LLC (Arch-H), to provide architectural design services. In turn, Arch-H hired Advance Consulting Group International (Advance) to provide engineering and design specifications. Additionally, Bottleneck's lease required it to submit all proposed alterations to Navigant for approval.

¶ 8 C. 2016 Damage Discovery

¶ 9 In 2016, Navigant or Bottleneck discovered that the property's ceiling was sagging and damaged in places. Further investigation revealed that several trusses supporting the roof and ceiling were bowed, cracked, or damaged. Harleysville then paid Navigant approximately $870,000 for damages to the trusses and lost rent. Harleysville claims that improper work during either or both of the renovations damaged the trusses.

¶ 10 D. Litigation

¶ 11 Harleysville, as Navigant's subrogee, filed this action in August 2018, naming as defendants the entities involved in the two renovations. Old Town and Bottleneck, however, are not parties to this litigation. In January 2019, Harleysville filed an amended complaint, alleging that Navigant was an intended third-party beneficiary of the renovation contracts and that defendants breached those contracts. According to Harleysville, Navigant was an intended third-party beneficiary because defendants knew the work was to be performed at a property owned by Navigant. Harleysville further argued that defendants’ negligence with respect to the trusswork damaged the trusses.

¶ 12 Harleysville attached to its amended complaint the tenants’ respective agreements with Mohr, Bramco, CTI, and Arch-H, which we will later address in further detail. Harleysville did not attach, however, any contract involving Advance or Fox. Additionally, Harleysville did not attach Navigant's lease agreements with Old Town and Bottleneck.

¶ 13 Advance filed an answer and affirmative defenses, denying that (1) it knew Navigant owned the property, (2) it knew Navigant would benefit from Advance's work, (3) Navigant was an intended third-party beneficiary, and (4) it had a duty to prevent harm to Navigant. Advance also argued that Navigant claimed only economic loss and, thus, the economic loss doctrine barred Harleysville's negligence claim. Advance later filed a motion for summary judgment, attaching an affidavit from its owner. According to the affidavit, Advance and Arch-H engaged in a series of e-mails, which led Advance to work at the property. Advance never entered into an agreement with Navigant or Bottleneck, however. The e-mails attached to the affidavit did not mention those entities.

¶ 14 CTI filed a combined motion to dismiss the counts against it. 735 ILCS 5/2-619.1 (West 2018). Similar to Advance, CTI argued that Navigant was not an intended third-party beneficiary to CTI's contract with Old Town and the economic loss doctrine precluded Harleysville's negligence claim. Mohr and Bramco then filed their own combined motions to dismiss, raising similar defects. Additionally, Arch-H moved to dismiss the breach of contract count against it under section 2-615 of the Code of Civil Procedure (id. § 2-615), arguing that Navigant was not an intended third-party beneficiary to its contract, and Fox moved to dismiss the negligence claim against it under section 2-615, arguing the claim was barred by the economic loss doctrine.

¶ 15 In response to defendants’ motions, Harleysville argued that Navigant was an intended third-party beneficiary of defendants’ contracts because they knew that Navigant, rather than Old Town or Bottleneck, owned the property where work was to be completed, and "that Navigant would be, in part, a party benefitting from and enjoying the fruits of their work." Additionally, Navigant's leases with its tenants included plans for renovation and required the tenants to submit proposed alterations to Navigant for approval.

¶ 16 Harleysville further argued that the economic loss doctrine did not preclude Harleysville's negligence claims because "this is not a case of an unsatisfied customer nor the case of merely a defective product, but rather the case of property damage, and other property damage that extends well beyond just the work previously performed by the Defendants." We note that the amended complaint did not allege property damage beyond the trusses, which were subjects of both renovation projects. Additionally, Harleysville argued that Navigant's damages reflected physical injury resulting from a sudden and calamitous event, satisfying an exception to the economic loss doctrine. See Fireman's Fund Insurance Co. v. SEC Donohue, Inc. , 176 Ill. 2d 160, 165, 223 Ill.Dec. 424, 679 N.E.2d 1197 (1997). Harleysville's attachments to the response included Bottleneck's lease with Navigant.

¶ 17 On June 28, 2019, the circuit court granted defendants’ motions with prejudice. The court found that the sudden and calamitous event exception to the economic loss doctrine did not apply, as the amended complaint alleged only that the trusses bowed and cracked over a period of eight years. In re Chicago Flood Litigation , 176 Ill. 2d 179, 200-01, 223 Ill.Dec. 532, 680 N.E.2d 265 (1997) (stating that gradual deterioration is insufficient to satisfy this exception); Westfield Insurance Co. v. Birkey's Farm Store, Inc. , 399 Ill. App. 3d 219, 232, 338 Ill.Dec. 705, 924 N.E.2d 1231 (2010) (recognizing that this exception requires damage to property other than the property that is the subject of the contract). Additionally, Navigant was not an intended third-party beneficiary to the renovation contracts. Even if defendants knew Navigant owned the property, it did not follow that they intended to benefit Navigant. Furthermore, Mohr's contract and CTI's contract with Old Town did not mention Navigant. Similarly, Bramco's contract and Advance's contract contained no affirmative statement showing an intent to benefit Navigant. Moreover, the contract between Arch-H and Bottleneck explicitly stated that the contract would not create a contractual relationship or cause of action in favor of a third party.

¶ 18 Arch-H subsequently filed a section 2-615 motion to dismiss the negligence claim against it, citing the court's order granting codefendants’ motions. Additionally, Fox moved to dismiss the breach of contract claim against...