Chicago Business Litigation Lawyer Blog
A building contractor in Minnesota ordered a specific brand of flameproof lumber from a Chicago distributor of commercial building materials. Unbeknownst to the contractor, the distributor substituted its in-house brand of lumber in the order. The in-house brand of lumber had not been certified to meet the safety standards required by the architect of the buildings and the contractor was later required to rip out the lumber and replace it with new material. The contractor sued the distributor. The distributor’s insurance company then sought a judgment that it was not required to defend the distributor. The district court and the appellate court agreed, finding that the actions of the distributor were not covered under its insurance policy.
Chicago Flameproof is an Illinois-based distributor of commercial building materials, including fire retardant and treated lumber (FRT). Chicago Flameproof maintained general liability insurance through Lexington Insurance Company. Under the policy, Lexington had the right and duty to defend Chicago Flameproof against any suit seeking covered damages, but no duty to defend against any suit seeking uncovered damages.
The policy defined an occurrence as an accident, including continuous or repeated exposure to substantially the same general harmful conditions. The policy also defined “property damage” as physical injury to tangible property, including all resulting loss of that property, or loss of use of tangible property that is not physically injured. Chicago Flameproof sold lumber to Minnesota-based residential and commercial contractors JL Schwieters Construction, Inc. and JL Schwieters Building Supply, Inc. Schwieters then contracted with two building contractors, Big-D Construction Midwest, LLC and DLC Residential, LLC to provide labor and material for the framing and paneling for four building projects in Minnesota. The architectural firm on all of the projects, Elness Swenson Graham Architects, Inc. required that FRT lumber meeting the requirements set forth in the International Building Code be used for the exterior walls of each building.
Schweiters alleged that it contracted with Chicago Flameproof to purchase a particular brand of FRT lumber, D-Blaze lumber, for use in the projects. However, Schweiters stated that Chicago Flameproof made the unilateral decision to deliver its in-house FlameTech brand lumber, which was not IBC-compliant FRT lumber because it had not been tested, certified, listed, or labeled pursuant to IBC requirements. Schweiters, unaware of the switch, installed the lumber. The difference was discovered by Elness and the building owners, and Schweiters was then required to remove the FlameTech lumber and replace it with IBC compliant lumber, and this process damaged the surrounding materials into which the lumber had been integrated.
Schwieters sued Chicago Flameproof in federal court in Minnesota, charging it with negligent misrepresentation, fraudulent misrepresentation, deceptive business practices, false advertising, consumer fraud, breach of warranties, and breach of contract. Lexington then filed a declaratory judgment action, seeking a ruling that it owed no duty to defend Chicago Flameproof for the conduct alleged in the underlying complaints. The district court entered summary judgment for Lexington, holding that the property damaged that Schweiters was suing Chicago Flameproof for could not be said to have been caused by an accident. Chicago Flameproof then appealed.
The appellate panel began by finding that the actions of Chicago Flameproof did not trigger Lexington’s duty to defend because they did not constitute an occurrence under the insurance policy. The panel noted that, according to the underlying complaints, Chicago Flameproof deliberately shipped uncertified lumber, concealed that fact, and was aware or should have been aware of the consequences of those actions. The panel then stated that Chicago Flameproof, as a supplier of commercial building materials, was or should have been aware of IBC certification requirements. The panel noted that Chicago Flameproof held itself out as having expertise in the specification and use of treated wood products. The panel concluded by stating that the damages that occurred were a natural and ordinary result of Chicago Flameproof’s deliberate decision to supply and conceal that it had supplied uncertified lumber. The panel, therefore, affirmed the decision of the district court.
You can read the full opinion here.
Super Lawyers named Chicago business divorce attorney Peter Lubin a Super Lawyer and Chicago partnership dispute lawyer Patrick Austermuehle a Rising Star in the Categories of Class Action, Business Litigation, and Consumer Rights Litigation. Lubin Austermuehle’s Illinois business trial lawyers have over thirty years of experience in litigating franchise and dealer termination, breach of contract, complex class action, copyright, partnership, and shareholder oppression suits, non-compete agreement, trademark and libel suits, consumer rights and many different types of business and commercial litigation disputes. Our Schaumburg and Oak Brook breach of fiduciary duty lawyers, Chicago shareholder freeze-out attorneys, and Chicago corporate derivative lawsuit and shareholder rights attorneys handle emergency business lawsuits involving copyrights, trademarks, injunctions, and TROS, covenant not to compete, franchise, distributor and dealer wrongful termination and trade secret lawsuits and many different kinds of business disputes involving shareholders, partnerships, closely-held businesses and employee breaches of fiduciary duty. We also assist Chicago, Wheaton, and Oak Brook area businesses and business owners who are accused of shareholder oppression or who are victims of shareholder oppression. You can contact us by calling (630) 333-0333. You can also contact us online here.