2018 Year in Review: Recent Midwest Legal Decisions Impacting Real Estate and Construction Law

2018 Year in Review: Recent
Midwest Legal Decisions Impacting
Real Estate and Construction Law
Quarles & Brady
February 27, 2019

Mechanics Liens
Presented by Charles Harper

Illinois Mechanics Liens
An interior designer walks into a county recorder's office in
Illinois with a mechanics lien...
...is this a valid lien?

Can you expunge that old lien on residential property?

Home Repair and Remodeling Act Consumer Rights Brochure
Now Must Include Explanation of Sworn Statements and Lien
Waivers.

Iowa Mechanics Liens
Repealed Anti-Collateral Statute
Amended Mechanics Lien Law and Public Project Law

Missouri Mechanics Liens
Six-month limitation to commence lien action is determined
when the petition is filed even if a summons is not issued.

Ohio Mechanics Liens
Held: Proof of the value of the material and
labor provided is required to support a lien.

Statues of Limitation and Repose
Presented by Coree Neumeyer

Statute of Limitation vs. Statute of Repose
Statute of limitations sets a lawsuit-filing time limit based on when the
potential plaintiff suffered harm.
Discovery Rule Often (but not always) Applies
Statute of repose sets a deadline based on the mere passage of time or
the occurrence of a certain event that doesn't itself cause harm or give
rise to a potential lawsuit.
Discovery Rule Rarely Applies.

Iowa Case Law Development
The Iowa Supreme Court holds that Iowa Code § 614.1(6), pertaining to judgments, is a
statute of limitations, not a statute of repose, and that the limitations period within that
provision runs from the date the cause of action accrues.

Iowa Code § 614.1(6)
Actions may be brought within the times herein limited, respectively, after
their causes accrue, and not afterwards, except when otherwise specially
declared:
. . .
6. Judgments of courts of record. Those founded on a judgment of a court
of record, whether of this or of any other of the United States, or of the
federal courts of the United States, within twenty years, except that a time
period limitation shall not apply to an action to recover a judgment for child
support, spousal support, or a judgment of distribution of marital assets
(emphasis added).

Dakota, Minnesota, & Eastern Railroad v. Iowa District Court
Iowa Supreme Court – 898 N.W.2d 127 (2017)
• Issue: whether a 1977 judgment granting an injunction against the former owner of a railroad right-of-
way was enforceable almost forty years later against a subsequent purchaser.
• Held: a contempt proceeding to enforce a 1977 injunction was barred by the statute of limitations set
forth in Iowa Code section 614.1(6).
• Rationale:
• Plaintiff's application for order to show cause filed in February 2013 was an action seeking enforcement of the judgment
entered in 1977.
• Because Plaintiff was seeking to enforce a judgment, the action was subject to the 20-year statute of limitations on
enforcement of judgments under Iowa Code § 614.1(6).
• Because the 1977 judgment was not renewed, it expired in 1997.
• Thus, the contempt proceeding initiated in 2013 against the subsequent owner was time-barred.

TSB Holdings, LLC vs. Board of Adjustment for City of Iowa City
Iowa Supreme Court – 913 N.W.2d 1 (2018)
• Issue: whether plaintiff's claims against the City and the Board of Adjustment for violation of an 1987
remand order were barred by the 20-year statute of limitations in Iowa Code § 614.1(6).
• Held: overruling Dakota, Minnesota & Eastern Railroad v. Iowa Dist. Ct., 898 N.W.2d 127 (2017), the
limitations period in Iowa Code § 614.1(6) runs from the date the cause of action accrues, which in the
case of an injunction may be the date when the violation of the injunction occurs.
• Rationale:
• In reaching its conclusion in Dakota, the Court overlooked the accrual language in § 614.1 and thereby failed to consider the
larger context of the statute.
• The Court has previously recognized the distinction between a statute of limitations and a statute of repose, the former of
which extinguishes any claims or prevents those claims from arising after a certain amount of time after the act or omission
of a defendant alleged to have been the cause of the injury.
• Although in some instances the date of judgment entry and date of accrual are one in the same, that is not always
necessarily the case, particularly when dealing with injunctions that can be violated some time after entry of a judgment.

Minnesota
• Minn. Stat. Ann. § 541.051
Limitation of action for damages based on services or construction to improve real property
Subdivision 1. Limitation; service or construction of real property; improvements. (a) Except where fraud is involved, no action by any person in
contract, tort, or otherwise to recover damages for any injury to property, real or personal, or for bodily injury or wrongful death, arising out of
the defective and unsafe condition of an improvement to real property, shall be brought against any person performing or furnishing the design,
planning, supervision, materials, or observation of construction or construction of the improvement to real property or against the owner of the
real property more than two years after the cause of action accrues, as specified in paragraph (c), nor in any event shall such a cause of action
accrue more than ten years after substantial completion of the construction. Date of substantial completion shall be determined by the date
when construction is sufficiently completed so that the owner or the owner's representative can occupy or use the improvement for the intended
purpose.
. . .
(c) For purposes of determining only when the statute of limitations begins to run pursuant to paragraph (a), a cause of action accrues: (1) for a
bodily injury or wrongful death action, upon discovery of the injury; and (2) for an action for injury to real or personal property, upon discovery of
the injury, but in no event does a cause of action accrue earlier than substantial completion, termination, or abandonment of the construction
or the improvement to real property. (emphasis added)

Ohio Case Law Developments
Are contract claims arising from construction defects
subject to a 10 year statute of repose?
v.

Ohio Revised Code (R.C.) 2305.131
• R.C. 2305.131 (prior to April 7, 2005) – 10 yr. Statute of Limitation:
No action to recover damages for any injury to property, real or personal, or for bodily injury or wrongful death,
arising out of the defective or unsafe condition of an improvement to real property . . . shall be brought against
any person performing services for or furnishing the design, planning, supervision of construction, or
construction of such improvement to real property, more than ten years after the performance or furnishing of
such services and construction (emphasis added).
• R.C. 2305.131 (eff. April 7, 2005) – 10 yr. Statute of Repose:
No cause of action to recover damages for bodily injury, an injury to real or personal property, or wrongful death
that arises out of a defective or unsafe condition of an improvement to real property . . . shall accrue against a
person who performed services for the improvement to real property or a person who furnished the design,
planning, supervision of construction, or construction of the improvement to real property later than ten years
from the date of substantial completion of such improvement (emphasis added).
• R.C. 2305.06 (eff. September 28, 2012) – 8 yr. Statute of Limitation:
An action upon a specialty or an agreement, contract, or promise in writing shall be brought within eight years
after the cause of action accrued.

Ohio Supreme Court Precedent at Issue
• Kocisko v. Charles Shutrump & Sons Co. (1986)
• Archbishop Kocisko filed suit against architect, general contractor, and
subcontractors for breach of contract resulting from construction of a church roof
that leaked from the day the church was first occupied.
• October 25, 1970: Construction substantially completed
• November 6, 1981: Lawsuit filed.
• Held: R.C. 2305.131 applies only to actions which sound in tort.
Actions in contract remained governed by 15 yr. (now 8 yr.) statute of limitations
found in R.C. 2305.06.

New Riegel Local Sch. Dist., Bd. Of Edu. v. Buehrer Group Architecture &
Eng., Inc.
Third District Court of Appeals, Ohio – 2017-Ohio-8521 & 2017-Ohio-8522 (Nov. 13, 2017)
• Alleged: School district alleged breach of contract claims against the architect, general contractor,
and subcontractors arising from alleged construction defects that purportedly caused several issues
with a K-12 school facility that had been constructed 11 years prior.
• All defendants raised RC 2305.131's statute of repose as an affirmative defense.
• Held: RC 2305.131 does not apply to contract claims.
• Unpublished decision.
• Architect and contractors appealed 3d District's decision to the Ohio Supreme Court, which
accepted their petition and will hear oral argument on March 5, 2019.

State v. Karl R. Rohrer Associates, Inc.
Fifth District Court of Appeals, Ohio
• Alleged: Stated alleged claims for negligence, breach of contract, and declaratory judgment against
design and engineering firm arising from various structural issues in a parking garage completed
more than ten years earlier.
• Defendant raised RC 2305.131's statute of repose as an affirmative defense.
• Held: R.C. 2305.131 applies to claims that sound in tort or contract.
• Published decision.

Insurance
Presented by Natalie Thomas

Illinois Case Law: Insurance
LB Steel, LLC v. Carlo Steel Corp., 2018 IL App. (1st) 153501.
BACKGROUND:
• Construction project at O'Hare Airport: GC contracted with City of
Chicago to construct several steel canopies
• GC obtained insurance policy from Zurich
• Dispute arose over cracks in canopy's welding
• Zurich paid GC $8 million under insurance policy
• Court later awarded GC $27.5 million from its subcontractor's fabricator
for damages associated with costs of investigating and remediating
defective welds.

Illinois Case Law: Insurance (Cont'd)
LB Steel, LLC v. Carlo Steel Corp., 2018 IL App. (1st) 153501
NO OFFSET:
• Fabricator not entitled to offset of $8million for amounts paid to GC by
Zurich under policy
• Policy only covered failures by design professionals for which GC was
legally responsible
• Fabricator was not a design professional and no evidence that GC
was legally responsible for work of design professional retained by
fabricator
RULES OF CONSTRUCTION:
• Primary objective: ascertain and give effect to the intention of the
parties expressed by language of policy.
• Policy interpreted as a whole
• If possible, give effect to every provision.

Illinois Case Law: Insurance (Cont'd)
LB Steel, LLC v. Carlo Steel Corp., 2018 IL App. (1st) 153501
RULES OF CONSTRUCTION (cont'd):
• Extrinsic evidence considered only when policy's language is ambiguous
• If unambiguous, policy is applied as written

Indiana Statutory Change: Insurance
Senate Enrolled Act No. 290
• Changed civil penalties for an employer's failure to provide proof of workers'
compensation coverage:
• From $50 per employee to $100 per day

Missouri Case Law: Insurance
Cockerham v. American Family Mutual Insurance Co., 561 S.W.3d 862
(Mo. Ct. App. 2018)
BACKGROUND:
• Homeowners sustained losses in connection with construction of a celestial
observatory addition to their residence
• Brought action against home insurance policy for breach of contract and
vexatious refusal to pay claims.
• Policy exclusion for faulty construction
• Exception exclusion for "resulting loss"

Missouri Case Law: Insurance (Cont'd)
(Mo. Ct. App. 2018)
RULES OF CONSTRUCTION:
• Plain meaning of words refers to that which would be attached by an ordinary
person of average understanding if purchasing insurance
• Terms defined as would be by layman who purchased policy unless terms
disclose technical or narrow meaning
• Words and terms interpreted in context of policy as a whole; not in isolation
• Undefined terms--courts apply ordinary meaning as in dictionary
• Courts must try to render meaning to each provision

(Mo. Ct. App. 2018)
HELD:
1. "Resulting Loss" exception to exclusion for faulty construction:
• Exception applied to provide coverage to homeowners for damage to
telescope support system piers (bad concrete pour during construction of
addition)
• Policy did not define "resulting loss"
• Ordinary purchaser of policy would have concluded that loss from damage to
telescope support system piers and pole and home foundation resulted from
excluded loss caused by faulty construction (i.e. concrete pour)—losses to
piers, pole, and foundation was covered

(Mo. Ct. App. 2018)
HELD (cont'd):
2. "Loss of Use"
• Loss of use of observatory not covered
• Policy covered loss of use only when premises rendered uninhabitable
3. Vexatious Refusal to Pay
• Refusal must be willful and without reasonable cause or excuse (to a reasonable
person at time insurer asked for coverage)
• No cause of action where insurer has a meritorious defense to coverage claim

View Home Owner's Association v. The Burlington Ins. Co., 552 S.W.3d
726 (Mo. Ct. App. 2018)
• Owner's CGL policy defined "occurrence" as "an accident, including continuous or
repeated exposure to substantially the same general harmful conditions"
• Did not cover construction defects allegedly resulting from negligent renovation
• CGL coverage: not a guarantee of quality of insured's product or work
Rice Painting Co., Inc. v. Depositors Ins. Co., 2017 WL 5564559 (E.D.
Mo. Nov. 20, 2017)
• Painting company purchased CGL policy with limited pollution coverage
endorsement
• Release of lead dust during its work
• Substantial costs incurred in cleanup—litigation ensued
• Endorsement did not provide coverage
• "Although Missouri law favors insured parties by determining an insurer's duty to
defend based on whether certain facts 'give rise to a claim potentially within the
policy's cover,' ...use of the word 'potentially' does not render boundless the duty
to defend."

Depositors Ins. Co. v. Neu Construction Services, Inc., 305 F.Supp.3d
1011 (E.D. Mo. 2018)
NO DUTY TO INDEMNIFY:
• Contractor's failure to adequately notify insurer of owner's demand for arbitration until
after arbitration judgment was final prejudiced insurer and relieved it of liability under
CGL policy
• Burden on insurer to prove prejudice
• Insurer deprived of opportunity to investigate facts, defend on liability, settle the
arbitration and determine strategy
• Burden on insurer
• Denial letters to contractor and property owners did not waive this notice
requirement

Ohio Case Law: Insurance
Ohio Northern University v. Charles Construction Services, Inc., 2018 WL
4926159 (Ohio Oct. 9, 2018)
NO "OCCURRENCE" UNDER CGL POLICY:
• Water-related damage caused by subcontractor's faulty work—not an "occurrence" under
contractor's CGL policy
• Faulty work was ordinary business risk
• CGL policy can provide coverage for tort, breaches of contract, and statutory liabilities as long
as requisite accidental occurrence and property damage are present.
• Products-completed operations-hazard clause: had no effect—not based on "occurrence"
• Not based in fortuity

Wisconsin Case Law: Insurance
Rural Mutual Ins. Co. v. Lester Buildings, LLC, 2018 WI App 35, 915
N.W.2d 729 (unpub.)
WAIVER OF SUBROGATION
• Owner sustained damages related to defective construction of barn
• Contract between owner and barn contractor contained waiver of subrogation provision
• Owner's insurance company paid damages to owner and sued contractor for
subrogation
• Court upheld waiver of subrogation in construction contract and barred all of insurer's
subrogation claims
• Court found Wis. Stat. 895.447 inapplicable bc no tort liability implicated here

Wisconsin Case Law: Insurance (Cont'd)
Foley v. Wisconsin Mutual Ins. Co., 915 N.W. 2d 455 (unpub.)
BACKGROUND:
• Homeowners hired contractor to remodel home
• Claimed home rendered uninhabitable due to contractor's negligence
• Sued own insurer and contractor's insurer
HELD:
• Claim against homeowner's insurer failed due to pollution exclusion bc no
water damage independent of mold damage so exclusion applied
• Court found pollution exclusion not superseded by policy's virus or bacteria
exclusion (in endorsement) bc policy provided that one exclusion cannot be
construed to provide coverage for loss otherwise excluded by policy to which
endorsement is attached.
• Claim against contractor's insurer failed because CGL policy had
applicable fungi exclusion and complaint did not allege unrelated water
damage

Indemnification
Presented by Michael McCanse

Michigan Developments (Indemnity)
• Michigan’s Indemnity-Invalidating Law Does Not Apply Retroactively.
• In re Estate of Koch, 322 Mich. App. 383, 397, 912 N.W.2d 205, 213 (2017), appeal denied, 917
N.W.2d 384 (Mich. 2018).
• In 2012, the Village of Dexter contracted with a designer and a general contractor for a
wastewater treatment plant improvement project; the GC subtracted with Platinum
Mechanical ("Platinum") for the labor and materials.
• During construction, a digester exploded and killed Platinum employee Michael Koch.
• Koch’s estate sued the GC and the designer; the designer filed a cross-claim against the GC and
a third-party complaint against Platinum; designer alleged that the various governing contracts
required those parties to indemnify the designer, even if the designer was solely responsible
for Koch’s death.
• The GC and Platinum obtained summary judgment based on MCL 691.991(2), which prohibits
indemnification provisions in construction contracts that purport to indemnify indemnitees for
their sole negligence.
• The Michigan Court of Appeals reversed summary judgment. The contracts were entered into
in 2012, but MCL 691.991(2) was enacted in 2013 and does not apply retroactively.

Wisconsin Developments (Indemnity)
• The Wisconsin Court of Appeals Holds That An Ambiguous Indemnity Provision
Precludes Summary Judgment.
• Lucero v. Amerisure Insurance Company, 2017 WI App 85, 906 N.W.2d 183 (unpub.).
• Verizon Corporate Services Group, Inc. ("Verizon Services"), which is the procurement arm of
Verizon Wireless/Alltel, contracted with McShane Construction to renovate a building owned
by VerizonWireless/Alltel.
• The construction contract did not mention Verizon Wireless/Alltel, but did (1) require McShane
to indemnify Verizon Services and its "affiliates"; and (2) include a provision that purported to
give other “Verizon Affiliates” the power to enforce the contract.
• An employee of a drywall subcontractor was injured and sued the owner,
VerizonWireless/Alltel, which then demanded indemnity from McShane pursuant to the
construction contract.
• Both parties filed for summary judgment; the trial court ruled for McShane, finding that
VerizonWireless/Alltel had failed to establish that it was an "affiliate" of Verizon Services, such
that it could avail itself to the protections afforded by the construction contract's indemnity
provision.
• The Wisconsin Court of Appeals reversed, finding that issues of fact regarding the definition of
"affiliate" precluded summary judgment.

Wisconsin Developments (Continued)
• The Wisconsin Supreme Court Examines An Indemnification Provision.
• American Family v. Cintas, 2018 WI 81.
• Not a construction case; arose from a contract between a property management firm (Becker),
and Cintas, an entity it contracted with to perform certain services, including inspection of a
fire suppression system.
• Fire suppression system burst, causing property damage. The owners sued Cintas, who then
sought indemnification for its own negligence from Becker, pursuant to an indemnification
provision in the parties' contract. Becker rejected the tender, so Cintas sued.
• Becker primarily argued that the indemnification provision was unenforceable because:
• In violation of Spivey v. The Great Atlantic & Pacific Tea Co., 79 Wis.2d 58 (1977), the
indemnity provision failed to contain a specific and express statement whereby the
indemnitor (Becker) agreed to indemnify the indemnitee (Cintas) for the indemnitee's
own negligent acts; and
• The provision was not sufficiently conspicuous, in violation of Wis. Stat. § 401.201(2)(f)
and Deminsky v. Arlington Plastics Machinery, 259 Wis.2d 587 (Wis. Ct. App. 2001).
• The majority found that Ohio law actually governed the interpretation of the contract, and that
under Ohio law, the provision was enforceable, such that Becker was required to indemnify
Cintas.

American Family v. Cintas (Continued)
• The Dissent's opinion is interesting and instructful.
• Majority erred in applying Ohio law. Parties are free to include choice of law
provisions in contracts, but Ohio does not mandate that indemnity provisions be
conspicuous (i.e., no Wis. Stat. § 401.201(2)(f) / Deminsky equivalent), so it was
against public policy to apply Ohio law under the circumstances.
• Provided a roadmap for drafting enforceable indemnity provisions.
• Takeaways:
• Consider choice of law provisions carefully;
• Comply with the mandates of Spivey (to the extent drafting a provision whereby an
indemnitor will agree to indemnify the indemnitee for the indemnitee's own negligent
acts); and
• Comply with the mandates of Wis. Stat. § 401.201(2)(f) and Deminsky with respect to
conspicuousness.

Public Procurement
Presented by Eric Van Schyndle

Prevailing Wage
• Michigan
• Prevailing Wage no Longer
• MCL 408.551 to 408.558 Repealed
• Missouri
• Modified to limit its application to projects in excess of
$75,000
• Mo St. § 290.230

Getting Paid on Public Projects
• Illinois – 770 ILCS 60/23
• LB Steel, LLC v. Carlo Steel Corporation, 2018 IL App (1st)
153501
• Requires substantial performance in a workmanlike manner.
• Significant failures – even if only a small part of the contract – eliminate the
right.
• Iowa Code § 573.15
• 30 day upfront notice by sub-subcontractors to prime

Public Entity Protections
• Michigan
• Indemnity-Invalidating Law – MCL 691.991(2)
• Limits the power of governments to contract for full indemnity by
design professionals or contractors
• In re Estate of Koch, 322 Mich. App. 383
• Indemnity-Invalidating Law is limited only to contracts entered into after the law went
into effect – March 1, 2013

• Municipal "State-of-the-art Immunity"
• Iowa Code § 670.4(1)(h)
• Municipalities are immune for tort liability for negligent design or
specification construction or reconstruction of a public facility, so
long as the municipality adhered to generally recognized
engineering or safety standards at the time of the construction or
reconstruction.
• Kellogg v. City of Albia, 908 N.W. 2d 822
• Extended the scope of the immunity to nuisance claims so long as
the actions still flow from the protections of the statute

•Spearin Doctrine in Michigan
• Rainbow Constr., Inc. v. Twp. Of Howell, 2017 WL 5473506
• Spearin does not require the government to acquire information,
only disclose information on hand.

© 2019 Quarles & Brady LLP - This document provides information of a general nature. None of the information contained
herein is intended as legal advice or opinion relative to specific matters, facts, situations or issues. Additional facts and
information or future developments may affect the subjects addressed in this document. You should consult with a lawyer
about your particular circumstances before acting on any of this information because it may not be applicable to you or your
situation.
Thank You
Michael McCanse
Partner
Phoenix office
(602) 229-5704
Michael.mccanse@quarles.com
Charles Harper
Partner
Chicago office
(312) 715-5076
Charles.harper@quarles.com
Coree Neumeyer
Partner
Phoenix office
(602) 229-5188
Coree.neumeyer@quarles.com
Natalie Thomas
Of Counsel
Tampa office
(813) 387-0280
Natalie.thomas@quarles.com
Eric Van Schyndle
Partner
Milwaukee office
(414) 277-5155
Eric.vanschyndle@quarles.com

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