Harleysville Insurance Co. v. Mohr Architecture, Inc. ( 2021 )

2021 IL App (1st) 192427No. 1-19-2427
Opinion filed April 27, 2021.
Second Division
IN THE
APPELLATE COURT OF ILLINOIS
FIRST DISTRICT
HARLEYSVILLE INSURANCE CO., as ) Appeal from the
Subrogee of Navigant Development, LLC, ) Circuit Court of
) Cook County.
Plaintiff-Appellant, )
)
v. ) No. 2018 L 008623
)
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, ) The Honorable
) Margaret A. Brennan,
Defendants-Appellees. ) Judge Presiding.
JUSTICE LAVIN delivered the judgment of the court, with opinion.
Justices Pucinski and Cobbs concurred in the judgment and opinion.
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
No. 1-19-2427
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.
1
These facts are taken from Harleysville’s amended complaint or are otherwise undisputed at this
juncture.
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¶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.
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¶ 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
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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 (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 (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 (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
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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 it under section 2-619. Fox argued that it had entered into a
contract with only Mohr, through informal e-mails and an invoice, which were attached to Fox’s
motion. Furthermore, Navigant was not an intended third-party beneficiary of that contract.
¶ 19 Harleysville, however, filed a motion to reconsider the court’s dismissal/summary
judgment order. According to Harleysville, while ownership of a property after the contract’s
formation and execution may be insufficient to render one an intended third-party beneficiary,
ownership of a property at the time of the contract’s formation and execution was sufficient.
Harleysville also argued that it was an intended third-party beneficiary of Bramco’s contract with
Bottleneck because Bramco’s subcontracts named Navigant as an additional insured.
Harleysville attached several agreements between Bramco and its subcontractors.
¶ 20 Harleysville also responded to Arch-H’s motion to dismiss the negligence claim against
it, arguing that the economic loss doctrine did not bar its negligence claim because Arch-H was
in the business of supplying information for the guidance of others. We note that Harleysville has
since abandoned any reliance on that exception. Harleysville further argued, however, that the
doctrine did not apply because defendants owed extracontractual duties to Navigant, the property
owner, and Navigant did not have the opportunity to bargain for Arch-H’s services.
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¶ 21 Defendants responded to the motion for reconsideration, arguing, among other things,
that Harleysville’s motion improperly raised new arguments and that Navigant’s ownership of
the property at the time the contract was formed and executed did not render it an intended third-
party beneficiary.
¶ 22 In reply, Harleysville denied that its motion to reconsider had raised a new argument.
Yet, in the same breath, Harleysville’s reply argued for the first time that if the court sustained
the dismissal of the breach of contract claims, it was required to reinstate the negligence claims.
Specifically, Harleysville reasoned that if there were no commercial dealings between Navigant
and defendants, the economic loss doctrine did not apply. The circuit court subsequently allowed
defendants to file surreplies challenging the reasoning behind Harleysville’s new contention.
¶ 23 On October 29, 2019, the circuit court denied Harleysville’s motion to reconsider and
granted the pending motions to dismiss. The circuit court, on November 19, 2019, found that the
dismissal order, summary judgment order, and denial of reconsideration order were final and
appealable, “there being no just reason for delay of the appeal on the issues contained within
those orders.” Harleysville now appeals.
¶ 24 II. Analysis
¶ 25 On appeal, Harleysville challenges the circuit court’s dismissal orders. Section 2-619.1 of
the Code of Civil Procedure permits a party to move for dismissal under both section 2-615 and
section 2-619. Lutkauskas v. Ricker, 2015 IL 117090, ¶ 29. In addition, a section 2-615 motion
challenges a complaint’s legal sufficiency (Cochran v. Securitas Security Services USA, Inc.,
2017 IL 121200, ¶ 11), while a section 2-619 motion admits the complaint’s legal sufficiency but
raises a defense defeating the complaint (State ex rel. Leibowitz v. Family Vision Care, LLC,
2020 IL 124754, ¶ 31). That being said, a confluence between section 2-615 and section 2-619
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exists when an affirmative matter is apparent from the complaint. O’Callaghan v. Satherlie, 2015
IL App (1st) 142152, ¶ 19.
¶ 26 In reviewing a combined motion to dismiss, we accept all well-pleaded facts in the
complaint as true. Zander v. Carlson, 2020 IL 125691, ¶ 3. Furthermore, we review an order
granting a motion to dismiss de novo. Id. ¶ 18. Consequently, we may affirm the court’s
judgment on any basis in the record. Kucinsky v. Pfister, 2020 IL App (3d) 170719, ¶ 34.
¶ 27 Harleysville also asserts that the circuit court erroneously entered summary judgment in
favor of Advance. Summary judgment is warranted where the pleadings, admissions on file,
depositions and affidavits demonstrate that no genuine issue of material fact exists so that the
movant is entitled to judgment as a matter of law. Lewis v. Lead Industries Ass’n, 2020 IL
124107, ¶ 14. In making this determination, courts construe the pleadings, admissions,
depositions, and affidavits strictly against the movant and liberally in favor of the nonmovant.
Gillespie v. Edmier, 2020 IL 125262, ¶ 9. Like the circuit court’s dismissal orders, we review
summary judgment rulings de novo. Id.¶ 28 Finally, Harleysville challenges the denial of its motion to reconsider. Our standard of
review with respect to such motion depends on whether the motion raised the circuit court’s
misapplication of law, which we review de novo, or raised new facts, arguments, or legal
theories, which we review for an abuse of discretion. Liceaga v. Baez, 2019 IL App (1st)
181170, ¶ 26. Harleysville’s motion to reconsider argued the misapplication of law but also
added a new argument. Because the circuit court ruled upon the merits of all of Harleysville’s
contentions, however, we review the denial of that motion de novo, although the result here
would be the same under any standard of review.
¶ 29 A. Breach of Contract
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¶ 30 We begin by addressing the circuit court’s dismissal of Harleysville’s breach of contract
claims. 2 Absent privity of contract, an owner of real property cannot sue a defendant for breach
of contract unless he can show that the contracting parties undertook duties and obligations for
the owner’s direct benefit. Waterford Condominium Ass’n v. Dunbar Corp., 104 Ill. App. 3d 371,
373 (1982). Stated differently, the contracting parties must have intended for the performance of
the contract to directly benefit the third party. Doyle v. Village of Tinley Park, 2018 IL App (1st)
170357, ¶ 33. “[I]f the promisee bargains with the promisor to render a performance directly to a
third party, in nearly every case the promisee will have intended to benefit that third party.” 3
Advanced Concepts Chicago, Inc. v. CDW Corp., 405 Ill. App. 3d 289, 293 (2010). Furthermore,
it is unnecessary for the contract to specifically name the third-party beneficiary, but the contract
must at least define a class of individual beneficiaries that would include the plaintiff. Estate of
Willis v. Kiferbaum Construction Corp., 357 Ill. App. 3d 1002, 1008 (2005).
¶ 31 In contrast, incidental beneficiaries have no contractual rights or standing to enforce a
contract’s terms. Id. at 1007. With respect to construction contracts, it is insufficient for the
contracting parties to merely know, expect, or intend that others will benefit from the
construction. 155 Harbor Drive Condominium Ass’n v. Harbor Point Inc., 209 Ill. App. 3d 631,
646 (1991). It is also insufficient for the contracting parties to know, expect, or intend that a third
party will use the building constructed. Estate of Willis, 357 Ill. App. 3d at 1008; Altevogt v.
Brinkoetter, 85 Ill. 2d 44, 52, 56 (1981) (finding that even if the defendant builder of the house
2
Reviewing courts have addressed whether a party constitutes a third-party beneficiary in the
context of a section 2-619 motion to dismiss, a section 2-615 motion to dismiss, and a motion for
summary judgment. See, e.g., Carlson v. Rehabilitation Institute of Chicago, 2016 IL App (1st) 143853,
¶ 15; Bernstein v. Lind-Waldock & Co., 153 Ill. App. 3d 108, 110 (1987); Federal Insurance Co. v.
Turner Construction Co., 277 Ill. App. 3d 262, 266, 268 (1995).
3
Contrary to Harleysville’s assertion, this rule does not set forth a separate test for instances
where the third-party beneficiary owned the property subject to the contract. Rather, it is an aid to
deciphering the contracting parties’ intent.
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knew that the party with whom he contracted would not be the party to live there, knowledge that
unknown third parties would reside in the house was insufficient to make those third parties
direct beneficiaries). Simply put, building owners cannot enforce contractual terms absent
“specific references to or obligations toward those owners.” 4 Estate of Willis, 357 Ill. App. 3d at
1009; see also Restatement (Second) of Contracts § 302 cmt. e, illus. 19 (1981).
¶ 32 Moreover, a presumption exists that contracting parties did not intend to confer
beneficiary status on a third party, as parties typically enter into contracts for their own benefit.
Doyle, 2018 IL App (1st) 170357, ¶ 33. The plaintiff has the burden of overcoming that
presumption. 155 Harbor Drive Condominium Ass’n, 209 Ill. App. 3d at 647. Additionally,
courts consider the contract’s language “and the circumstances surrounding its execution” to
determine whether the contracting parties intended to benefit a third party. Doyle, 2018 IL App
(1st) 170357, ¶ 33. Yet, the contract itself must make clear that it is undertaken for the plaintiff’s
direct benefit. Waterford Condominium Ass’n, 104 Ill. App. 3d at 373. Liability to a third party
cannot be expanded merely because the circumstances justify or demand further liability. 155
Harbor Drive Condominium Ass’n, 209 Ill. App. 3d at 646.
¶ 33 While Harleysville contends that we are not limited to considering the contract’s
language and may look to external circumstances surrounding the contract’s execution to assess
the contracting parties’ intent, we adhere to the well-settled rule that we may only look outside of
a contract when the contract is ambiguous, an argument that Harleysville has not made with
respect to the contracts at issue here. Mt. Hawley Insurance Co. v. Robinette Demolition, Inc.,
2013 IL App (1st) 112847, ¶ 45; see also Stichter v. Zuidema, 269 Ill. App. 3d 455, 456, 459,
4
Given that Illinois law is well settled, we decline to address decisions from other jurisdictions.
See Nicholson v. Shapiro & Associates, LLC, 2017 IL App (1st) 162551, ¶ 11 (stating that Illinois courts
are not bound by decisions from other jurisdictions).
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461-62 (1995) (finding the circuit court improperly considered extrinsic evidence in determining
whether an unambiguous contract made the plaintiffs third-party beneficiaries). We find that
where a contract is unambiguous, we must consider the circumstances surrounding execution as
discerned from the contract itself. In any event, Harleysville has not identified any circumstances
external to these contracts that would have rendered Navigant an intended third-party beneficiary
thereof.
¶ 34 i. Mohr’s Contract
¶ 35 Harleysville attached to its amended complaint a “project contract,” which took the form
of a letter setting forth the work Mohr proposed to perform. While Harleysville states on appeal
that Old Town hired Mohr, the document was addressed to Tomaska, Jerry Kleiner, and Sam
Madonia at the property’s address. The record does not reveal the connection of Kleiner or
Madonia to the property or the parties. Assuming the contract was entered into with Old Town, it
omitted any reference to Navigant. See 155 Harbor Drive Condominium Ass’n, 209 Ill. App. 3d
at 647 (finding the condo association failed to meet its burden of proving the parties to a
subcontract intended confer a direct benefit upon it where the subcontract did not mention the
association or its members, did not express an intent to directly benefit them, and contained
guarantees that did not mention the unit owners). Mohr’s inclusion of the property’s address does
not otherwise show an intent to benefit the property’s owner. See Wheeling Trust & Savings
Bank v. Tremco Inc., 153 Ill. App. 3d 136, 140-41 (1987) (finding that a purchase order’s
identification of the property owner’s construction location as the place where materials were to
be delivered did not make the owner an intended third-party beneficiary).
¶ 36 Assuming further still that Mohr knew Navigant owned the property, the omission of any
reference to Navigant could very well indicate that Mohr and Old Town intentionally declined to
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make Navigant a third-party beneficiary. Salvi v. Village of Lake Zurich, 2016 IL App (2d)
150249, ¶ 55 (finding that where the contracting parties omitted from the contract any reference
to a third party known to benefit therefrom, the omission was deliberate). At best, Mohr’s
knowledge that Navigant owned the property would make Navigant an incidental beneficiary.
¶ 37 Furthermore, Old Town, not Navigant, was to be the user of the contractual benefit. Old
Town wanted the work done for its own benefit so that it could operate 33 Club. Mohr wanted
the work to be done so Mohr would be paid. Nothing shows that either entity was concerned with
benefiting Navigant. See Midwest Concrete Products Co. v. La Salle National Bank, 94 Ill. App.
3d 394, 397-98 (1981) (finding that the subcontract was entered into entirely in the interest of the
general contractor, who was fulfilling its obligations under the general contract, and the
subcontractor, who thought it would profit from the project; the benefit to the entity occupying
the property involved was incidental).
¶ 38 Harleysville further argues, however, that Mohr and Old Town intended to benefit
Navigant because the contract stated, “Owners to provide preliminary restaurant & kitchen
equipment layout.” While Harleysville assumes “owner” referred to the owner of the property, a
more natural reading is that “owner” referred to the owner of the business with whom Mohr was
contracting, as this provision purported to impose an obligation on the owner. This provision did
not confer any right upon Navigant, call for Mohr to perform the contract directly to Navigant, or
set forth a mechanism for Navigant to enforce the contract. See People ex rel. Resnik v. Curtis &
Davis, Architects & Planners, 78 Ill. 2d 381, 385-86 (1980) (finding the State was an intended
third-party beneficiary of a construction contract to build a prison where, among other things, the
contract required the architect to indemnify the State and hold it harmless); Estate of Willis, 357
Ill. App. 3d at 1009 (finding that, per Resnik, an owner may be a third-party beneficiary of a
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contract where the contract requires subcontractors to consult him and sets forth a method for the
owner may recover); 155 Harbor Drive Condominium Ass’n, 209 Ill. App. 3d at 648 (finding
Resnick to be distinguishable where the subcontracts at hand did “not describe an actual method
by which the Association may recover from the subcontractors”); Village of Fox Lake v. Aetna
Casualty & Surety Co., 178 Ill. App. 3d 887, 911 (1989) (finding that where a statute required
every contractor entering into a construction contract with a public entity to furnish a bond for
work to be completed by a surety absent the contractor’s performance, the public entity was an
intended third-party beneficiary to the contractor’s agreement with the surety).
¶ 39 Harleysville nonetheless argues that Navigant was an intended third-party beneficiary
because Old Town was required to obtain Navigant’s approval of renovation plans. While the
amended complaint never set forth the source of that obligation, a very liberal reading of that
pleading suggests that Old Town’s lease with Navigant imposed this obligation. Harleysville,
however, failed to attach a copy of that lease to its amended complaint or attach it to any other
pleading. See 735 ILCS 5/2-606 (West 2018) (stating that “[i]f a claim or defense is founded
upon a written instrument, a copy thereof *** must be attached to the pleading as an exhibit or
recited therein, unless the pleader attaches to his or her pleading an affidavit stating facts
showing that the instrument is not accessible to him or her”). Even assuming the lease contained
such a requirement, the lease was not incorporated into the Mohr contract and Mohr did not
otherwise contractually promise to submit plans to Navigant for review.
¶ 40 Harleysville has not met its burden or overcome the presumption that Navigant was not
an intended, direct third-party beneficiary. To find otherwise merely because Navigant owned
the property at the time the contract was formed and executed would create the exception that
swallowed the rule. “Logically, an owner will always benefit from any work done on his
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property.” Ball Corp. v. Bohlin Building Corp., 187 Ill. App. 3d 175, 179 (1989). Accordingly,
the circuit court properly dismissed the breach of contract claim against Mohr.
¶ 41 ii. Fox Old Town Contract
¶ 42 For the same reasons, we reject Harleysville’s assertion that Navigant was an intended
third-party beneficiary of the contract between Fox and Mohr merely because Navigant owned
the property at the time the contract was formed and executed. Additionally, the affidavit
submitted by Fox clearly stated that Fox had no relationship with Old Town, let alone Navigant.
The e-mails and invoice forming Fox’s contract with Mohr did not mention Navigant.
Furthermore, we reiterate that Old Town, rather than Navigant, was to be the user of the
renovated property. Accordingly, the circuit court properly dismissed the breach of contract
claim against Fox. 5
¶ 43 iii. Bramco’s Contract
¶ 44 We also reject Harleysville’s assertion that Navigant was an intended third-party
beneficiary of the contract between Bramco and Bottleneck. The “Standard Form of Agreement
Between Owner and Contractor” identified Bottleneck as the owner and required “the owner” to
furnish information to the contractor. Additionally, the contract identified the Pour House as the
project location and set forth the property’s address. The contract did not mention Navigant or
otherwise refer to the owner of the property. Thus, this unambiguous contract did not come
anywhere close to an express declaration of intent, by either Bramco or Bottleneck, to make
Navigant a third-party beneficiary.
5
We reject Harleysville’s contention that we must reinstate this count because Fox Valley has not
filed an appellee brief in this appeal. Because the issues are simple, we can easily decide this matter
without the assistance of Fox’s appellee’s brief. See First Capitol Mortgage Corp. v. Talandis
Construction Corp., 63 Ill. 2d 128, 133 (1976).
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¶ 45 Harleysville nonetheless states that “Bramco expressly incorporated a term in its contract
for the benefit of Navigant, by requiring its subcontractors to name Navigant as an additional
insured on the insurance policies obtained in relation to the work at the subject policy.” Rather
than citing any particular contractual provision in support of the statement, Harleysville cites its
own motion to reconsider. See Ill. S. Ct. R. 341(h)(7) (eff. May 25, 2018) (requiring argument to
be supported by citations to the pages of the record relied on). In any event, the contract between
Bramco and Bottleneck required only that Bramco maintain insurance: it did not require Bramco
to ensure that its subcontractors name Navigant as an additional insured. To the extent that
Harleysville refers to Bramco’s agreements with its subcontractors, rather than the agreement
between Bramco and Bottleneck, Harleysville has not alleged that Bramco or its subcontractors
breached those agreements. Furthermore, Harleysville’s opening brief did not explain how the
subcontracts are relevant to determining Bramco’s intent as to its contract with Bottleneck.
¶ 46 In its reply brief, Harleysville, states that “Bramco expressly incorporated its contracts
with its subcontractors into its contract with Bottleneck.” Yet, Harleysville cites Bramco’s
subcontract with Ameriscan Designs, Inc., not its contract with Bottleneck, once again failing to
support its contention with a citation to the record. Harleysville has also failed to develop this
into a cohesive argument explaining how this would render Navigant an intended beneficiary of
Bramco’s contract with Bottleneck. See also Midwest Concrete Products Co., 94 Ill. App. 3d at
398 (finding that while the subcontract stated it was “ ‘subject to’ ” the terms of the general
contract entered into with the entity that occupied and used the property, that entity was not a
third-party beneficiary of the subcontract). Furthermore, a promise to obtain insurance reflects an
intent to protect the contracting parties from liability, not necessarily an intent to confer a benefit
upon the additional insured. See Estate of Willis, 357 Ill. App. 3d at 1009-10 (finding the
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claimant was not a third-party beneficiary where no contractual language granted the claimant
the right to enforce the subcontracts at issue, notwithstanding that the claimant was named as the
general contractor in the insurance rider).
¶ 47 Harleysville further cites the following language found in Bramco’s subcontracts:
“Subcontractor agrees and acknowledges that Owner is an intended third party
beneficiary of this Subcontract. Subcontractor further agrees and acknowledges that it
shall have no recourse against Owner for any default by Contractor under this
Subcontract other than under applicable mechanics lien law.” (Emphases added.)
Harleysville ignores, however, that the subcontracts clearly identify Bottleneck, rather than
Navigant, as owner.
¶ 48 Finally, even if it were appropriate to examine evidence outside of Bramco’s
unambiguous contract, we reject Harleysville’s assertion that it was an intended third-party
beneficiary of the contract because Bottleneck’s lease required it to obtain approval from
Navigant for alternations. At best, it shows an intent to abstain from harming Navigant or to limit
Bottleneck’s own liability to Navigant. The circuit court properly dismissed this claim.
¶ 49 iv. CTI’s Contract
¶ 50 We are also unpersuaded by Harleysville’s assertion that Navigant was an intended third-
party beneficiary to the contract between CTI and Old Town. The contract did not mention
Navigant or the owner of the property. While the contract refers to Tomaska, it clearly identifies
him as a representative of Old Town, not Navigant. Assuming CTI knew that Navigant owned
the property at the time the contract was formed and executed, we reiterate that this alone falls
short of showing anything near an express intent to make Navigant a third-party beneficiary of
the contract. The circuit court properly dismissed this breach of contract claim as well.
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¶ 51 v. Arch-H’s Contract
¶ 52 Harleysville further failed to show that Navigant was an intended third-party beneficiary
of the agreement between Arch-H and Bottleneck. The agreement did not refer to Navigant. The
agreement identified Bottleneck as “the Owner” and did not otherwise refer to the owner of the
property. Additionally, the agreement did not purport to confer any rights upon Navigant or
provide a means for it to enforce any rights. See 155 Harbor Drive Condominium Ass’n, 209 Ill.
App. 3d at 648. Furthermore, Bottleneck, rather than Navigant, was the recipient of Arch-H’s
performance.
¶ 53 Moreover, section 10.5 of the agreement explicitly and unambiguously stated that
“Nothing contained in the Agreement shall create a contractual relationship with or a cause of
action in favor of a third party against either the Owner or Architect.” See Barry v. St. Mary’s
Hospital Decatur, 2016 IL App (4th) 150961, ¶¶ 83-84 (finding the plaintiff was not a third-
party beneficiary where the contract explicitly named one third-party beneficiary and disavowed
the parties’ liability to any other third parties); Ball Corp., 187 Ill. App. 3d at 178 (finding no
third-party beneficiary was intended where the contract stated that “ ‘[n]othing contained in the
contract documents shall create any contractual relation between any subcontractor and the
Owner’ ”). In light of this provision, we find Harleysville’s position to be disingenuous.
¶ 54 Finally, Arch-H’s contract with Bottleneck did not incorporate Bottleneck’s lease with
Navigant. Thus, the lease, which required Bottleneck to submit proposed alterations to Navigant
or Tomaska for review and approval, has no bearing on this issue. The circuit court properly
dismissed this claim.
¶ 55 vi. Advance’s Contract
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¶ 56 We further reject Harleysville’s contention that a genuine issue of material fact exists as
to whether Navigant was an intended third-party beneficiary of Advance’s contract with
Bottleneck, precluding summary judgment. Contrary to Harleysville’s assertion, the record does
not show that Advance had a contract with Bottleneck. Rather, Advance was a subcontractor of
Arch-H. To the extent Harleysville believes that Navigant was an intended third-party
beneficiary of that contract, Harleysville’s contention is forfeited, as its opening brief did not
make this argument. See Ill. S. Ct. R. 341(h)(7) (eff. May 25, 2018).
¶ 57 Forfeiture aside, the argument is meritless. The e-mails comprising Advance’s contract
with Arch-H did not mention Navigant. We reiterate that even if Advance knew Navigant owned
the property, this alone was insufficient to overcome the presumption that Navigant was not an
intended third-party beneficiary of the contract. Accordingly, the circuit court properly entered
summary judgment in Advance’s favor.
¶ 58 B. The Economic Loss Doctrine
¶ 59 Next, we find the circuit court properly ruled in favor of defendants with respect to
Harleysville’s negligence claims.
¶ 60 The economic loss doctrine denies a tort remedy for those whose complaint is rooted in
the disappointment of commercial or contractual expectations. Sienna Court Condominium Ass’n
v. Champion Aluminum Corp., 2018 IL 122022, ¶ 21. Under that doctrine, a plaintiff cannot
recover in tort for solely economic loss. Id. Economic losses are damages for inadequate value,
the cost of repairing or replacing a defective product, or resulting lost profits, excluding any
claim for personal injury or damage to other property. Scott & Fetzer Co. v. Montgomery Ward
& Co., 112 Ill. 2d 378, 387 (1986). The doctrine also extends defective services. Congregation of
the Passion, Holy Cross Province v. Touche Ross & Co., 159 Ill. 2d 137, 160 (1994).
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¶ 61 Much has been said with respect to the policies behind the economic loss doctrine. The
doctrine recognizes that the economic losses of one event are virtually limitless and “avoids the
consequences of open-ended tort liability.” In re Chicago Flood Litigation, 176 Ill. 2d at 198. A
qualitative defect and harm relating to a consumer’s expectations as to a product’s quality and
fitness for ordinary use is addressed by contract law. Scott & Fetzer Co., 112 Ill. 2d at 387-88.
Additionally, a service provider and their client have an important interest in defining the terms
of its relationship before finalizing an agreement. Congregation of the Passion, Holy Cross
Province, 159 Ill. 2d at 161. As our supreme court has recognized, subcontractors depend on
their contacts with general contractors to define their risks and liability exposure, which in turn
impacts the fees they set in their contracts. Sienna Court Condominium Ass’n, 2018 IL 122022,
¶ 24. Furthermore, the doctrine applies even where the plaintiff is unable to recover in contract.
Congregation of the Passion, Holy Cross Province, 159 Ill. 2d at 160-61; Anderson Electric, Inc.
v. Ledbetter Erection Corp., 115 Ill. 2d 146, 150, 153 (1986); see also Sienna Court
Condominium Ass’n, 2018 IL 122022, ¶ 21 (stating that an action for economic loss generally
requires the plaintiff and the defendant to be in contractual privity).
¶ 62 The economic loss doctrine also seeks to define the contours of duty. 2314 Lincoln Park
West Condominium Ass’n v. Mann, Gin, Ebel & Frazier, Ltd., 136 Ill. 2d 302, 315 (1990).
Specifically, recovery in tort for purely economic loss is precluded where a service provider’s
duties are defined by contract. Sienna Court Condominium Ass’n, 2018 IL 122022, ¶ 24.
Conversely, the doctrine does not bar recovery in tort where a defendant breaches a duty that
existed independently of a contract. Congregation of the Passion, Holy Cross Province, 159 Ill.
2d at 164. Yet, courts have frequently applied the economic loss rule in construction cases.
Sienna Court Condominium Ass’n, 2018 IL 122022, ¶ 21; see, e.g., 2314 Lincoln Park West
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Condominium Ass’n, 136 Ill. 2d at 316-17 (finding “the plaintiff’s theory that the defendant
architectural firm was negligent in its design of the structure” concerned the quality, rather than
the safety, of the building and consequently was more appropriately resolved through contract
law); Fireman’s Fund Insurance Co., 176 Ill. 2d at 161 (holding that the economic loss doctrine
prohibits a tort action against an engineer for purely economic losses). Latent construction
defects that cause solely economic damages are not properly raised in a negligence claim.
Foxcroft Townhome Owners Ass’n v. Hoffman Rosner Corp., 96 Ill. 2d 150, 156 (1983).
¶ 63 Here, Harleysville’s negligence claims, as alleged in the amended complaint, were clearly
based on commercial expectations. Those claims expressly relied on the duties defined by
defendants’ contracts. Additionally, Navigant and Harleysville were disappointed that
defendants’ work did not live up to commercial expectations, notwithstanding that Navigant was
a stranger to the contracts. Furthermore, Harleysville sought damages for repairs to trusses that
were subject to the contracts as well as lost rent. These damages are the epitome of economic
loss. Moreover, we note that just as defendants defined their liabilities and rights through
contract, Navigant had the same ability with respect to its lease agreements. Navigant could have
negotiated for a term requiring its tenants to ensure that Navigant had express contractual rights
in any renovation contracts they might enter into. Thus, we find that the economic loss doctrine
barred Harleysville’s claims.
¶ 64 Harleysville has wisely abandoned its reliance on the sudden and calamitous occurrence
exception to the economic loss doctrine. See also Hecktman v. Pacific Indemnity Co., 2016 IL
App (1st) 151459, ¶ 18 (finding that the plaintiffs failed to allege a sudden, dangerous, or
calamitous event and that their complaint instead alleged that their floors displayed damage over
a period of time). Yet, Harleysville maintains that the damages sought cannot reflect
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disappointed commercial expectations because Navigant did not directly negotiate with
defendants. Once again, Harleysville’s inability to succeed in contract does not preclude
application of the doctrine. See Congregation of the Passion, Holy Cross Province, 159 Ill. 2d at
160-61; Anderson Electric, Inc., 115 Ill. 2d at 150, 153. But see Ferentchak v. Village of
Frankfort, 121 Ill. App. 3d 599, 606 (1984) (stating that the economic loss doctrine applies
where the plaintiff’s injuries directly relate to reasonable commercial expectations and the
plaintiff has an adequate contract action against the defendant), rev’d in part on other grounds,
105 Ill. 2d 474 (1985); Scott & Fetzer Co. v. Montgomery Ward & Co., 129 Ill. App. 3d 1011,
1017 (1984) (finding that the doctrine did not bar the warehouse tenants’ recovery for fire
damage because there were no commercial dealings between those tenants and the defendant
who installed the fire alarm system in the space adjacent to them), aff’d on other grounds by 112
Ill. 2d at 388 (finding the economic loss doctrine did not apply because the plaintiff’s sought
damages for the loss of property other than the defective product and the loss resulted from a
sudden and dangerous event). Moreover, Navigant’s lack of negotiation with these defendants
demonstrates why the rule should apply.
¶ 65 These defendants negotiated with Navigant’s tenants, or each other, to define their rights
and duties under their respective contracts. These negotiations informed defendants’ assessment
of liability and their fees. Because Navigant has suffered only economic loss, it would be
inappropriate to subject defendants to liability beyond the terms of their contracts. Had someone
been hurt in this case, or had Navigant sustained other property damage, the same could not be
said. We take the case as we find it, however. See also 2314 Lincoln Park West Condominium
Ass’n, 136 Ill. 2d at 317 (stating that “if the purchaser buys goods which turn out to be below its
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expectations, its remedy should be against the person from whom it bought the goods, based
upon the contract with that person”).
¶ 66 Harleysville’s opening brief further represents that defendants had a duty to Navigant
independent of defendants’ contracts because Navigant owned the property where defendants
performed their work. That brief fails to explain how the status of one party created a
relationship between two or why such relationship would create an independent duty in tort.
¶ 67 In its reply brief, Harleysville argues that defendants entered into a voluntary
undertaking, thereby creating a duty per section 324A of the Restatement (Second) of Torts
(Restatement (Second) of Torts § 324A (1965)). This contention is entirely forfeited. None of
Harleysville’s prior pleadings in the circuit court or this court raised duty based on a voluntary
undertaking. Moreover, section 324A does not apply to these facts:
“One who undertakes, gratuitously or for consideration, to render services to
another which he should recognize as necessary for the protection of a third person or his
things, is subject to liability to the third person for physical harm resulting from his
failure to exercise reasonable care to protect his undertaking, if
(a) his failure to exercise reasonable care increases the risk of such harm, or
(b) he has undertaken to perform a duty owed by the other to the third person, or
(c) the harm is suffered because of reliance of the other or the third person upon
the undertaking.” (Emphasis added.) Restatement (Second) of Torts § 324A (1965).
¶ 68 Here, defendants had no reason to know that their services were “necessary for the
protection of a third person or his things.” This is because defendants entered into contracts to
renovate a restaurant and their services were not necessary to protect anyone or anything. See.
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No. 1-19-2427
Scott & Fetzer Co., 112 Ill. 2d at 388 (finding the economic loss doctrine did not apply where the
defendant supplied a defective fire alarm system).
¶ 69 Having determined that the economic loss doctrine barred Harleysville’s negligence
claims, we find that the circuit court properly entered judgment in favor of defendants.
¶ 70 III. Conclusion
¶ 71 Navigant was not an intended third-party beneficiary of defendants’ contracts. It follows
that the circuit court properly entered judgment in defendants’ favor on Harleysville’s breach of
contract claims. Additionally, the economic loss doctrine precluded Harleysville’s negligence
claims seeking the recovery of purely economic loss. In light of our determination, we need not
consider the parties’ remaining contentions.
¶ 72 For the foregoing reasons, we affirm the circuit court’s judgment.
¶ 73 Affirmed.
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No. 1-19-2427
No. 1-19-2427
Cite as: Harleysville Insurance Co. v. Mohr Architecture, Inc., 2021 IL
App (1st) 192427Decision Under Review: Appeal from the Circuit Court of Cook County, No. 2018-L-
008623; the Hon. Margaret A. Brennan, Judge, presiding.
Attorneys Stuart M. Brody and Bradley M. Hamblock, of Thompson Brody
for & Kaplan, LLP, of Chicago, for appellant.
Appellant:
Attorneys Thomas G. Cronin and Brian H. Myers, of Gordon Rees
for Scully Mansukhani, LLP, of Chicago, for appellee Mohr
Appellee: 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.
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