Foran Glennon Palandech Ponzi & Rudloff

April 2014

Construction-Fraud Claims Subject to Five-Year “Catch-All” Statute of Limitations

By Doug Allen and William Klinger

 

The Illinois Supreme Court has ruled that construction-related claims for fraudulent misrepresentation and/or fraudulent concealment are subject to the five-year default limitations period provided by the “catch-all” provision of 735 ILCS 5/13-205 (“all civil actions not otherwise provided for”).  The Illinois legislature’s inclusion of a fraud exception to the statute of limitations applicable to construction-related claims – 735 ILCS 5/13-214(e) – does not except fraud-based claims from all time limitations.  Gillespie Community Unit School District No. 7 v. Wight & Co., 2014 IL 115330, 4 N.E.3d 37.

Factual Background.  In 1998, the Board of Education of the Gillespie Community Unit School District No. 7 (“School District”) resolved to investigate construction of a new elementary school, with potential sites including an already owned School District property in Benld, Illinois.  The School District contracted with Wight & Company (“Wight”), a design and construction firm, for initial pre-design and pre-construction services.  Under the contract, Wight was to investigate the extent of prior area coal mining and determine subsidence risk and site-suitability for the proposed school.

In furtherance of the subsidence risk investigation, Wight sub-contracted Hanson Engineers, Inc. (“Hanson”).  During its investigation, Hanson provided Wight with an initial letter (“the Hanson Letter”) which described local historical coal mining and numerous instances of ensuing mine subsidence over decades in the Benld area.  Notably, the Hanson Letter included a chart which geographically mapped some, but not all, of the reported subsidence incidents.  The Hanson Letter noted the inherent difficulties in evaluating and predicting such subsidence but determined that given the number of recorded subsidence events, with others likely unrecorded, “it can be intuitively concluded that there is a relatively high risk of subsidence in the Gillespie/Benld area.”

Later, Hanson provided Wight with a “Foundation Engineering Report” (“the Hanson Report”).  The Hanson Report generally concluded that there had been documented occurrences of ground surface subsidence within the town of Benld and the surrounding vicinity, but that “it is nearly impossible to predict the risk of building on an undermined site.”  Therefore, the Hanson Report concluded, “[t]he risk of future subsidence must be valued along with the other features of the site with the knowledge that it will not be possible to completely avoid similar risks in the area closely surrounding Benld, Illinois.”  Notably, the Hanson Report did not include the prior Hanson Letter characterizing the risk of subsidence as “high” or the chart mapping the specific locations of prior subsidence events.

Wight allegedly provided the Report, but not the Letter or chart, for the School District’s consideration.  Ultimately, the School District decided to construct the new school at the proposed site and retained Wight as architect for the construction phase of the project.  School District and Wight entered into a “Standard Form Agreement” provided by the American Institute of Architects, which provided, in relevant part:

“1.3.7.3.  Causes of action between the parties to this Agreement pertaining to acts or failures to act shall be deemed to have accrued and the applicable statute of limitations shall commence to run not later than either the date of Substantial Completion for acts or failures to act occurring prior to Substantial Completion or the date of issuance of the final Certificate for Payment for acts or failures to act occurring after Substantial Completion.  In no event shall such statutes of limitations commence to run any later than the date when the Architect’s services are substantially completed.”

“Substantial Completion” was achieved in August 2002.  In March 2009, a coal mine beneath the building subsided and the school sustained significant structural damage, necessitating building condemnation.  In August 2009, the School District filed suit against Wight, alleging causes of action for professional negligence and breach of implied warranty.  Later, on April 26, 2010, School District amended its complaint, adding a count for fraudulent misrepresentation, claiming Wight provided it with the Hanson Report but not the Hanson Letter and that the Report omitted specific and material information supporting the conclusion that there was a relatively high risk of subsidence in the Benld area.

Discussion.  Ultimately, Wight moved for summary judgment, arguing that the parties contractually adopted the date of “Substantial Completion,” through Section 1.3.7.3 of the AIA Standard Form Agreement, as the accrual date for all claims, in place of the “Discovery Rule.”  The “Discovery Rule”generally commences the running of the statute of limitations at the time the claimant knew or should have known of the allegedly defective work/service.  Effectively, Section 1.3.7.3 replaced the “Discovery Rule” with an absolute date by which all claims would accrue.

The trial court granted summary judgment, applying the four-year statute of limitations provided by 735 ILCS 5/13-214 to the counts for professional negligence and breach of implied warranty of habitability, and the five year statute of limitations provided by 735 ILCS 5/13-205 to the count for fraudulent misrepresentation.  Notably, as discussed infra, the court applied the “catch-all” five-year limitations period provided by Section 13-205 to the claims for fraud because 13-214(e) specifically excepts claims for construction-related fraud from the four-year time bar provided therein.  With the parties contractually agreeing to commence statute of limitations at the time of Substantial Completion, each of these claims were time-barred under the respective statutes.

Thereafter, the Fourth District Appellate Court upheld summary judgment and the School District appealed to the Illinois Supreme Court, arguing, in relevant part, that there is no statute of limitations for fraudulent misrepresentation.  At issue were the afore-cited Sections 13-214 and 13-205 of the Illinois Code of Civil Procedure.  Section 13-214 provides, in pertinent part:

Construction—Design, management and supervision . . .

(a) Actions based upon tort, contract or otherwise against any person for an act or omission of such person in the design, planning, supervision, observation or management of construction, or construction of an improvement to real property shall be commenced within 4 years from the time the person bringing an action, or his or her privity, knew or should reasonably have known of such act or omission. . . .

(e) The limitations of this Section shall not apply to causes of action arising out of fraudulent misrepresentations or to fraudulent concealments of causes of action.”  735 ILCS 5/13-214 (West 2010).

Likewise, Section 13-205, in relevant part, provides:

“. . . actions on all civil actions not otherwise provided for, shall be commenced within 5 years after the cause of action accrued.”  735 ILCS 5/13-205 (2010).

The School District argued that since the clear and unambiguous terms of Section 13-214 explicitly exclude claims for construction-related fraudulent misrepresentation or fraudulent concealment, the Illinois Legislature intended for no statute of limitations to apply for those causes of action.  Therefore, according to the School District, summary judgment was wrongfully entered and affirmed by the appellate court.

The Illinois Supreme Court held that Section 13-214(e) is clear and unambiguous.  The Court explained that the School District’s interpretation was contrary to the plain language of the statute.  The limitations period of Section 13-214 clearly does not apply to construction-related fraud claims; however, the statute does not provide that no limitations period applies to these causes of action.  Since Section 13-214 does not apply to fraud-based construction claims, the trial court properly looked to the “catch-all” five-year default limitations period provided by Section 13-205.  Since the parties contractually agreed that causes of action accrued upon Substantial Completion—which occurred in August 2002—the claim filed in April 2010 was untimely.  Accordingly, Wight was entitled to summary judgment.

Conclusion.  The Illinois Supreme Court’s holding clarifies that construction-related causes of action for fraud may not be brought at any time.  Rather, the exclusion under Section 13-214(e) invokes the “catch-all” five-year limitations period for “all civil actions not otherwise provided for” under Section 13-205.  Therefore, constructed-related causes of action for fraudulent misrepresentation or fraudulent concealment must be filed within five years of accrual of the statute of limitations or they will be untimely.

Notably, the Court expressed no opinion on the enforceability of contractual provisions which limit the time to file suit for fraud-based construction claims as this issue was not presented for consideration.