Illinois Appellate Court Finds Construction-Related Contract Void

Heron Salgado was a construction worker employed by Abel Building & Restoration. He was assigned to work at a job site at 51st Street on a scaffold that was designed, built, erected and maintained by the defendant Designed Equipment Corp. While working at that construction site, he was injured twice.

The first time Salgado was injured was on Jan. 17, 2011 when a heavy bucket fell and struck him.  Then he was injured two days later when he fell into an “opening” in the scaffolding.

Salgado filed a lawsuit against Designed Equipment Corp. in December 2012. Designed tendered its defense of the case, first to its own insurance company and then to Pekin Insurance Co., which was Abel’s insurers, arguing that Abel was an “additional insured” under Abel’s policy of insurance with Pekin.

Pekin rejected the tender of defense and filed a complaint seeking declaratory judgment. Pekin first claimed that Designed was not an additional insured under the contractor’s endorsement and also that the lease agreement between Abel and Designed was an “insured contract” and therefore void under the Construction Contract Indemnification for Negligence Act.

On Jan. 5, 2015, Pekin moved for summary judgment, which the trial judge granted. Designed took this appeal.

On appeal, Pekin maintained that Designed was not an additional insured because the terms of the contract specified that an additional insured must be “performing operations for” or with Designed, and Abel was merely renting a scaffold for work at a third-party job site.

In the alternative, Pekin argued that even if Designed was an additional insured, coverage did not apply in accordance with the contract if Designed was sued for its own negligence rather than the negligence of the named insured, Abel. Pekin also argued that the agreement between Abel and Designed was not an “insurance contract,” and that even if it was, it was void under the Construction Contract Indemnification for Negligence Act.

Designed responded that Pekin’s policy was ambiguous in that it contained “two additional insured endorsements with differing terms and provisions” and that the trial court should have construed that ambiguity in their favor and ruled that Pekin had a duty to defend.

Designed accepted that the agreement was an insured contract and argued that no legal precedent exists to hold the contract void because it was a lease agreement rather than a construction contract.  The appeals panel found that Designed’s argument that the policy was ambiguous had been waived because it had not been raised before the trial court.

The appellate court turned to the issue of whether the agreement was an “insured contract” and if so, whether it was void. The appellate court found that, because the indemnity provision of the agreement stated that Abel “shall indemnify and defend [Designed] against and hold [for Designed] harmless from any all claims, actions, suits . . . which (A) relate to . . . bodily injury . . . and (B) are caused by [Designed]” it did constitute an “insured contract.”

The act states that “With respect to contractual agreement . . . for the construction, alteration, repair or maintenance of a building . . . or other work dealing with construction . . . every covenant, promise or agreement to indemnify or hold harmless another person from that person’s own negligence is void as against public policy and wholly unenforceable.”

Designed argued that this was meant to apply only for construction contracts while their agreement was a lease or rental. Pekin argued that the act applied because Designed leased a scaffold to a building restoration company specifically for work at a “job site” in line with the contract. The appellate court acknowledged that no precedent precisely covered this situation, but concluded that since both parties knew the scaffold would be going to a job site and used for construction and restoration, the act did apply and the insured contract was void.

In accordance, the appellate court affirmed the trial court’s decision.

Pekin Insurance Co. v. Designed Equipment Acquisition Corp, et al., 2016 IL App (1st) 151689.

Kreisman Law Offices has been handling work injury cases, jobsite injury cases and construction work injuries for individuals and families who have been harmed, injured or died as a result of the carelessness or negligence of another for more than 40 years in and around Chicago, Cook County and its surrounding areas, including Hoffman Estates, Elmwood Park, Melrose Park, River Forest, Oak Lawn, Oak Park, Calumet City, Blue Island, South Holland, Chicago Heights, Kenilworth, Lake Forest, Mundelein, Joliet, Chicago (Chinatown, Little Italy, Back of the Yards, South Shore, Wicker Park, Uptown, Lincoln Park, Lincoln Square), Deerfield and Vernon Hills, Ill.

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