Hennessy Industries was a car part manufacturer. It was sued frequently for asbestos-related personal injury claims. Hennessy sought insurance coverage for these claims from National Union Fire Insurance Co. The companies entered into a cost-sharing agreement in 2008. However, as the lawsuits and claims came in, Hennessy asked National Union to indemnify its settlements and defense costs. To resolve their differences about what was owed, Hennessy demanded arbitration under the agreement. Illinois law would be applied.
Hennessy filed a lawsuit against National Union under the Illinois Insurance Code, 215 ILCS 5/155(1), which provides that, in cases involving vexatious and unreasonable delay, the court may award reasonable attorney fees, other costs, plus an additional amount.
Hennessy claimed that National Union’s delays in providing coverage were vexatious and unreasonable. The federal district court judge in Chicago declined to dismiss the case, acknowledging a provision that “the arbitrator shall not be empowered or have jurisdiction to award punitive damages, fines or penalties,” but held that Hennessy’s claim arose under statutory law rather than under the cost-sharing agreement.
National Union appealed under 9 U.S.C. 16(a)(1)(A), (B), the Federal Arbitration Act. The 7th Circuit Court of Appeals in Chicago reversed the decision of the trial court stating that Hennessy waived any right to ask the arbitrator to award punitive damages, fines or penalties for any allegedly unreasonable delay. Having submitted a dispute to arbitration that explicitly excludes a particular remedy; a party cannot sue in court for that remedy. The decision was written by Hon. Richard Posner.
The appeal was brought to the U.S. Court of Appeals for the 7th Circuit as an interlocutory appeal in a diversity case that was governed by Illinois law. It was National Union’s motion to dismiss the case in the federal court because of the arbitration clause that required the dispute to be arbitrated.
Basically what the court found was that the courts cannot intervene in a pending arbitration in the middle. Review comes either at the beginning or at the end, but not in the middle. Central States, Southeast & Southwest Areas Pension Fund v. U.S. Foods, Inc., 761 F.3d 687, 689 (7th Cir. 2014).
In summary, National Union was correct that Hennessy in the agreement waived any rights to ask the arbitrator to award damages, fines or penalties for National Union’s unreasonable delay in honoring Hennessy’s claims. Because the dispute was submitted to arbitration by an agreement that explicitly excluded the particular remedy, a party cannot now sue in court for that excluded remedy. For those reasons, the court of appeals reversed the decision of the trial court and instructed to order arbitration of Hennessy’s Section 155 claim and dismiss the lawsuit.
Hennessy Industries Inc. v. Nat’l Union Fire Insurance Co. of Pittsburgh, No. 14-1277, U.S. Court of Appeals for the 7th Cir., Oct. 28, 2014.
Kreisman Law Offices has been handling work injuries, construction accidents, car accident cases, truck accident cases and nursing home abuse cases for individuals and families who have been harmed, injured or died as a result of the carelessness or negligence of another for more than 38 years in and around Chicago, Cook County and its surrounding areas, including Downers Grove, Elmwood Park, Melrose Park, Bellwood, Maywood, Rosemont, Richton Park, River Grove, Chicago (Rogers Park, Hyde Park, Chinatown, Greek Town, Uptown, Logan Square, Hegewisch), Schaumburg, Schiller Park, Bolingbrook, Romeoville, Hillside and Calumet City, Ill.
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