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Hennessy Indus., Inc. v. National Union Fire Ins. Co. of Pittsburgh

United States Court of Appeals, Seventh Circuit

October 28, 2014

HENNESSY INDUSTRIES, INC., Plaintiff-Appellee,
v.
NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA, Defendant-Appellant

Argued September 16, 2014.

Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 13 C 6126 -- Elaine E. Bucklo, Judge.

For HENNESSY INDUSTRIES, INC., for itself and as successor-in-interest to Ammco Tools, Inc., Plaintiff - Appellee: Angela R. Elbert, Attorney, Jason A. Frye, Attorney, Neal, Gerber & Eisenberg Llp, Chicago, IL; Brian J. Osias, Attorney, Gita F. Rothschild, Attorney, Mccarter & English, Newark, NJ.

For NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA, a Pennsylvania corporation, Defendant - Appellant: David C. Butman, Attorney, Brent J. Graber, Attorney, Hinkhouse Williams Walsh, Llp, Chicago, IL.

Before BAUER, POSNER, and EASTERBROOK, Circuit Judges.

OPINION

Page 677

Posner, Circuit Judge.

Before us is an interlocutory appeal in a diversity case governed by Illinois law. Hennessy Industries, a large manufacturer of car parts that has been beset by asbestos-related personal injury claims, has been seeking coverage by National Union Fire Insurance Company of Pittsburgh, PA, of asbestos claims against Hennessy that date from the 1980s. The companies entered into a confidential Cost Sharing Agreement in 2008, and as claims against Hennessy by asbestos victims came rolling in, Hennessy asked National Union to indemnify it for settlement and defense costs, as provided in the agreement. But the two parties couldn't agree over what was owed. According to Hennessy, National Union withheld payments due Hennessy under the agreement and violated it in other ways. To resolve their differences Hennessy demanded arbitration in accordance with a provision of the agreement that provides for arbitration of disputes between the parties and instructs the arbitrators to apply Illinois law.

Last year Hennessy filed the suit out of which this appeal arises. It is a suit under 215 ILCS 5/155(1), a section of the Illinois Insurance Code captioned " Attorney fees," which provides that

In any action by or against a company wherein there is in issue the liability of a company on a policy or policies of insurance or the amount of the loss payable thereunder, or for an unreasonable delay in settling a claim, and it appears to the court that such action or delay is vexatious and unreasonable, the court may allow as part of the taxable costs in the action reasonable attorney fees, other costs, plus an amount not to exceed any one of the following amounts: (a) 60% of the amount which the court or jury finds such party is entitled to recover against the company, exclusive of all costs; (b) $60,000; (c) the excess of the amount which the court or jury finds such party is entitled to recover, exclusive of costs, over the amount, if any, which the company offered to pay in settlement of the claim prior to the action.

Page 678

Hennessy claimed that National Union's delays in providing coverage of the asbestos claims had been vexatious and unreasonable. National Union, contending that the arbitration clause in the cost-sharing agreement required arbitration of Hennessy's section 155 claim (" section 155" is the parties' shorthand for section 5/155(1)) as well as of the parties' other disputes, moved the district court to order arbitration and dismiss Hennessy's suit. The district judge denied the motion on the basis both of a statement in the arbitration clause that " the arbitrators shall not be empowered or have jurisdiction to award punitive damages, fines or penalties," and the judge's belief that Hennessy's claim arose under Illinois statutory law rather than under the cost-sharing agreement. National Union appeals the denial pursuant to 9 U.S.C. § § 16(a)(1)(A), (B), which are provisions of the Federal Arbitration Act that authorize appeal from orders denying referral to arbitration in a class of cases that includes Hennessy's litigation with National Union.

Had National Union been asking the district court to intervene in the arbitrators' adjudication, the court would not have had jurisdiction. A party to arbitration can't, while the arbitration of an issue is proceeding, ask a court, whether the district court or this court, to weigh in on the issue. " A party's request to tell an arbitrator how to act in a pending proceeding is not a request to compel arbitration, no matter what caption the litigant puts on its motion. ... Judges must not intervene in pending arbitration to direct arbitrators to resolve an issue one way rather than another. Review comes at the beginning or the end, but not in the middle. Once the arbitration is over, the losing side can seek judicial review." Central States, Southeast & Southwest Areas Pension Fund v. U.S. Foods, Inc., 761 F.3d 687, 689 (7th Cir. 2014) (citations and interior quotation marks omitted); see also Blue Cross Blue Shield of Massachusetts, Inc. v. BCS Ins. Co., 671 F.3d 635, 637-38 (7th Cir. 2011). But that is not this case. National Union is asking that an additional issue be submitted to arbitration, rather than that the arbitrator be instructed to resolve an issue in an existing arbitration a certain way. The district judge's denial of the request is therefore within the scope of 9 U.S.C. § 16(a)(1)(B), which authorizes an interlocutory appeal from an order " denying a petition ... to order arbitration to proceed." So the district court had, and we have, jurisdiction.

National Union makes several arguments for reversal of the denial of its motion to compel arbitration and dismiss Hennessy's suit. One is that the passage the district judge quoted from the arbitration clause in the cost-sharing agreement--" the arbitrators shall not be empowered or have jurisdiction to award punitive damages, fines or penalties" --is a waiver of any claim that Hennessy might have under section 155; the fact that the cost-sharing agreement tells the arbitrator to apply substantive Illinois law just means that Illinois law rather than some other body of law is to govern; it does not preclude waivers. But National Union's main argument is that the cost-sharing agreement requires arbitration of " any dispute" that requires " interpretation" of the agreement, and because the finder of fact will have to interpret that agreement in order to determine ...


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