Travelers Cas. and Sur. Co. v. A.G. Carlson

• Decision Date: 30 October 2006
• Docket Number: No. 2-05-1041.,2-05-1041.
• Citation: 306 Ill.Dec. 491,858 N.E.2d 491
• Parties: TRAVELERS CASUALTY AND SURETY COMPANY, as Successor to Reliance Insurance Company and United Pacific Insurance Company, Plaintiff-Appellant, v. A.G. CARLSON, INC., Defendant (James A. Bowman and Barbara B. Bowman, Defendants-Appellees).
• Court: United States Appellate Court of Illinois

858 N.E.2d 491

306 Ill.Dec. 491

TRAVELERS CASUALTY AND SURETY COMPANY, as Successor to Reliance Insurance Company and United Pacific Insurance Company, Plaintiff-Appellant, v. A.G. CARLSON, INC., Defendant (James A. Bowman and Barbara B. Bowman, Defendants-Appellees).

No. 2-05-1041.

Appellate Court of Illinois, Second District.

October 30, 2006.

COPYRIGHT MATERIAL OMITTED

John E. Sebastian, Stephen R. Swofford, Clifford E. Yuknis, Hinshaw & Culbertson LLP, Chicago, for Travelers Casualty & Surety Company.

Carl F. Safanda, Safanda Law Firm, Geneva, for Barbara B. Bowman, James A. Bowman.

Randall I. Marmor, Agelo L. Reppas, Clausen Miller P.C., Chicago, for Amicus Curiae.

Justice BOWMAN delivered the opinion of the court:

This case raises the issue of which of three limitations periods applies in an action for the breach of a written indemnity agreement following a surety's payout on a construction bond: the two-year limitations period of section 13-204 of the Code of Civil Procedure (Code) (735 ILCS 5/13-204 (West 2004)) for contribution and indemnity actions; the four-year limitations period of section 13-214(a) of the Code (735 ILCS 5/13-214(a) (West 2004)) for the construction of improvements to real property; or the 10-year limitations period of section 13-206 of the Code (735 ILCS 5/13-206 (West 2004)) for the breach of written contracts. We conclude that, under the facts of this case, section 13-206's 10-year limitations period for written contracts applies.

I. BACKGROUND

On October 5, 2004, plaintiff, Travelers Casualty and Surety Company, as successor to Reliance Insurance Company (Reliance) and United Pacific Insurance Company (United Pacific), filed suit against defendants, A.G. Carlson, Inc. (AGC), James A. Bowman, and Barbara B. Bowman. AGC was a construction contractor. From 1992 to 1998, James was AGC's president and Barbara was AGC's sole shareholder. In 1992, AGC was awarded contracts to provide and install structural steel and metal fabrications for public construction projects. Specifically, AGC was awarded subcontracts for work related to the expansion of the Du Page County jail the construction of the Federal Correctional Institution and prison camp in Pekin, and the expansion of Faraday Hall on Northern Illinois University's campus in De Kalb. Reliance and United Pacific, acting as sureties, issued three performance and payment bonds to AGC to guarantee its fulfillment of the construction contracts. The bond contract required that AGC, James, and Barbara sign an indemnity agreement.

AGC defaulted on its construction contracts. As a result, Reliance appeared in two suits related to the performance bond for the Faraday Hall construction project. In the first suit, it appeared on September 12, 1994. In the second suit, it was served with the summons and complaint through the Department of Insurance on September 15, 1994, and it appeared on November 16, 1994. On November 4, 1994, an action was filed against Reliance in federal court relating to the Pekin prison project. AGC filed for bankruptcy on December 12, 1994, and Reliance appeared in that proceeding on January 23, 1995. On September 18, 1995, in the bankruptcy proceeding, Reliance filed a proof of claim for $262,277.47, relating to the performance bonds issued to AGC for the Faraday Hall and Pekin prison projects. On April 26, 1996, United Pacific entered its appearance in a suit based on the performance bond it issued to AGC for the Du Page County jail project.

In total, Reliance and United Pacific became liable for $343,900.69 in damages under the construction bonds they had issued to AGC. Plaintiff, as successor to Reliance and United Pacific, demanded that defendants indemnify it for this amount, plus interest, but defendants refused. Plaintiff filed this action on October 5, 2004, alleging that defendants had breached the indemnity agreement. On January 18, 2005, AGC was dismissed as a party, with prejudice. The Bowmans subsequently moved to dismiss under section 2-619(a)(5) of the Code (735 ILCS 5/2-619(a)(5) (West 2004)). They argued that plaintiff's action accrued from 1994 to 1996, and that section 13-214(a)'s four-year limitations period for actions related to the construction of improvements to real property barred plaintiff's claims. Plaintiff argued that section 13-206's 10-year statute of limitations for written contracts applied because its suit was based on the breach of a written indemnity agreement. Plaintiff submitted documents showing that the first payment made as a result of claims on the construction bonds was on October 10, 1994, when Reliance made a payment for legal services arising out of the claim made on the Faraday Hall project. The last payment made as a result of claims on the construction bonds was on December 20, 1999.

The trial court granted the Bowmans' motion to dismiss. It ruled that plaintiff's action accrued when Reliance and United Pacific learned of the bond claims and that section 13-214(a)'s four-year statute of limitations applied. Plaintiff timely appealed. It argues that the trial court erred by not applying section 13-206's 10-year limitations period. We have allowed the Surety and Fidelity Association of America to file an amicus curiae brief in support of plaintiff. See Official Reports Advance Sheet No. 26 (December 21, 2005), R. 345, eff. December 6, 2005.

II. ANALYSIS

The trial court granted the Bowmans' motion to dismiss under section 2-619(a)(5) of the Code (735 ILCS 5/2-619(a)(5) (West 2004)), which allows for the involuntary dismissal of an action that "was not commenced within the time limited by law." We review de novo a dismissal under section 2-619(a)(5). Prate Installations, Inc v. Thomas, 363 Ill.App.3d 216, 218, 299 Ill.Dec. 853, 842 N.E.2d 1205 (2006).

As stated, plaintiff argues that the trial court erred by applying the four-year construction statute of limitations rather than the 10-year limitations period for written contracts. The Bowmans argue that the trial court applied the correct statute. They alternatively argue, for the first time on appeal, that the two-year limitations period for contribution and indemnity actions applies. The Bowmans maintain that they can advance this argument because we may affirm the trial court's decision on any basis supported by the record, regardless of the trial court's reasoning. See Cangemi v. Advocate South Suburban Hospital, 364 Ill.App.3d 446, 460, 300 Ill. Dec. 903, 845 N.E.2d 792 (2006); see also Schanowitz v. State Farm Mutual Automobile Insurance Co., 299 Ill.App.3d 843, 848, 234 Ill.Dec. 289, 702 N.E.2d 629 (1998) (an appellee may raise an issue for the first time on appeal to sustain the trial court's judgment as long as the factual basis for that issue was before the trial court). Plaintiff counters that this rule does not apply to an affirmative defense, such as a statute of limitations, because a party who fails to plead an affirmative defense waives that defense. See Smith v. Menold Construction, Inc., 348 Ill.App.3d 1051, 1058, 285 Ill.Dec. 116, 811 N.E.2d 357 (2004) (a defendant who fails to raise an affirmative defense in the trial court forfeits that defense).

Section 2-613(d) of the Code (735 ILCS 5/2-613(d) (West 2004)) requires a party to set forth in its answer or reply any affirmative defense that is likely to take the opposite party by surprise. Here, the Bowmans raised section 13-214(a)'s limitations period in their motion to dismiss, and plaintiff countered that section 13-206's limitations period applied. As the issue of the applicable limitations period was before the trial court, we conclude that the Bowmans have not waived their argument that section 13-204 applies. See also Dial Corp. v. Marine Office of America, 318 Ill.App.3d 1056, 1066, 252 Ill.Dec. 753, 743 N.E.2d 621 (2001) (affirming trial court's judgment on the ground that section 13-206's limitations period applied, even though the defendant had argued in the trial court that the limitations period of its insurance policy applied).

Section 13-204 states that, with a few exceptions, it "shall preempt, as to contribution and indemnity actions only, all other statutes of limitation or repose." 735 ILCS 5/13-204(c) (West 2004). Due to this broad preemption language, we shall examine this statute first. Section 13-204 is entitled "Contribution and indemnity" and provides in its entirety:

"(a) In instances where no underlying action seeking recovery for injury to or death of a person or injury or damage to property has been filed by a claimant, no action for contribution or indemnity may be commenced with respect to any payment made to that claimant more than 2 years after the party seeking contribution or indemnity has made the payment in discharge of his or her liability to the claimant.

(b) In instances where an underlying action has been filed by a claimant, no action for contribution or indemnity may be commenced more than 2 years after the party seeking contribution or indemnity has been served with process in the underlying action or more than 2 years from the time the party, or his or her privy, knew or should reasonably have known of an act or omission giving rise to the action for contribution or indemnity, whichever period expires later.

(c) The applicable limitations period contained in subsection (a) or (b) shall apply to all actions for contribution or indemnity and shall preempt, as to contribution and indemnity actions only, all other statutes of limitation or repose, but only to the extent that the claimant in an underlying action could have timely sued the party from whom contribution or indemnity is sought at the time such claimant filed the underlying action, or in instances where no underlying action has been filed, the payment or discharge of the obligation of the party seeking contribution or indemnity is made before any such underlying action would have been barred by lapse of time.

(d) The...