Two Ways a Renovation Goes Wrong

A homeowner signs a $250,000 renovation contract. Midway through, a plumbing subcontractor cuts a supply line that leaks over a weekend into the finished basement, causing about $50,000 in damage. Then a month later, the contractor announces the project will cost another $50,000 for problems it says it had to fix, although the contract requires signed change orders and the homeowner signed none.

The contractor insists the work was necessary, and that if the homeowner refuses to pay, he threatens to stop construction. The homeowner now has two disputes with the same contractor, and the law treats them very differently.

Damage to the Home Versus Defective Work

When a contractor installs crooked cabinets or uneven flooring, the homeowner generally has a breach-of-contract claim. Illinois's economic loss doctrine ordinarily prevents turning the cost of correcting poor workmanship into a negligence lawsuit.

But flooding a finished basement is different. Sudden damage to other property supports a negligence claim, which can reach the subcontractor who cut the line even though the owner never contracted with it. The general contractor also remains responsible under its contract for the subcontractors it hired.

The Contractor's Insurance May Cover the Damage

Most contractors carry commercial general liability coverage. In Acuity v. M/I Homes of Chicago, LLC, 2023 IL 129087, the Illinois Supreme Court held that property damage arising from defective work can be an “occurrence” under a CGL policy. However, whether the insurer actually pays then depends on the policy's exclusions and exceptions.

Here, the distinction between the damaged pipe and the flooded basement matters. The cost of correcting the plumber's faulty work may be excluded under ____ Damage to a finished basement outside the renovation area presents a stronger coverage argument.

The homeowner's own property policy may also offer another route. Sudden water damage is often covered, even when repairing the faulty workmanship itself is not. If the homeowner's insurer pays, it may seek reimbursement from the responsible contractor or subcontractor through subrogation. But the construction contract may contain a waiver limiting that right.

Billing Dispute With the Contractor

As for the billing dispute, it starts with the contract. For instance, if the specifications already required the contractor to replace the plumbing, a $12,000 charge for doing so conflicts with the contract. If demolition revealed structural damage neither party anticipated, a concealed conditions clause may permit additional compensation, but only on the terms the clause sets.

A written change order requirement can be waived by conduct. In Watson Lumber Co. v. Guennewig, 79 Ill. App. 2d 377 (1967), the Appellate Court recognized waiver but required clear and convincing evidence, typically work plainly outside the original scope and convincing proof that the owner requested it or agreed to pay. Thus, an owner who repeatedly asked for upgrades and accepted added charges without paperwork may have waived the change order requirement. But an owner who merely watched the work happen generally does not.

At the same time, a disputed bill can quickly become a threat to the property itself. Under the Illinois Mechanics Lien Act, contractors meeting statutory requirements may claim liens for unpaid construction work. However, recording a lien does not establish that every amount demanded is valid. Nor can a contractor necessarily abandon a project whenever an invoice is disputed. The right to suspend work depends on the agreement and whether payment is actually due.

The homeowner must be careful too. Terminating the contractor without observing contractual notice and cure requirements can create another dispute.

Evidence Decide Both Disputes

An insurance claim, a contract dispute, and a mechanics lien may all arise from the same renovation. However, water damage can be torn out quickly, and the cut pipe often ends up in a dumpster. Therefore, a policyholder should take Photographs, inspect property before repairs, and document the loss as much as possible. On billing, the contract and specifications, earlier change orders, texts approving or questioning work, and the contractor’s support for each added charge carry the most weight. Further, policyholders should give potentially responsible insurers prompt notice and a reasonable opportunity to investigate before destructive repairs, where practicable.

We help homeowners recover construction-related property damage from contractors and insurers, and contest unapproved charges and liens. Contact us to discuss your matter.

This article provides general information and does not constitute legal advice. For guidance concerning a specific matter, see our insurance recovery services. Coverage depends on the policy wording, the facts, and applicable law. To discuss potential representation, request a consultation. Submitting an inquiry does not establish an attorney-client relationship.