Illinois Association of Defense Trial Counsel P.O. Box 7288, Springfield, IL IDC Quarterly Vol. 11, No. 4 ( ) FEATURE ARTICLE:

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1 FEATURE ARTICLE: An Island of Repose Amid the Swirling Sea of Asbestos Litigation By: Gregory L. Cochran and Margaret M. Foster McKenna, Storer, Rowe, White & Farrug, Chicago Introduction Over the past decade, the landscape of asbestos litigation has undergone significant change nationwide. In the mid 1990 s, it was commonly thought that asbestos claims would slowly dwindle. Contrary to this expectation, there has been an exponential expansion in the number of asbestos cases pending in Illinois and across the country, as well as significant changes in the theories of liability and the profile of the defendants in these suits. Against the backdrop of an exploding asbestos docket in the nation s courts, the complexion of the cases is changing dramatically. As major mining and manufacturing defendants have fallen under the weight of tens and hundreds of thousands of asbestosrelated claims, 1 plaintiffs attorneys have shifted their focus from product defendants, such as miners, manufacturers and sellers of asbestos and asbestos-containing products, to service providers, such as construction, insulation and other contractors, and premises owners. A recent preliminary report of the RAND Institute for Civil Justice estimates that there are several thousand corporations currently named as defendants in asbestos cases, and that these companies may well represent a majority of the industry categories in the U.S. economy. 2 There are countless examples of the damage to industry sectors from asbestos litigation. Contractors and premises owners are now at risk as they find themselves caught in the recent wave of filings. Last year, Burns & Roe, an engineering and construction company, reported 12,000 pending cases, with a ten fold increase in the number of asbestos cases over a one year period and an increase in settlement demands by a factor of eight. 3 This is a company that never manufactured asbestos, but rather designed or constructed projects more than 30 years ago which incorporated some asbestoscontaining products. Further, anecdotal evidence demonstrates that many companies previously involved in a handful of lawsuits now find themselves confronted with more than a thousand or literally thousands of lawsuits filed over the past few years. Many of these businesses had no greater knowledge of the dangers of asbestos than the knowledge held by the general public. While legal scholars, commentators, legislators and representatives of industry have suggested a number of ways to address the explosion of asbestos litigation, 4 existing law provides potential defenses to defendants in Illinois. One such defense is the Illinois Construction Statute of Repose, which provides protection for engineers, contractors, premises owners and other defendants. 5 The Illinois Construction Statute of Repose is similar to statutes existing in several other states. 6 Generally, these statutes provide a maximum time limit within which a plaintiff must bring a personal injury claim, which begins to run upon substantial completion of the construction. Further, these Page 1 of 5

2 statutes serve to protect general and subcontractors, architects, engineers and premises owners who participate in the design and construction of real property improvements from unending liability in association with said construction. The Illinois Construction Statute of Repose Under the Illinois Construction Statute of Repose, set forth in Section (b) of the Code of Civil Procedure, no recovery may be maintained, on any legal theory, for injuries arising from an act or omission in the construction of an improvement to real property, unless the cause of action is brought within 10 years of the construction activity. Specifically, the Act provides: [n]o action based upon tort, contract or otherwise may be brought against any person for an act or omission of such person in the design, planning, supervision, observation or management of construction, or construction of an improvement to real property after 10 years have elapsed from the time of such act or omission. 7 Thus, the statute clearly designates the activities, specifically design, planning, supervision, observation or management of construction, or construction of an improvement, which are protected under the terms of the statute. The Activity Analysis Test and Its Application in Asbestos Litigation In applying the Construction Statute of Repose, the Illinois courts have developed an activity analysis test, whereby the specific activity of the defendant is the focus, rather than the category into which the defendant falls. 8 Thus, the courts have determined that even a manufacturer may be entitled to relief under the statute if its role in the construction extended beyond furnishing generally available, standard products, such as when the manufacturer substantially participates in the incorporation or installation of the product at the jobsite or custom design the product for the specific jobsite. 9 Further, in a well developed line of cases, the Illinois courts have held that the Construction Statute of Repose applies to cases involving asbestos. This issue was initially addressed in McIntosh v. A&M Insulation Co., 244 Ill. App.3d 247, 614 N.E.2d 203 (1st Dist. 1993), in which the court upheld summary judgment for an insulation contractor who installed asbestos-containing products. Subsequently, in Risch v. Paul J. Krez Company, 287 Ill. App.3d 194, 678 N.E. 2d 44 (1997), app. denied, 174 Ill. 2d 594, 678 N. E.2d 44 (1997), an insulation contractor who installed asbestoscontaining products on a labor and materials basis was protected by the Construction Statute of Repose. The court determined that the actions of the installer, under the applicable analysis of the defendant s activity, was the installation of products and that the associated sales of the installed products did not constitute distinct and unrelated sales activity. Rather, the supplying of materials was incident to the installation of those materials and part of the construction activity, and therefore protected by the construction statute. 10 Similarly, the Illinois Appellate Court has recognized that manufacturers who do not participate in the construction of a real property improvement, but merely supply standard products, are not entitled to protection under the construction statute of repose. 11 Thus, under the activity analysis test, the construction statute of repose bars a cause of action, not filed within ten years of completion of the construction, against a manufacturer defendant if that defendant s activity extends beyond manufacturing and supplying a generally available product, such a manufacturing custom made products for the construction in issue. 12 In Krueger v. A.P. Green Refractories Co., 283 Ill. App.3d 300, 669 N. E.2d 947 (3rd Dist. 1996), the court addressed the application of the Construction Statute of Repose to a defendant who made discrete sales of asbestos rope, in addition to installing other asbestos-containing products which it Page 2 of 5

3 supplied to the site. In applying the activity analysis test, the court favorably cited cases holding that the Act does not apply to a manufacturer unless the manufacturer performs a construction-related role beyond supplying its standard products. 13 The court noted that there was no reason to treat sellers and distributors differently from manufacturers. 14 While the court reversed the summary judgment order, finding that Section (b) does not apply to [the plaintiff] s claim that arise out of [the defendant] s sale of asbestos products, 15 this ruling is consistent with Risch as there were independent, discrete sales of asbestos products in Krueger. 16 Recently, in King v. Paul J. Krez Company, 323 Ill. App.3d 532, 752 N.E.2d 605, appeal denied, 195 Ill. 2d 579, N.E.2d (2001), the Illinois Appellate Court, First District, affirmed entry of summary judgment on behalf of Krez and Brand Insulations, pursuant to the Construction Statute of Repose. Krez and Brand were installers of insulation, including asbestos-containing insulation, and the plaintiff asserted that her decedent was exposed to asbestos from products associated with these defendants between the years 1964 to Plaintiff alleged that these defendants manufactured, sold or installed asbestos-containing materials, and further asserted that the defendants purchased asbestoscontaining products, marked up the cost of said materials, resold them for a profit, and made claims for tax exemption based upon the resale of these products. According to the plaintiff, these sales activities were not protected under the Act. However, the court determined that the plaintiff was attempting to hold the defendants liable for the sales of insulation incident to the installation of that product, an argument rejected in Risch. 17 King reiterated that selling or supplying a product which that defendant installs falls within the ambit of construction activity, and that the focus of the activity analysis is the construction-related activity of the defendant, rather than the product utilized in the construction activity. The Asbestos Exception In contrast to the holdings in King, Risch, Krueger and McIntosh, the Fourth District Appellate Court, in Boldini v. Sprinkmann, 318 Ill. App.3d 1167, 744 N.E.2d 370 (4th Dist. 2001), appeal denied, 195 Ill. 2d 548, N.E.2d (2001), created an asbestos exception to the construction statute of repose. In that case, the evidence established that the defendant-contractor made sales incidental to the installation of asbestos containing products pursuant to a labor and materials contract, and further made independent and direct sales of asbestos containing materials. The court determined that a sale of an asbestos-containing product, whether incidental to installation of that product or a direct sale unrelated to construction activity, was not protected under the Act. Further, the court emphasized that this exception to the application of the Construction Statute of Repose applied only to asbestos cases. The Boldini opinion includes an analysis and comparison of the First District decision in Risch and the Third District Krueger decision. The Boldini court, citing the decision in Krueger found that a sale is a sale, but further held that this rule applied only when the sold and installed product contained asbestos. Specifically, the court held: Section (b) applies to the activity of installing asbestos-containing materials but not to the related sales and distribution of the asbestos-containing materials. However, we emphasize that this rule applies only to claims dealing with asbestos. 18 The opinion contains no explanation or basis for this asbestos exception. The asbestos exception created in Boldini is a clear departure from previously established precedent. The McIntosh court was confronted with a challenge to the construction statute of repose for purported asbestos-related latent disease claims. The court found that: Page 3 of 5

4 [i]n the case at bar, the language of the statute unambiguously states that the 10-year repose period applies to all actions based on tort. The plaintiff argues that because the legislative debates do not contain a reference to latent disease claims, the legislature must not have intended the statute to apply to such claims. We cannot accept this argument. Where the language of the statute is clear and unambiguous, as it is here, the court have no authority to carve out exceptions. 19 The McIntosh court, citing Olson v. Owens-Corning Fiberglas Corp., 198 Ill. App.3d 1039, 556 N.E.2d 716 (1st Dist. 1990), noted that a legitimate concern that the statute may burden some classes of plaintiffs more than others was not an adequate basis to ignore the clear language of the statute. In King, the court rejected the plaintiff s claim that the common law discovery rule, rather than the construction statute of repose, should apply to asbestos cases, due to the latency period associated with asbestos-related injuries. 20 The court in King directly addressed the Boldini decision, setting forth the conclusion that the Boldini court wrongly interpreted the Third District s holding in Krueger. 21 The King court held that a proper interpretation of the facts in Krueger required the Krueger court to find that only those claims of the plaintiff which arose from the sale of the asbestos-containing rope [a product not installed by the defendant in Krueger and therefore not a sale incident to installation of the product] were not barred by Section and that those portions of the plaintiff s complaint which stemmed from sales incident to installation were indeed barred by Section (b). 22 The court noted that the only conflict that exists between the First and Third District [or the Risch and Krueger decisions] is the one that has been created by the Fourth District in Boldini. 23 Boldini therefore stands alone as the only appellate decision to carve out an asbestos exception to the Construction Statute of Repose. Conclusion Construction statutes of repose provide an effective tool for many asbestos defendants to defend themselves against the nationwide onslaught of new filings. Protection under the Illinois Construction Statute of Repose is potentially available for contractors, premises owners and other defendants involved in the construction of improvements to real property. Except for one isolated decision in the Fourth District, Illinois appellate courts have consistently found the Construction Statute of Repose applicable to asbestos defendants. Thus, for many Illinois defendants, the Construction Statute of Repose provides an island of repose amid the swirling sea of asbestos litigation. Endnotes 1 It is widely reported that more than 25 companies have sought relief from asbestos claims through bankruptcy filings, with a significant portion of those filings occurring within the last 2 years. Further, it has been reported that some defendants have received half a million or more claims. 2 Hensler, D., Asbestos Litigation in the U.S.: A New Look at an Old Issue, Preliminary Report, Rand Institute for Civil Justice, August 2001 et al., supra. 3 Engineering News Record Editorial, Time to Bring Order to Asbestos Litigation, 12/18/00. 4 See, e.g., Hensler, supra; Ortiz v. Fibreboard, 527 U.S. 815, 119 S. Ct. 2295, 144 L. Ed.2d 715 (1999); proposed legislation, such as the Fairness in Asbestos Compensation Acts, including H.R. 1283; Schwartz, V.E. and Lorber, L., A Letter to the Nation s Trial Judges: How the Focus on Efficiency is Hurting You and Innocent Victims in Asbestos Liability Cases, Am. Jour of Trial Advocacy, Vol (2000) ILCS 5/ See, e.g., M.C. L ; ICA ILCS 5/13-214(b). Page 4 of 5

5 8 See, e.g., People ex rel. Skinner v. Hellmuth, Obata & Kassabaum, 114 Ill. 2d 252, 261, 500 N.E.2d 34 (1986); Adcock v. Montgomery Elevator Co., 247 Ill. App.3d 519, 654 N.E.2d 631 (1st Dist. 1991). 9 Risch v. Paul J. Krez Company, 287 Ill. App.3d 194, 198, 678 N.E. 2d 44 (1st Dist. 1997), citing People v. Asbestospray Corp., 247 Ill. App.3d 258, 616 N.E.2d 652 (1993). 10 Risch, supra, 287 Ill. App.3d at Illinois Masonic Medical Center v. A.C. & S, et al., 226 Ill. App. 3d 631, 640 N.E.2d 31 (1st Dist. 1994); People v. Asbestospray, 247 Ill. App. 3d 258, 616 N.E.2d 652 (4th Dist. 1993). 12 Illinois Masonic, supra, 266 IllApp.3d Krueger, supra, 283 Ill. App. 3d at 304, citing People v. Asbestospray Corp., supra, 247 Ill. App. 3d at Krueger, supra, 283 Ill. App. 3d at For a detailed discussion of this issue, see, G. Cochran and K. Dvorsky, The Sale of a Product, Incidental to Its Installation, Is a Protected Activity Under the Construction Statute of Repose, IDC Quarterly, First Quarter, 1998, Vol. 8, No King, supra, 752 N.E.2d at Boldini, supra, 318 Ill. App.3d at McIntosh, supra, 244 Ill. App.3d at King, supra, 752 N.E.2d at King, supra, 752 N.E.2d at ABOUT THE AUTHORS: Gregory L. Cochran is a partner in the firm of McKenna, Storer, Rowe, White & Farrug in Chicago, where he concentrates his practice in the defense of toxic tort and other product related claims. He received his J.D. in 1980 from the University of Michigan Law School and his B.A. in 1977 from the University of Michigan. Mr. Cochran is a member of the IDC and DRI. He has served as a member of the Board of Directors of the IDC since Margaret M. Foster is an attorney with McKenna, Storer, Rowe, White and Farrug in Chicago, where her practice is devoted to litigation, including the defense of toxic tort and general product liability claims. She obtained her J.D. with Honors from the University of Arkansas in Ms. Foster is a past president of the Women s Bar Assocation of Illinois, and is a current board member of the National Association of Women Lawyers, and is a member of the ABA, IDC and DRI. Page 5 of 5