Court Opinion

ID: 2746178
Source: CourtListenerOpinion
Date Created: 2014-10-28 22:00:59.636355+00
Date Added: 2024-06-11T10:13:49.873911
License: Public Domain

In the

    United States Court of Appeals
                 For the Seventh Circuit
                     ____________________
No. 14-1277
HENNESSY INDUSTRIES, INC.,
                                                   Plaintiff-Appellee,

                                 v.

NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH,
PA,
                                   Defendant-Appellant.
                     ____________________

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

  ARGUED SEPTEMBER 16, 2014 — DECIDED OCTOBER 28, 2014
                ____________________

   Before BAUER, POSNER, and EASTERBROOK, Circuit Judges.
    POSNER, Circuit Judge. Before us is an interlocutory appeal
in a diversity case governed by Illinois law. Hennessy Indus-
tries, 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 confiden-
2                                                      No. 14-1277

tial 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 de-
fense costs, as provided in the agreement. But the two par-
ties couldn’t agree over what was owed. According to Hen-
nessy, National Union withheld payments due Hennessy
under the agreement and violated it in other ways. To re-
solve 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 Il-
linois 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 poli-
     cies 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 al-
     low 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 enti-
     tled 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.
No. 14-1277                                                    3

Hennessy claimed that National Union’s delays in providing
coverage of the asbestos claims had been vexatious and un-
reasonable. 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 mo-
tion on the basis both of a statement in the arbitration clause
that “the arbitrators shall not be empowered or have juris-
diction 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 Arbi-
tration Act that authorize appeal from orders denying refer-
ral to arbitration in a class of cases that includes Hennessy’s
litigation with National Union.
    Had National Union been asking the district court to in-
tervene 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 par-
ty's request to tell an arbitrator how to act in a pending pro-
ceeding 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 in-
4                                                   No. 14-1277

terior 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 is-
sue 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 ap-
peal from an order “denying a petition … to order arbitra-
tion to proceed.” So the district court had, and we have, ju-
risdiction.
     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 ar-
gument is that the cost-sharing agreement requires arbitra-
tion of “any dispute” that requires “interpretation” of the
agreement, and because the finder of fact will have to inter-
pret that agreement in order to determine whether it was vi-
olated “vexatiously” or “unreasonably” Hennessy’s section
155 claim requires an interpretation of the cost-sharing
agreement and must therefore be arbitrated.
   Those are persuasive arguments; National Union’s fur-
ther argument that the Federal Arbitration Act preempts sec-
No. 14-1277                                                       5

tion 155 of the Illinois Insurance Code is not. The McCarran-
Ferguson Act, 15 U.S.C. § 1011 et seq., provides that no feder-
al statute “shall be construed to invalidate, impair or super-
sede any law enacted by any State for the purpose of regu-
lating the business of insurance.” § 1012(b). And section 155
is a state regulation of the insurance business. Apart from
the fact (not itself decisive) that it is part of the state’s insur-
ance code, it is concerned only with the conduct of insurance
companies, specifically delay by them in paying claims to
their insureds. The case is thus unlike Pilot Life Ins. Co. v. De-
deaux, 481 U.S. 41 (1987), which held that ERISA preempted
an ERISA beneficiary’s state common law cause of action,
and noted that the state law under which that cause of action
arose was not a regulation of the insurance business within
the meaning of the McCarran-Ferguson Act.
     Hennessy cites a line of Illinois intermediate appellate
court decisions, culminating in Amerisure Mutual Ins. Co. v.
Global Reinsurance Corp. of America, 927 N.E.2d 740, 751–52
(Ill. App. 2010), that hold that arbitrators have no authority
to enforce section 155 because it provides that if specified
conditions are met “the court may allow as part of the taxable
costs in the action reasonable attorney fees, other costs, plus
an amount not to exceed [etc.]” (emphasis added). It’s odd
that Hennessy should take that position, since it disables it
from seeking penalties in arbitration (thus compelling it to
sue in court)—and it is penalties that it’s seeking under sec-
tion 155. The holding by the intermediate appellate court
(the state’s supreme court has not opined on the issue) in the
Amerisure case is, moreover, highly vulnerable, because it is
wooden. Section 155 is about remedies rather than about ju-
risdiction or venue. When antagonists agree to arbitrate a
dispute that could be made the subject of a court suit, an ar-
6                                                  No. 14-1277

bitrator or panel of arbitrators is substituted for a court. An-
titrust claims arising under the Sherman Act, for example,
are arbitrable, although they are within the exclusive juris-
diction of the federal courts. Mitsubishi Motors Corp. v. Soler
Chrysler-Plymouth, Inc., 473 U.S. 614 (1985). What is excluded
is not arbitration but suing in state court.
   We can’t think why arbitrators would be thought incom-
petent to enforce section 155, especially since if the parties
don’t want it enforced they can, as in this case, agree in the
arbitration clause to deny the arbitrators the authority to en-
force it. Hennessy is not some hapless consumer who has to
be protected by the courts from improvidently consenting to
arbitrate a dispute with a big bad seller.
    National Union is correct, moreover, that Hennessy in
the agreement indeed waived any right to ask the arbitrator
to award punitive damages, fines, or penalties for National
Union’s allegedly unreasonable delay in honoring Hen-
nessy’s claims. Having submitted a dispute to arbitration
that explicitly excludes a particular remedy, a party can’t sue
in court for the excluded remedy.
    And recurring to our earlier point that section 155 is pro-
cedural rather than substantive, we note that it provides a
remedy in a specified type of “action” (case); it does not cre-
ate a cause of action; it presupposes rather than authorizes a
suit. If the court in which the specified type of action is
brought finds that a party is causing a delay that is “vexa-
tious and unreasonable,” then it can levy a penalty specified
in section 155—in the same action. Section 155 “simply pro-
vides an extracontractual remedy to an action on a policy.”
Cramer v. Insurance Exchange Agency, 675 N.E.2d 897, 902 (Ill.
1996). This interpretation makes good sense. Allowing two
No. 14-1277                                                   7

bodies to adjudicate the same case wastes resources and
risks contradictory outcomes.
   It’s true that Smith v. State Farm Insurance Companies, 861
N.E.2d 183 (Ill. App. 2006), allowed a suit based solely on
section 155. But the only issue discussed by the court was
whether the suit was barred by an arbitration agreement.
And Smith was an intermediate appellate decision, rather
than a decision by the state’s highest court. Cramer, cited
above, a state supreme court decision that we followed in
Westchester Fire Insurance Co. v. General Star Indemnity Co.,
183 F.3d 578, 586 (7th Cir. 1999), teaches that section 155 cre-
ates a remedy, not a cause of action
   In summary, the district court’s order is reversed and the
court is instructed to order arbitration of Hennessy’s section
155 claim and dismiss its suit.