CHICAGO – General contractors and home builders could face increased litigation and liability risk for home defects in light of a recent Illinois appellate court decision, essentially tossing out a defense employed by home builders in home warranty cases.
In late October, a three-justice panel of the Illinois First District Appellate Court weighed in on three consolidated appeals addressing the question of whether home builders could be sued for problems with a home's construction, should a development corporation that had brought in the contractors to work on the new homes had dissolved.
Shawn M. Doorhy, an attorney at Faegre Baker Daniels in Chicago, said the appeals court's decision essentially turned on its head a common theory that general contractors could not be sued if the developer was no longer to be found. Before this decision, builders generally had been able to hide behind the developer or someone else who sold the house.
After the First District opinion, however, that is no longer the case, and builders and general contractors can be on the hook for liability from their work for homeowners and homeowner associations.
"Now you have a situation where condo associations have direct contracts with a developer entity, but regardless, they can sue the builder with whom they have no contractual relationship," Doorhy said. "Now an owner or association can sue and maintain claims directly against the developer and the builder at the same time, which is different from what the law was before."
These situations are restricted to residential construction.
"This is going to be limited to residential because of the particular claim and warranty," Doorhy said. "It is a judicially created cause of action and the Supreme Court has said we will construe there to be – inside an agreement between builder-vendor, developer and homeowner in construction of a new residence – an implied warranty that a home will be fit for habitation."
How will builders be on the hook in the future for already existing structures?
"Before this case, you could be a general contractor or builder and be hired by a developer to build, then years would go by," Doorhy said. "Developers would get sued. As a builder, you had a defense. Associations could not sue unless the developer was insolvent. In addition, developers typically have in their agreements a disclaimer of implied warranty of habitability."
There are now new concerns for builders of residential homes in Illinois, due to this reversal of tradition in this area of law.
"A builder now has to be concerned with disclosure being broad enough to cover them, but now they can be sued directly by the association regardless of developer status," Doorhy said. "So a defense has been removed for the builder. Now it doesn't matter what is in the contract, to some degree. Liability must be waived explicitly in these matters."