Seventh Circuit says dispute over attorneys' fees in asbestos litigation belongs in arbitration, not courts

A maker of aftermarket vehicle wheel equipment embroiled in asbestos litigation will need to take its cost-sharing dispute with its liability insurer to arbitration, after a federal appeals panel said its demand to enforce punitive measures against the insurer was improper under both the law and the parties' cost-sharing agreement.

On Oct. 28, the Seventh Circuit Court of Appeals reversed the lower court to side with National Union Fire Insurance Company of Pittsburgh, Pa., in its dispute with La Vergne, Tenn.-based Hennessy Industries over payments of attorneys fees Hennessy believed it was owed amid its continued processing of litigation over former workers' asbestos exposure claims.

The ruling of the panel --Judges Richard A. Posner, William J. Bauer and Frank H. Easterbrook-- overturned the decision of U.S. District Judge Elaine E. Bucklo, who had denied National Union’s motion to dismiss the suit and force Hennessy’s demands into arbitration, as the insurer believed the agreement required.

The appellate judges said Bucklo erred in allowing the matter to proceed within the courts and skipping the arbitration the companies’ agreement specified to resolve the dispute.

“Having submitted a dispute to arbitration that explicitly excludes a particular remedy, a party can’t sue in court for the excluded remedy,” Posner wrote for the panel.

The case stems from a slew of lawsuits Hennessy is facing from employees of the former Ammco Tools, of North Chicago, which Hennessy acquired years ago. Those employees claim personal injuries as a result of being exposed to asbestos for years while working on brake shoe arcing machines and brake drum lathes which were used to make brake shoes, some of which contained asbestos.

Ammco had held insurance policies through National Union covering asbestos exposure dating back to 1985. The rights to those policies were transferred to Hennessy when it acquired Ammco.

To help settle those suits, Hennessy and National Union entered into a cost-sharing agreement in 2008.

However, in more recent months, Hennessy has argued that National Union was “unreasonable and vexatious” in delaying payments Hennessy said were owed under the agreement.

In August 2013, Hennessy, citing a provision in Section 155 of the Illinois Insurance Code, filed suit against National Union to force the insurer to pay attorneys’ fees and other costs related to the settlement.

National Union responded by asking the federal judge to dismiss the suit, saying Hennessy was trying to use the courts to bypass the arbitration required in their agreement.

In January, Bucklo sided with Hennessy, saying she believed Section 155 should apply in this case, as the agreement stated arbitrators would “not be empowered or have jurisdiction to award punitive damages, fines or penalties.”

National Union appealed a month later and the matter came to the Seventh Circuit on interlocutory appeal.

The federal appeals panel sided with the insurer, noting the agreement specified arbitration to resolve “any dispute,” potentially including that of a dispute over Hennessy’s claims against National Union under Section 155.

“We can’t think why arbitrators would be thought incompetent 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 enforce it,” Posner wrote.

He added, “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.”

The Seventh Circuit ruling orders the lower court to dismiss the suit and order arbitration over Hennessy’s Section 155 claim.