## Facts

- A heat exchanger at Quantum Chemical Corporation’s ethylene processing plant in Morris, Illinois failed, causing a fire that destroyed the plant and allegedly produced losses exceeding $150 million.
- Quantum carried multiple insurance policies allocating risk by peril: Hartford provided boiler-and-machinery coverage for heat exchanger failures but excluded “explosions,” while other insurers provided commercial property coverage for explosion-type losses.
- After the loss, Hartford denied coverage on the ground the heat exchanger “exploded,” while the property insurers denied primary responsibility by concluding it did not explode; Quantum received partial payments but remained in a broader coverage impasse.
- Hartford’s policy included an arbitration provision (“Endorsement 15”) intended to provide a single dispute-resolution mechanism for coverage contests that could not reliably be resolved in one judicial forum due to jurisdictional limits and the risk of inconsistent judgments.

## Issues

1. Whether the coverage dispute between Hartford and Quantum fell within the scope of Endorsement 15’s arbitration agreement.
2. Whether the Federal Arbitration Act required the federal court to compel arbitration and halt litigation of Hartford’s declaratory-judgment action.

## Decision

- The Seventh Circuit reversed the district court’s order denying Quantum’s motion to compel arbitration.
- The court held that the dispute over whether the loss was covered under Hartford’s policy (including the explosion/non-explosion characterization) was within Endorsement 15.
- The court directed enforcement of the arbitration agreement under the Federal Arbitration Act and remanded for proceedings consistent with compelling arbitration (and staying or ending the court action as required).

## Legal Principles

- Arbitration agreements covered by the Federal Arbitration Act must be enforced according to their terms when the dispute is within the clause’s scope.
- Contract interpretation of an arbitration endorsement should account for the endorsement’s purpose and structure, including its function as a mechanism to resolve coverage contests that may otherwise produce inconsistent outcomes across fora.
- A party that included an arbitration endorsement in its policy may be compelled to arbitrate covered disputes and may not avoid arbitration by preferring judicial resolution once a dispute arises.

## Conclusion

The Seventh Circuit required Hartford and Quantum to arbitrate their coverage dispute because the policy’s arbitration endorsement encompassed the disagreement and the Federal Arbitration Act obligated the court to enforce the parties’ agreed arbitral forum.


Hartford Steam Boiler Inspection & Ins. Co. v. Quantum Chem. Corp., 968 F.2d 631 (7th Cir. 1992)