Hotel Owner’s Indemnity Clause Dismissed By Illinois Appellate Court

By: Werner Sabo, Of Counsel

A recent Illinois Appellate Court opinion, Sandlin v. Harrah’s Illinois Corp, 2016 IL App (3d) 150018 (Ill.App. 3d Dist., Sept. 2, 2016), addressed an indemnification provision contained in a contract between an owner and architect. The architect was hired in 1999 to design a hotel which was completed the following year. In 2004, a guest at the hotel slipped and fell outside his shower, causing serious injury. In the litigation that ensued the hotel and architect were named as defendants along with other parties. All of these parties filed counterclaims against each other. One of those counterclaims was by the owner against the architect, based on a contractual indemnification provision in the owner-architect agreement that read:

“5.1 Indemnification. To the fullest extent permitted by law, Architect, on behalf of itself and its agents (all of said parties are herein sometimes collectively referred to as the ‘Indemnitors’), shall fully indemnify, defend, save and hold Owner, its partners, all successor owners and/or partners and their agents, employees, partners and anyone else acting for or on behalf of any of them (all of said parties are herein collectively referred to as the ‘Indemnitees’) harmless from and against all liability, damage, loss, claims, demands, actions and expenses of any nature whatsoever including, but not limited to reasonable attorney’s fees which arise out of or are connected with, or are claimed to arise out of or be connected with: (i) any negligent act, error or omission or any willful misconduct or other fault by any Indemnitor in the performance of any services to be performed hereunder; (ii) any failure to comply with applicable laws, codes, rules, regulations or ordinances; (iii) any breach of any obligations of Indemnitors as set forth in this Agreement.”

During the course of the litigation, all of the various claims and counterclaims were settled, except for the claim by the owner against the architect. Based on the good-faith settlements of all the parties, the architect moved for summary judgment on this claim. This motion was granted and the appeal followed.

The hotel argued that its counterclaim should not have been dismissed because the defense-cost obligation contained in the indemnification clause was valid and because the owner had a constitutional right to enforcement of that obligation. The owner further argued that, if the legislature had intended to extinguish contract claims for defense-cost reimbursement with respect to settlements reached under the Contribution Act, it could have specifically done so. Instead, the owner argued, the Contribution Act is silent on the matter and does not in any way restrict the right of parties to freely contract for the allocation of defense costs.

The court found that the provision quoted above was, in reality, for contribution and not indemnification, citing Pierre Condominium v. Lincoln Park West Associates, LLC, 881 N.E.2d 588 (Ill.App. 1 Dist., 2007)(similar facts). Because full indemnification is not enforceable in Illinois per the Indemnification Act, and partial indemnity does not exist in Illinois, the clause must be for contribution. As such, the Contribution Act requires the remaining counterclaim to be dismissed. The lower court was affirmed.

Chicago, Illinois 312-377-1501 | Schererville, Indiana 219-488-2590

Chicago, Illinois

312-377-1501


Schererville, Indiana

219-488-2590