Hennessy Industries, Inc. v. National Union Fire Insurance
2014 U.S. App. LEXIS 20670
7th Cir.2014Background
- Diversity case governed by Illinois law; interlocutory appeal from district court's denial to compel arbitration under the Cost Sharing Agreement between Hennessy and National Union.
- Hennessy seeks coverage indemnification for asbestos-related settlements/defense costs; dispute centers on payments National Union allegedly withholds.
- Arbitration clause requires arbitration of disputes and directs arbitrators to apply Illinois law; district court found no arbitration for Hennessy’s §155 claim due to punitive-damages limitation and mischaracterization as state-law action.
- Hennessy brings §155(1) attorney-fees action under Illinois Insurance Code seeking penalties for vexatious delays; National Union wants arbitration of the §155 claim as within the agreement.
- National Union argues the agreement compels arbitration of any dispute interpreting the agreement; district court denied, but FAA §16(a) allows interlocutory appeal from denial to compel arbitration.
- Court must decide whether §155 claim is arbitrable under the agreement and whether Illinois law or FAA controls; decision ultimately reverses district court and orders arbitration of §155 claim.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether §16(a) appeal proper to review denial to compel arbitration. | Hennessy seeks review of district court denial. | National Union seeks interlocutory review. | Yes; jurisdiction exists under 9 U.S.C. §16(a). |
| Whether the §155 claim must be heard in arbitration under the cost-sharing agreement. | §155 involves vexatious delay in payment by insurer, interprets the agreement. | Arbitration clause covers disputes interpreting the agreement. | §155 claim is arbitrable; must be submitted to arbitration. |
| Whether FAA preempts §155 under McCarran-Ferguson Act. | §155 is preempted by federal arbitration law. | §155 is state insurance regulation; McCarran-Ferguson preserves it. | McCarran-Ferguson applies; FAA does not preempt §155. |
| Whether arbitration can enforce the remedies under §155 or the remedy is procedural. | §155 provides extracontractual remedy in action on policy. | Remedy is procedural; arbitration may enforce only under agreement. | Arbitration may enforce the remedy as to the §155 claim under the agreement. |
Key Cases Cited
- Central States, Southeast & Southwest Areas Pension Fund v. U.S. Foods, Inc., 761 F.3d 687 (7th Cir. 2014) (limits on judicial intervention in pending arbitration)
- Blue Cross Blue Shield of Massachusetts, Inc. v. BCS Ins. Co., 671 F.3d 635 (1st Cir. 2011) (review of arbitration decisions during ongoing proceedings)
- Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614 (U.S. 1985) (arbitrability of antitrust claims)
- Cramer v. Insurance Exchange Agency, 675 N.E.2d 897 (Ill. 1996) (remedy vs. cause of action; extracontractual remedy under §155)
- Westchester Fire Insurance Co. v. General Star Indemnity Co., 183 F.3d 578 (7th Cir. 1999) (§155 created remedy, not a standalone action)
- Smith v. State Farm Insurance Companies, 861 N.E.2d 183 (Ill. App. 2006) (intermediate Illinois decision on §155; reliance diminished)
- Amerisure Mutual Ins. Co. v. Global Reinsurance Corp. of America, 927 N.E.2d 740 (Ill. App. 2010) (Arbitrators’ authority under §155 debate; state appellate view)
- Pilot Life Ins. Co. v. Dédeaux, 481 U.S. 41 (U.S. 1987) (McCarran-Ferguson context; preemption concept)