This document provides summaries of recent legal decisions from Midwest states impacting real estate and construction law from 2016. Key highlights include: - Illinois amended its Mechanics Lien Act to allow bonding of lien claims. Indiana and Michigan court cases clarified mechanics lien rights. - Statute of limitations cases from Ohio, Iowa and Minnesota addressed when claims accrue. Illinois and Wisconsin carved out exceptions for fraud/misrepresentation. - Iowa, Ohio and Wisconsin insurance coverage cases addressed defective workmanship claims and duty to defend issues. - Pay-if-paid contract clauses were interpreted in Illinois and Missouri cases. - Arbitration award and attorney's fee cases from Michigan and Iowa addressed prevailing party status.

1. 2016 Year in Review: Recent
Midwest Legal Decisions
Impacting Real Estate and
Construction Law
Quarles & Brady LLP

2. Moderator
Dave Muth

3. Mechanics Liens
Presented by Charles Harper

4. Illinois Mechanics Lien Act Amendment
• Effective January 1, 2016, Illinois legislature adds bonding provision in new
section 38.1 to the Mechanics Lien Act (770 ILCS 60/38.1).
• Any party with an interest in the property can post a bond in place of the
real estate.
• Bond amount must be 175 percent of the lien claim(s).
• If action is filed, petition for bond must be posted within 5 months of filing.
• Necessary contents and notice requirements described in the Act will be
strictly construed.

5. Indiana Case Law Developments (Liens)
• Statutory Violation Does Not Preclude Mechanics Lien
• Ambrose v. Dalton Const., Inc., 51 N.E.3d 320 (Ind. Ct. App. 2016).
• A violation of the Home Improvements Contract Act only makes the
contract unenforceable against the consumer.
• A contractor who performs under such a contract may still recover for
work performed under a theory of unjust enrichment.
• The court held a mechanics lien is a statutory lien meant to prevent
unjust enrichment of property owners who enjoy improvements to
their property, and non-compliance with the HICA does not preclude
this equitable remedy.

6. Michigan Case Law Developments (Liens)
• The Michigan Public Works Bond Act Does Not Contain an
Actual Notice Requirement.
• In Wyandotte Elec. Supply Co. v. Elec. Tech. Sys., Inc., the Michigan
Supreme Court examined the notice requirements of the Michigan
Public Works Bond Act (PWBA).
• Sub-subcontractor's notice was sent to necessary parties but never
received by the general contractor.
• Court held that general contractor's actual notice was not required so
long as the sub-subcontractor sent the notice as required by the
statute.
• Certified mail delivery did not require actual receipt.

7. Michigan Case Law Developments
• Michigan Court of Appeals Reaffirms Strong Public Policy in
Favor of Enforcing Construction Lien Rights.
• Dubuc v. Copeland Paving, Inc.
• Subcontractor's lien held valid even though the result is an amount
owed greater than the original prime contract.
• Sworn Statements could have helped the owner.
• Lien waivers can only come from the contractor making the waiver.
• Subcontractor not required to sue general contractor before pursuing
suit against owner on the lien.

8. Michigan Case Law Developments
• Michigan Supreme Court affirms attorneys' fee award under the
Construction Lien Act in favor of lienholder after arbitration.
• Ronnish Constr. Grp., Inc. v. Lofts on the Nine, LLC
• The parties to a lien enforcement action agreed to stay proceedings in favor of
binding arbitration.
• The arbitration award, after consideration of the owner's counterclaims, was a
net award to the contractor.
• Upon returning to the trial court, it rejected contractor's request for attorneys'
fees, holding that contractor was not a prevailing party after it accepted
payment of the arbitrator's award.
• The appellate court reversed, and the Michigan Supreme Court affirmed the
reversal, holding that contractor was a lien claimant who prevailed in an action
to enforce a lien and thus was entitled to recover its fees.

9. Minnesota Case Law (Liens)
• Minnesota Supreme Court Clarifies that Whether a Use Exception to Pre-
Lien Notices Applies Depends Upon the Use at the Time the Lien Attaches.
• Ryan Contracting Co. v. O’Neill & Murphy, LLP
• Legal malpractice suit against contractor's former law firm.
• Exception to pre-lien notice requirement for new developments on vacant
land.
• And, where pre-lien notices are not required, contractor may blanket lien the
entire un-subdivided property, or file a separate lien on each individual lot.
• a blanket lien can include parcels sold to third parties, so long as the work
began when under single ownership, but lien must be enforced against the
whole area improved, not only certain lots.

10. Missouri Case Law Developments (Liens)
• Missouri Supreme Court Holds That Public Policy Does Not
Prohibit Attaching a Mechanics Lien Against a Leasehold
Interest in Property Owned by a Public Entity
• Brentwood Glass Company vs. Pal’s Glass Service
• County contracted with a private company to build and lease a
development.
• Missouri lien statute permits liens against certain leasehold rights.
• Even though a lien against the public property itself is not permitted,
the unpaid subcontractor could enforce a lien against the private
entities' leasehold.
• County had authorized private company to assign its lease and
therefore the leasehold interest is not public property.

11. Missouri Case Law Developments (Lien)
• Under Lien Act, Tenant Is an Agent of Landlord if the Lease
Required Tenant to Make Improvements
• Crafton Contracting Company v. Swenson Contracting Company
• Tenant required by lease to make improvements is an agent of the
landlord under the Lien Act.
• Landlord also had certain control over the construction, including the
right to approve plans and to require remediation of deficiencies.
• The court also held that because the improvements were required by
the lease and completed under landlord's supervision, lien claimants
did not need to establish a substantial or permanent improvement.

12. Statutes of Limitation/Repose
Presented by Lucy Dollens

13. Missouri - Statute of Repose
Farmer’s Alliance Mutual Insurance Company v. Daniels Plumbing, 496 S.W.3d
644 (Mo. Ct. App. 2016):
• Contractual privity does not destroy enforceability of the statute of repose for
claims against improvement contractors.
Contractual
Privity
Performance
of Contract
Single
Relationship

14. Ohio - Accrual of Claims
Babcock & Wilcox Co. v. Cormetech, Inc., No. 16-3305, 2017 WL 603847 (6th
Cir. Feb. 15, 2017):
• 4 year statute of limitations for goods under the UCC applied to catalyst
modules.
• A claim accrues under the statute of limitations when breach of warranty - not
the possibility or likelihood of breach - was or should have been discovered.

15. Iowa - Accrual of Claims
Dean Snyder Const. Co. v. Travelers Prop. Cas. Co. of America, 173 F.Supp.3d
837 (S.D. Iowa 2016):
• A subcontractor’s claim against an insurer accrues at the time the actual
damage occurs.
2008 2014 2015
Windstorm = "loss" or
"damage"
Arbitration Award
Issued and
Confirmed by
District Court
Lawsuit Filed

16. Minnesota - Accrual of Claims
328 Barry Avenue, LLC v. Nolan Properties Group, LLC, 871 N.W.2d 745 (Minn.
2015):
• The statute of limitations in a construction defect matter may accrue during
construction.
"discovery
of injury"
Statute of
Limitations
begins to
accrue

17. Illinois Exceptions: Fraud and Misrepresentation
Henderson Square Condominium Association v. LAB Townhomes, LLC, 46
N.E.3d 706 (Ill. 2015):
• The four year statute of limitations and the 10 year statute of repose do not
apply when there are misrepresentations in a developer's marketing materials.
Work will be
“constructed
substantially in
accordance with the
plans and
specifications...”

18. Wisconsin Exceptions: Fraud and Misrepresentation
Miron v. MNI, Inc., No. 2015AP1184, 2016 WL 1199562 (Wis. Ct. App. 2016):
• A simple affirmation that "work will be completed properly" does not give rise
to misrepresentation, concealment or fraud if a defect is later discovered.
"Work will
be
completed
properly..."

19. Accrual Takeaways
• Claimants: Be aware of strict compliance with the “discovery rule.”
• Claimants: A cause of action may begin to accrue upon discovery of the defect,
even if construction is still ongoing.
• Defendants: Consider this defense to potentially bar the litigation if the buyer was
aware of the defect during construction, but did not timely file.
Discovery
of Injury
Statutes of
Limitation/
Repose
Begins to
Accrue
Claimants: File Suit
As Soon As Possible
Defendants: Determine
whether SOL/Repose is
a valid defense

20. Exception Takeaways
• Significant misrepresentations can leave contractors vulnerable.
• Be aware that information found in marketing and selling materials can
cause problems.
• General statements affirming work will be done properly will be less
problematic than specific promises and representations.
Work will be
“constructed
substantially in
accordance with
the plans and
specifications”
"Work will be
completed
properly"

21. Iowa Case Law
• Nat'l Surety Corp. v. Westlake Investments, LLC, 880 N.W. 2d 724 (Iowa
2016)
• Iowa Supreme Court found that CGL policy may cover defective workmanship
by an insured's contractor if the defective work was not expected or intended.
• In the case, the owner sued for construction defects in an apartment building.
• The CGL policy required the excess insurer to indemnify for property damage
caused by an occurrence.
• Court found that an intentional act resulting in property damage the insured
did not expect or intend qualified as an accident amounting to an occurrence
as defined in standard-form CGL policies.

22. Iowa Case Law (Cont'd)
• Dean Snyder Const. Co., v. Travelers Prop. Cas. Co. of Am., 173 F. Supp. 3d
837 (S.D. Iowa 2016)
• Court held:
• A two-year limitations period in an insurance policy was enforceable;
• Cause of action accrues at the time of loss and not when the general contractor obtains an
arbitration award against the sub-contractor.
• The contractor brought a lawsuit against the subcontractor's insurer nearly
seven years after the loss occurred.
• The contractor argued that the claims accrued from when it received an
arbitration award in its favor of its subcontractor.
• Court found that direct loss accrued at the date of the damage causing event,
and Iowa law does not delay a claim until there is certainty as to the final
amount owed.

23. Ohio Case Law
• Lightening Rod Mutual Ins. Co. v. Southworth, 55 N.E.3d 1174 (Ohio Ct.
App. 2016)
• Ohio Court of Appeals held that an insurer had no duty to defend on a claim
that manifested prior to coverage period despite continuing damage through
the coverage period.
• Insured installed mobile homes and obtained an insurance policy after
structural defects first manifested.
• The insurer filed an action for declaratory judgment that it was not obligated
to defend.
• The court of appeals upheld the trial court's order that there was no duty to
defend.

24. Wisconsin Case Law
• Fontana Builders, Inc. v. Assurance Co. of Am., 882 N.W.2d 398 (Wis. 2016)
• The Wisconsin Supreme Court determined that a homeowner's policy did not
terminate the builder's risk policy coverage because they insured different
interests in the property.
• The homebuilder purchased builder's risk insurance policy.
• Before the construction was completed, a family moved into the house.
• The family purchased homeowner's coverage, and a week later a fire
destroyed the home.
• After multiple appeals, the Court found coverage under the builder's risk
insurance policy.

25. Wisconsin Case Law (Cont'd)
• Water Well Solutions Serv. Group v. Consol. Ins., 881 N.W.2d 285 (Wis.
2016)
• Water Well was insured under a CGL Policy and timely tendered defense.
• The insurer denied tender claiming no duty to defend.
• Water Well brought a coverage suit and sought admission of extrinsic evidence
because the underlying complaint was factually incomplete or ambiguous.
• The Wisconsin Supreme Court denied admission of evidence pursuant to the
"four corners" rule which restricts coverage determination to the complaint.

26. Wisconsin Case Law (Cont'd)
• Smith v. Anderson, 2016 WI App 16, 366 Wis. 2d 808, 874 N.W.2d 347 (Wis.
Ct. App. 2015)
• A home purchaser alleged that that seller misrepresented the condition of the
home and painted and cleaned basement to cover up apparent defects.
• Wisconsin Court of Appeals found that no duty to defend existed.
• The Wisconsin Supreme Court accepted review of the case, and identified
three issues:
• Claim against third-party plaintiff is for misrepresentation
• Introduction of evidence outside of pleadings to require insurer to provide defense
• Later reassert a right to insurance company's defense

27. Seventh Circuit Case Law
• Gillen v. BMO Harris Bank, N.A., 825 F.3d 816 (7th Cir. 2016)
• A subcontractor failed to perform on a subcontract with the general
contractor, and received an arbitration award of $1.8 million.
• The bank held a security interest on almost all of the subcontractor's assets.
• Wis. Stats. §632.24: the victim of an insured wrong can collect directly from
the insurer.
• Accordingly, the 7th Circuit found that the Bank’s status as a secured creditor
could not trump the claim of the general contractor.

28. Pay-if-Paid Clauses
Presented by Eric Van Schyndle

29. Illinois
• Past Precedent – A.A. Conte, Inc. v. Campbell-Lowrie-
Lautermilch Corp., 132 Ill. App. 3d 325 (1985)
• Pay-if-paid valid condition precedent to payment
• 2016 – Beal Bank Nevada v. Northshore Center THC, LLC, 2016
IL App (1st) 151697
• Pay-if-paid only valid if the contract contains:
• "plain and unambiguous statement sufficient to overcome our disfavor
for conditions precedent, particularly as to payment obligations."

30. Michigan
• Michigan case law
• Star of Detroit, Inc. v. Comerica, 1999 WL 33454888 (Mich. Ct. App.)
• Express conditions must be literally fulfilled.
• Able Demolition v. Pontiac, 739 N.W.2d 696 (Mich. Ct. App. 2007)
• Condition precedents are adhered to.
• 2016 Federal Case
• Literally construed the condition precedent for payment

31. Missouri
• A. Zahner Company v. McGowan Builders, Inc., 497 S.W.3d 779
(Mo. Ct. App. 2016)
• Pay if paid condition
• Interpretation
• Burden of clear expression on general contractor – MECO Systems, Inc. v.
Dancing Bear Entertainment, Inc., 42 S.W.3d 794 (Mo.App.S.D. 2001).
• Ambiguous provisions become a pay-when-paid provision, not if.
• If "clearly and unequivocally shifts the owner's credit risk from the general
contractor to the subcontractor" then "pay-if-paid."

32. Alternative Dispute Resolution (ADR)
Presented by Michael Rogers

33. Major themes this year:
Award of attorney’s fees and costs
after an arbitration award
When and how an arbitration award can bar later
adjudication of related claims
Compliance with contractual
dispute resolution procedure
How ADR affects
a limitations period

34. Arbitration
• An insurance policy’s suit limitation provision began to run when the physical
damage occurred, not when the insured was ordered to pay an arbitration award
stemming from that physical damage.
Dean Snyder Const. Co. v. Travelers Prop. Cas. Co.
of America, 173 F.Supp. 3d 837 (S.D. Iowa 2016).
2015: Arbitration
award to the
subcontractor.
2008:
Windstorm
starts the clock.
Original
construction's
subcontractor
re-hired to do
repair work.

35. Contractual Dispute Resolution Procedures
• A contractor’s failure to follow contractual dispute-resolution procedures results in
waiver of claims.
IPS Electric Servs., LLC v. Univ. of Toledo, 2016-Ohio-
361, 2016 WL 594499 (Ohio Ct. App. Feb. 2, 2016).
Exact date
of breach?
When the cost of
breach is known?

36. Arbitration
• A construction lien holder who prevails in arbitration may still qualify as a
“prevailing lien claimant” for purposes of collecting attorney’s fees under the
Michigan Construction Lien Act, even if the arbitration award satisfied the lien.
Ronnisch Constr. Grp., Inc. v. Lofts on the Nine,
LLC, 499 Mich. 544 (Mich. 2016)
Construction lien holder
+ foreclosure lien claim
+ breach-of-contract claim
— accepted arbitration award
Prevailing claimant

37. Arbitration
• Collateral estoppel bars tort claims after contractual claims are adjudicated in
arbitration.
W.J. O’Neil Co. v. Bulfinch, 2016 WL 4158380
(E.D. Mich., Aug. 5, 2016)
+ breach of contract claims
— arbitration award for contractual damages
+ tort claims
Nothing (tort claims barred by collateral estoppel after contract-
claims arbitration)

38. Arbitration
• An unenforceable “loser pays” attorney’s-fees provision does not render the entire
arbitration clause unenforceable.
Conte v. Blossom Homes, LLC, 63 N.E.3d 1245
(Ohio Ct. App. 2016)
!for any claim—
not just “bad faith,
groundless filings"
"Each party shall bear its own costs
and expenses and an equal share of
the arbitrator’s and administrative
fees of arbitration. Provided, however,
that under Article XV, the arbitrator
may award attorneys’ fees to the
prevailing party."

39. © 2017 Quarles & Brady LLP - This document provides information of a general nature. None of the information contained herein
is intended as legal advice or opinion relative to specific matters, facts, situations or issues. Additional facts and information or
future developments may affect the subjects addressed in this document. You should consult with a lawyer about your particular
circumstances before acting on any of this information because it may not be applicable to you or your situation.
Thank You
Charles Harper
Partner
Chicago office
(312) 715-5076
Charles.harper@quarles.com
Dave Muth
Partner
Milwaukee office
(414) 277-5621
David.muth@quarles.com
Lucy Dollens
Partner
Indianapolis office
(317) 399-2815
Lucy.Dollens@quarles.com
Eric Van Schyndle
Associate
Milwaukee office
(414) 277-5155
Eric.vanschyndle@quarles.com
Michael Rogers
Partner
Indianapolis office
(317) 399-2820
Michael.rogers@quarles.com