HWW Attorneys Convince Seventh Circuit to Reverse District Court and to Instruct District Court to Dismiss Case Against HWW Client
On October 28, 2014, the Seventh Circuit Court of Appeals reversed a ruling by the United States District Court for the Northern District of Illinois denying National Union Fire Insurance Company of Pittsburgh, PA’s application to compel arbitration under § 4 of the Federal Arbitration Act, and it instructed the District Court to dismiss altogether the plaintiff’s complaint instead of staying the action pending arbitration.
The case arose out of a cost sharing agreement (CSA) National Union entered into with Hennessy Industries, Inc. establishing procedures for allocating and paying settlement and defense costs for asbestos-related bodily injury lawsuits filed against Hennessy. The CSA contained a dispute resolution provision requiring Hennessy to arbitrate any dispute that arises between the parties with respect to the application, interpretation, or performance of the agreement or any rights, responsibilities, duties or obligations of the parties under the agreement.
A dispute later arose and Hennessy demanded that National Union submit to arbitration. In addition to commencing arbitration, Hennessy filed a single-count complaint in the District Court seeking penalties, attorney’s fees and costs under § 155 of the Illinois Insurance Code. Hennessy alleged that its § 155 claim fell outside the scope of the CSA’s arbitration provision because: (1) Illinois law precluded recovery of § 155 in arbitration and (2) the arbitration provision in the CSA prohibits arbitrators from awarding punitive damages, fines or penalties. National Union moved to compel arbitration and dismiss Hennessy’s suit, but the District Court agreed with Hennessy and denied National Union’s motion.
National Union sought interlocutory appeal of the District Court’s order and successfully moved to stay the District Court proceeding pending National Union’s appeal. On appeal, National Union argued that the provision prohibiting arbitrators from awarding punitive damages, fines or penalties was a waiver of any claim Hennessy might have under § 155, and the scope of the arbitration clause requires an “interpretation” of the agreement, which is plainly arbitrable. The Seventh Circuit found these “persuasive arguments”, and it held:
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 Hennessy’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.
The case is Hennessy Indus., Inc. v. National Union Fire Ins. Co. of Pittsburgh, PA, 770 F.3d 676 (7th Cir. 2014). HWW attorneys are Brent Graber, David Butman and William Joern.