diff --git a/java/java-analysis-impl/src/com/intellij/codeInsight/daemon/impl/analysis/HighlightMethodUtil.java b/java/java-analysis-impl/src/com/intellij/codeInsight/daemon/impl/analysis/HighlightMethodUtil.java
index 5138d2cabf91..7299220a847a 100644
--- a/java/java-analysis-impl/src/com/intellij/codeInsight/daemon/impl/analysis/HighlightMethodUtil.java
+++ b/java/java-analysis-impl/src/com/intellij/codeInsight/daemon/impl/analysis/HighlightMethodUtil.java
@@ -195,7 +195,9 @@ public class HighlightMethodUtil {
 
     if (returnType.equals(substitutedSuperReturnType)) return null;
     if (!(returnType instanceof PsiPrimitiveType) && substitutedSuperReturnType.getDeepComponentType() instanceof PsiClassType) {
-      if (isJdk15 && TypeConversionUtil.isAssignable(substitutedSuperReturnType, returnType)) {
+      if (isJdk15 && LambdaUtil.performWithSubstitutedParameterBounds(methodSignature.getTypeParameters(), 
+                                                                      methodSignature.getSubstitutor(), 
+                                                                      () -> TypeConversionUtil.isAssignable(substitutedSuperReturnType, returnType))) {
         return null;
       }
     }
diff --git a/java/java-tests/testData/codeInsight/daemonCodeAnalyzer/genericsHighlighting/IncompatibleReturnTypeBounds.java b/java/java-tests/testData/codeInsight/daemonCodeAnalyzer/genericsHighlighting/IncompatibleReturnTypeBounds.java
new file mode 100644
index 000000000000..9e44426fec3b
--- /dev/null
+++ b/java/java-tests/testData/codeInsight/daemonCodeAnalyzer/genericsHighlighting/IncompatibleReturnTypeBounds.java
@@ -0,0 +1,10 @@
+class ListA<Ta>  {
+    public <R extends Ta> Ta foo() { throw new Error(); }
+}
+
+class ListB<Tb> extends ListA<Tb> {
+    public <Rb extends Tb> Rb foo() { throw new Error(); }
+}
+
+class ListC<Tc> extends ListB<Tc> {
+}
\ No newline at end of file
diff --git a/java/java-tests/testSrc/com/intellij/java/codeInsight/daemon/GenericsHighlightingTest.java b/java/java-tests/testSrc/com/intellij/java/codeInsight/daemon/GenericsHighlightingTest.java
index 2f0480f4bce6..d2276ff4bc6e 100644
--- a/java/java-tests/testSrc/com/intellij/java/codeInsight/daemon/GenericsHighlightingTest.java
+++ b/java/java-tests/testSrc/com/intellij/java/codeInsight/daemon/GenericsHighlightingTest.java
@@ -180,6 +180,7 @@ public class GenericsHighlightingTest extends LightDaemonAnalyzerTestCase {
   public void testInaccessibleThroughWildcard() { doTest7Incompatibility(false);}
   public void testInconvertibleTypes() { doTest5(false); }
   public void testIncompatibleReturnType() { doTest5(false); }
+  
   public void testContinueInferenceAfterFirstRawResult() { doTest5(false); }
   public void testDoNotAcceptLowerBoundIfRaw() { doTest5(false); }
   public void testStaticOverride() { doTest5(false); }
@@ -342,6 +343,7 @@ public class GenericsHighlightingTest extends LightDaemonAnalyzerTestCase {
   public void testIDEA71582() { doTest5(false); }
   public void testIDEA65377() { doTest5(false); }
   public void testIDEA113526() { doTest5(true); }
+  public void testIncompatibleReturnTypeBounds() { doTest(LanguageLevel.JDK_1_7, JavaSdkVersion.JDK_1_7, false); }
   public void testIDEA116493() { doTest(LanguageLevel.JDK_1_7, JavaSdkVersion.JDK_1_7, false); }
   public void testIDEA117827() { doTest(LanguageLevel.JDK_1_7, JavaSdkVersion.JDK_1_7, false); }
   public void testIDEA118037() { doTest(LanguageLevel.JDK_1_7, JavaSdkVersion.JDK_1_7, false); }