On March 20, 2009, a fire broke out in the Empress Casino Joliet riverboat while renovation work was being done, causing nearly $84 million in damages.
More than $81 million was covered by Empress Casino’s insurance companies — Axis Insurance, National Fire and Marine Insurance and Lloyd’s Syndicate 1414 (Ascot) — leaving the casino to shell out $2.55 million in deductibles.
Since then, Empress Casino and its insurers have sued the general contractor and the various subcontractors who were involved with the renovation project, seeking to subrogate the insurance costs to them for allegedly causing the fire.
But on Wednesday the 1st District Appellate Court found that, with the exception of one contract, the plain language of the casino’s contracts meant that it waived any subrogation to the defendants.
The sole company who might have to pay out, however, is Averus Inc., which had a separate contract with Empress Casino for cleaning services that did not contain language providing a waiver of subrogation.
“Nothing in the language of the waiver of subrogation clause indicates that the parties intended there to be an exception for fires caused by willful-and-wanton conduct,” Justice James Fitzgerald Smith wrote.
The 42-page opinion from the appellate court remands the subrogation claim involving Averus back to the trial court for further proceedings.
In September 2008, Empress hired W.E. O’Neil Construction Co. to be the general contractor for the renovation project. O’Neil then hired Jameson Sheet Metal Inc. for heating, ventilation, air conditioning and sheet metal work, Global Fire Protection Co. to install sprinklers, the Linden Group as project architect and R.L. Millies and Associates as project engineer.
Empress Casino’s contract with these entities required the casino to maintain insurance for the project. The contract also contained a waiver of subrogation, which Empress Casino would waive “all rights against each other and any of their subcontractors … for damages caused by fire or causes of loss to the extent covered by property insurance.”
Averus had a different contract than everyone else. While all of the subcontractors were hired through O’Neil, Averus had a two-page contract that was orally approved by Empress Casino and contained no waiver of subrogation.
The fire occurred when a Jameson employee began welding new ductwork to an existing duct in the casino’s kitchen. According to Empress Casino’s complaint, the existing ductwork was coated with grease and other residue from cooking. The fire quickly spread out of control.
In its complaint, Empress Casino blamed O’Neil and Jameson for not performing the mandatory fire watches during the renovation and for not having a fire extinguisher nearby; Linden and Millies for failing to install sprinklers in the concealed areas above the kitchen; Global Fire for having non-working sprinklers; and Averus for not cleaning the ductwork when they said they did.
The defendants’ conduct caused $83.69 million in damage, the casino alleged in its subrogation lawsuit. Empress also alleged breach-of-contract claims against all of the defendants except Averus.
The three insurers launched their own subrogation lawsuit against the same defendants, alleging the same facts.
The two lawsuits were consolidated during Cook County Circuit Court proceedings. In March 2015, Circuit Judge John P. Callahan Jr. ruled in favor of the defendants, finding that the “plain language of the construction contract reveals the parties’ intent that Empress assume the risk of loss for any fire loss and look to its different insurance policies as the single source of recovery,” Smith wrote, summarizing the trial court ruling.
The 1st District panel agreed.
The contract “foresaw” a potential fire, and the parties “chose to impose on Empress the duty to insure against any such loss (regardless of fault), expressly waiving all rights against each other for damages caused by such perils,” Smith wrote.
The panel noted that most of the case law cited by the plaintiffs involved contractual exculpatory provisions — in which liability could be waived if one of the parties is found to be at fault. But the issue here is not a exculpatory provision, Smith wrote.
“[T]he plaintiffs here fail to cite to any Illinois decision in which the court refused to enforce an insurance subrogation waiver on the basis that willful-and-wanton misconduct was alleged,” Smith wrote.
Similar logic was applied to the plaintiffs’ breach-of-contract arguments. The panel held that the waiver of subrogation applied in this situation as well.
“The fire was related to performance on the contract and therefore the loss and damage from the fire were all covered under the property insurance policies Empress was required to maintain,” Smith wrote. “As such, the waiver of subrogation bars the breach-of- contract claims as well.”
The panel also rejected Empress Casino’s alternate arguments that the waiver of subrogation applied only to Axis, and not National Fire and Lloyd’s.
The defendants, represented by different counsel, argued the case together. They collectively argued that Averus, despite having its own contract with Empress Casino, was covered by the waiver of subrogation in the O’Neil-led contracts.
But the 1st District panel disagreed. Because of its separate contract with Empress Casino, Averus was not covered by the waiver of subrogation.
“Since, in the present case, Averus’ vice president … admitted that it operated under a separate, pre-existing, oral, non-[American Institute of Architects] contract with Empress, to clean the casino ductwork, Averus cannot now avail itself of the waiver of subrogation provision in [the contract],” Smith wrote.
Empress was represented by Mark A. Rabinowitz and Kevin P. Caraher of Cozen O’Connor P.C. and David E. Walker and Douglas W. Walker of Walker Wilcox Matousek LLP.
National Fire was also represented by Rabinowitz and Caraher. Lloyd’s was also represented by the Walkers.
Axis was represented by Randy Greene of Philadelphia-based Dugan, Brinkmann, Maginnis and Pace and Thomas A. McDonald of McDonald Law Firm.
Requests for comment to the plaintiffs’ attorneys were not returned.
Averus was represented by Dan L. Boho and Stephen R. Swofford of Hinshaw & Culbertson LLP.
In an interview, Boho said his team is reviewing the decision and the surrounding case law.
“We’re going to have further discussions with our client,” Boho said. “We believe that the language of the contract and case law around the country supported the position that our client was covered by the waiver of subrogation.”
O’Neil was represented by Robert J. Franco and Christopher M. Cano of Franco & Moroney LLC.
Jameson was represented by Robert Marc Chemers, Richard M. Waris and Donald P. Eckler of Pretzel & Stouffer Chtd.
Global Fire was represented by William P. Pistorius and Mark J. Sobczak of Clausen Miller P.C.
The Linden Group was represented by Ryan T. Johnson and Clare J. Quish of Schuyler, Roche & Crisham P.C.
R.L. Millies and Associates was represented by James W. Ozog and David J. O'Connell of Goldberg Segalla.
The attorneys representing the other defendants either declined to comment or did not return requests for comment.
Justices Terrence J. Lavin and Cynthia Y. Cobbs concurred with the opinion.
The consolidated case is Empress Casino Joliet Corporation, et al., v. W.E. O’Neil Construction Co., et al., 2016 IL App (1st) 151166 and 151184.