Hartford Accident & Indem. Co. v. Lin

97 F.4th 500

HARTFORD ACCIDENT AND INDEMNITY CO., Plaintiff-Appellee/Cross-Appellant, v. Zhen Feng LIN and Li Chen, Defendants-Appellants/Cross-Appellees.

No. 22-2776

No. 22-2858

United States Court of Appeals, Seventh Circuit

Argued June 1, 2023

Decided April 1, 2024

Appeals from the United States District Court for the Northern District of Illinois, Eastern Division. No. 1:20-cv-01415 — Matthew F. Kennelly, Judge.

Melissa A. Murphy-Petros, Michael J. Duffy, Attorneys, Wilson Elser Moskowitz Edelman & Dicker LLP, Chicago, IL, for Plaintiff-Appellee/Cross-Appellant.

Kent David Sinson, Attorney, Sinson Law Group, Chicago, IL, Defendants-Appellants/Cross-Appellees.

Before Easterbrook, Wood, and Pryor, Circuit Judges.

Pryor, Circuit Judge.

Zhen Feng Lin was in a car accident while working as a food delivery driver for Win Win Seafood Wholesale, LLC in 2017. Lin sustained serious injuries in the collision, but the at-fault driver, Katherine Chickey, was underinsured. Lin—along with his wife, Li Chen, who brought a loss of consortium claim—settled with Chickey in a state-court suit for her insurance policy limits of $100,000. Lin also received workers' compensation benefits from his employer's workers' compensation insurance carrier, Hartford Fire Insurance Company ("Hartford Fire"). Lin then sought to recoup his additional losses under his employer's underinsured motorist policy, provided by Hartford Accident and Indemnity Company ("Hartford Accident").

Although Lin and Hartford Accident initially agreed to arbitrate the question of Lin's damages, the insurer and the insured saw eye to eye on little else. Unable to resolve issues around arbitration and the underinsured motorist policy limits, Hartford Accident filed this declaratory judgment suit against Lin and Chen in federal court seeking to clarify the extent of its liability.¹

Over the next four years, the parties sparred over the scope of the policy's arbitration clause, whether Hartford Accident acted in bad faith in delaying the resolution of Lin's claim, and to what extent the underinsured motorist policy's $1 million limit should be reduced by sums Lin received from other sources. In the end, neither party was satisfied with the result, and both appealed. Because the district court was correct on all fronts, we affirm.

I. BACKGROUND

This appeal involves orders at various stages of litigation: a dismissal under Federal Rule of Civil Procedure 12(b)(6); an order denying a motion to compel arbitration; and a grant of a motion for summary judgment under Federal Rule of Civil Procedure 56. In reviewing the dismissal and summary judgment orders, we take the facts and allegations and view them in the light most favorable to Lin and Chen, the non-movants, and construe all reasonable inferences in their favor. Dixon v. County of Cook, 819 F.3d 343, 346 (7th Cir. 2016). For the order denying Lin's motion to compel arbitration, we view the facts in the light favorable to Hartford Accident. Tinder v. Pinkerton Sec., 305 F.3d 728, 735-36 (7th Cir. 2002).

Zhen Feng Lin was injured in a car accident in Chicago on March 24, 2017, while making a delivery for his employer, Win Win Seafood Wholesale, LLC. The impact of the crash knocked him unconscious and fractured his spine. Lin sought compensation to cover the medical costs, pain, and lost work associated with his injuries.

First, Lin went to state court and sued Katherine Chickey, the driver who crashed into him. See Lin v. Chickey, No. 2017-L-00571. Then, about a month after he sued in state court, Lin, pursuant to the Illinois Workers' Compensation Act, filed a claim with Win Win Seafood. Lin recouped $301,259.90 in workers' compensation benefits from his employer's workers' compensation insurance carrier, Hartford Fire. Lastly, Lin demanded payment from his employer's commercial automobile insurer, Hartford Accident, under the underinsured motorist policy requesting benefits and arbitration of his claim.² (Hartford Fire and Hartford Accident are separate entities.) Hartford Accident responded to the demand letter requesting more information and noted that the matter was not ripe for arbitration.

A. Lin Settles Personal-Injury Lawsuit

Lin's threefold approach soon started to pay dividends. After about a year of state-court litigation, Chickey offered to settle for her policy limits—$100,000. Lin asked Hartford Accident for permission to agree to the settlement offer. Before receiving a response from Hartford Accident, however, Lin entered into a settlement agreement with Chickey, and the state court allocated the proceeds in August 2018. An attorney for Hartford Accident eventually responded—in January 2019—that the company had "no objection" to Lin accepting the proposed settlement offer.

B. Lin Receives Workers' Compensation Award

In July 2019, after resolving his claims against Chickey, Lin received workers' compensation benefits. In total, Lin was awarded $301,259.90 in workers' compensation benefits, which consisted of indemnity (temporary total disability) payments, medical costs, and a lump-sum settlement. (The parties dispute the legal implication of these different payments, but they agree on the total.)

These sums were paid out by Hartford Fire, Win Win Seafood's workers' compensation provider. But because Win Win Seafood was not responsible for the accident, Hartford Fire, under Illinois's Workers' Compensation Act, was entitled to a lien against any funds Lin obtained from at-fault parties. Utilizing funds from the state court settlement, Lin paid Hartford Fire $73,320.72 to satisfy its lien.

This put an end to two of Lin's recovery paths—the personal-injury suit and workers' compensation. Lin, however, believed that he was still not made whole. Indeed, he calculated that his damages were over $2.5 million. Because of this shortfall, Lin resumed his discussions with Hartford Accident.

C. Lin Rebuffed by Hartford Accident

Hartford Accident's underinsured motorist policy is meant to cover the difference between what an insured employee is legally entitled to recover from the at-fault driver for bodily injuries sustained in an accident, and what the at-fault driver is able to pay, up to $1 million. Unless the parties reach a "settlement agreement," as defined by the policy, the amount recovered by the insured shall be reduced by any sums "paid or payable" by anyone legally responsible for the insured's injuries or under any workers' compensation.³

Here, as soon as the settlement proceeds were allocated and the workers' compensation claim was resolved, Lin again submitted a demand to Hartford Accident, this time for $900,000 under the policy. Lin made what he believed to be a "policy-limits demand," subtracting the $100,000 that he had already received from Chickey in the settlement.

Hartford Accident rejected the demand. It contended that the policy limit should be further reduced to account for the money Lin had received in workers' compensation. With that calculation in mind, Hartford Accident counteroffered to settle at $100,000.

Lin declined the counteroffer, which he said was so low that it had to have been made in bad faith. Lin also argued that Hartford Accident's reduction of the policy limits was in-correct because there had been a settlement agreement between the parties. Moreover, Lin maintained that Hartford Accident did the math wrong. He argued that the amount he paid to resolve the workers' compensation lien—$73,320.72—should be credited to him, and not deducted from the policy limits.

D. Federal Court Proceedings

Because of this impasse, Hartford Accident filed a complaint seeking a declaratory judgment in the Northern District of Illinois to resolve the extent of its liability to Lin.

Before filing an answer, Lin asked the district court to stay or dismiss the lawsuit in favor of arbitration. In support, he pointed to the arbitration clause in Hartford Accident's insurance policy:

If we and an "insured" disagree whether the "insured" is legally entitled to recover damages from the owner or driver of an "underinsured motor vehicle" or do not agree as to the amount of damages that are recoverable by that "insured", then the matter may be arbitrated. However, disputes concerning coverage under this endorsement may not be arbitrated.

Under this provision, Lin argued, the parties agreed to arbitrate not only the subject of Hartford Accident's complaint—the extent of the workers' compensation setoff—but also whether Hartford Accident acted in bad faith in dealing with his claim.

The district court denied the motion, finding the arbitration clause unambiguous and the dispute at issue in Hartford Accident's complaint—regarding the proper setoffs to policy limits—not the type of disagreement that the parties agreed to arbitrate. Instead, the district court determined the parties had agreed to arbitrate only two, distinct things: disputes over fault and the amount of damages that are recoverable by the insured.

Following the court's ruling on the motion to stay, Lin filed his answer asserting various counterclaims, including one for bad faith.

Hartford Accident then moved for summary judgment arguing that because there was no "settlement agreement" between Lin and Hartford Accident, the policy limits in this case should be offset by both the Chickey settlement and Lin's total workers' compensation award. In response, Lin argued that the underinsured motorist policy limit should be reduced only by the Chickey settlement of $100,000. He also maintained in the alternative that, if the district court decided to offset the policy limits by the amount of workers' compensation, then the amount that he paid to settle the statutory lien—$73,320.72—should be credited back to him, and not deducted from the policy limits. Lin also asked the district court to defer ruling on the motion until Hartford Accident produced additional discovery.

To start, the district judge denied Lin's request to defer ruling on the motion...