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Illinois Appellate Court Broadens Scope Of Anti-Indemnity Act To Protect Illinois Contractors

September 19, 2013Thomas BoylanRelated Practice Areas: Construction

In a decision that benefits construction companies doing business in Illinois, the Illinois Appellate Court recently published a decision broadening the scope of the Illinois Construction Contract for Negligence Act, more commonly known as the Illinois Anti-Indemnity Act. The decision is also a reminder to parties to file all potential causes of action, as the danger of waiting to file related causes of action could subject that party to the costly application of the doctrine of res judicata.

Traditionally, the Anti-Indemnity Act has prohibited a party from contracting for indemnification of its own negligence, when the underlying purpose of the contract was for construction. In other words, contracts for construction that shifted one party’s share of fault completely to another party are violative of the Act and unenforceable. However, other contracts that are generally related to construction have been held to be exempt from the application of the Anti-Indemnity Act. Contracts held to be exempt from the application of the Act have included those involving equipment rentals, manufacture of certain construction products, and delivery of materials to job sites. Many or most of these construction related companies include boilerplate contract language – often on the back of purchase orders – requiring contractors to defend and fully indemnify them for “any and all” negligence, even their own.

This changed earlier this month with the publication of the Illinois Appellate Court’s decision in Camper v. Burnside Construction, 2013 IL App. (1st) 121589.

In Camper, a construction worker brought a personal injury lawsuit against a general contractor and the manufacturer of piping and manholes used on a construction project. The plaintiff, an employee of a plumbing subcontractor, sustained serious personal injuries when he fell down an open manhole that allegedly had been faultily manufactured and installed. The plaintiff asserted negligence and product liability counts against the defendants. Both the general contractor and manhole manufacturer then filed contribution claims against the plumbing subcontractor which employed the plaintiff.

Both the general contractor and subcontractor reached a settlement with the plaintiff, and obtained a good-faith dismissal of the claims asserted against them. The manufacturer of the manhole opposed the settlement and motion for good faith finding. Only the manufacturer was left in the case following this settlement. The plaintiff then voluntarily dismissed his action against the manufacturer, but re-filed the claim 11 months later. The manufacturer then re-filed its suit against the employer, this time alleging not only negligence, but also express indemnification based on a standard indemnity provision contained on the back side of the applicable purchase order, which was prepared in connection with the subcontractor’s purchase of the manholes and related materials. The manufacturer insisted that the employer cover all of the manufacturer’s damages, including its cost of defending the action over several years.

The employer retained Cassiday Schade to defend it in the re-filed action. Cassiday Schade filed a motion to dismiss, arguing among things, for an expansion of the Anti- Indemnity Act and an application of the doctrine of res judicata to bar the indemnification claim. After extensive argument and briefing, the trial court agreed, dismissing the entire case against the employer, which the product manufacturer appealed.

In a unanimous decision, the First District Appellate Court upheld the dismissal, finding that the manufacture, delivery, and unloading of the manhole at the construction site was sufficient evidence that the manufacturer was involved in “other work dealing with construction” and “for…moving… connected therewith [construction].” As such, the Anti-Indemnity Act was triggered, rendering the express indemnity provision in the purchase order unenforceable. This is the first time a reviewing court in Illinois construed this particular language of the Anti- Indemnity Act.

Moreover, the Camper Court held that the manufacturer’s indemnity count was also prohibited by the doctrine of res judicata. The doctrine of res judicata provides that a final judgment on the merits will bar any subsequent action between the same parties or their privies on the same cause of action. Essentially, a party that does not bring all potential causes of action in the same action, will not be allowed to “split claims” and litigate those unfiled actions in a later proceeding. One of the elements that must be satisfied for the doctrine to be invoked is “identity of cause of action” between the claim brought in the first case and the claim brought in the second case.

For the first time in Illinois, a reviewing court expressly found that there was indeed “identity of cause of action” between the manufacturer’s contribution claim in the first case, and the express indemnification claim in the second case. As such, the manufacturer’s express indemnification claim was barred both by the doctrine of res judicata, as well as the Anti-Indemnity Act.

The clear implication of this ruling is that contractors (and other classes of defendants) must now be prepared to take a “Use it or lose it” approach in filing counterclaims against co-defendants or third-party actions against third-party defendants. If a contribution action is filed, any viable breach of contract or express indemnification claim must also be brought, or that contractor stands to “lose it.”

At first glance, this decision may seem to have only a narrow application to these specific facts. However, the import of this case is likely to be much broader. No longer will boilerplate language on the reverse side of purchase orders subject construction companies to the unfair burden of providing indemnification to material suppliers and others. In addition, defense counsel should be prepared to move forward with any and all potential causes of action, including breach of contract or express indemnification claims, as the failure to do so may later cause the defendant to lose those due to the application of res judicata. This particular application of res judicata will have consequences far beyond the construction realm.