diff --git a/compiler/frontend/src/org/jetbrains/jet/lang/diagnostics/Errors.java b/compiler/frontend/src/org/jetbrains/jet/lang/diagnostics/Errors.java
index a28568d8ce8..6821cd5e0c2 100644
--- a/compiler/frontend/src/org/jetbrains/jet/lang/diagnostics/Errors.java
+++ b/compiler/frontend/src/org/jetbrains/jet/lang/diagnostics/Errors.java
@@ -18,6 +18,9 @@ import static org.jetbrains.jet.lang.diagnostics.Severity.WARNING;
 public interface Errors {
 
     UnresolvedReferenceDiagnosticFactory UNRESOLVED_REFERENCE = UnresolvedReferenceDiagnosticFactory.INSTANCE;
+    RedeclarationDiagnosticFactory REDECLARATION = RedeclarationDiagnosticFactory.INSTANCE;
+    PsiElementOnlyDiagnosticFactory2<JetType, JetType> TYPE_MISMATCH = PsiElementOnlyDiagnosticFactory2.create(ERROR, "Type mismatch: inferred type is {1} but {0} was expected");
+
     SimpleDiagnosticFactory SAFE_CALLS_ARE_NOT_ALLOWED_ON_NAMESPACES = SimpleDiagnosticFactory.create(ERROR, "Safe calls are not allowed on namespaces");
     SimpleDiagnosticFactory TYPECHECKER_HAS_RUN_INTO_RECURSIVE_PROBLEM = SimpleDiagnosticFactory.create(ERROR, "Type checking has run into a recursive problem"); // TODO: message
     SimpleDiagnosticFactory RETURN_NOT_ALLOWED = SimpleDiagnosticFactory.create(ERROR, "'return' is not allowed here");
@@ -199,7 +202,6 @@ public interface Errors {
     ParameterizedDiagnosticFactory1<JetType> TYPE_MISMATCH_IN_CONDITION = ParameterizedDiagnosticFactory1.create(ERROR, "Condition must be of type Boolean, but was of type {0}");
     ParameterizedDiagnosticFactory2<JetType, Integer> TYPE_MISMATCH_IN_TUPLE_PATTERN = ParameterizedDiagnosticFactory2.create(ERROR, "Type mismatch: subject is of type {0} but the pattern is of type Tuple{1}"); // TODO: message
     ParameterizedDiagnosticFactory2<JetType, JetType> TYPE_MISMATCH_IN_BINDING_PATTERN = ParameterizedDiagnosticFactory2.create(ERROR, "{0} must be a supertype of {1}. Use 'is' to match against {0}");
-    ParameterizedDiagnosticFactory2<JetType, JetType> TYPE_MISMATCH = ParameterizedDiagnosticFactory2.create(ERROR, "Type mismatch: inferred type is {1} but {0} was expected");
     ParameterizedDiagnosticFactory2<JetType, JetType> INCOMPATIBLE_TYPES = ParameterizedDiagnosticFactory2.create(ERROR, "Incompatible types: {0} and {1}");
     
     ParameterizedDiagnosticFactory3<TypeParameterDescriptor, ClassDescriptor, Collection<JetType>> INCONSISTENT_TYPE_PARAMETER_VALUES = new ParameterizedDiagnosticFactory3<TypeParameterDescriptor, ClassDescriptor, Collection<JetType>>(ERROR, "Type parameter {0} of {1} has inconsistent values: {2}") {
@@ -280,6 +282,5 @@ public interface Errors {
     };
 
 
-    RedeclarationDiagnosticFactory REDECLARATION = RedeclarationDiagnosticFactory.INSTANCE;
 
 }
diff --git a/compiler/frontend/src/org/jetbrains/jet/lang/diagnostics/ParameterizedDiagnosticFactory2.java b/compiler/frontend/src/org/jetbrains/jet/lang/diagnostics/ParameterizedDiagnosticFactory2.java
index 81540baca6b..d62a90d6a49 100644
--- a/compiler/frontend/src/org/jetbrains/jet/lang/diagnostics/ParameterizedDiagnosticFactory2.java
+++ b/compiler/frontend/src/org/jetbrains/jet/lang/diagnostics/ParameterizedDiagnosticFactory2.java
@@ -2,13 +2,12 @@ package org.jetbrains.jet.lang.diagnostics;
 
 import com.intellij.lang.ASTNode;
 import com.intellij.openapi.util.TextRange;
-import com.intellij.psi.PsiElement;
 import org.jetbrains.annotations.NotNull;
 
 /**
 * @author abreslav
 */
-public class ParameterizedDiagnosticFactory2<A, B> extends AbstractDiagnosticFactory {
+public class ParameterizedDiagnosticFactory2<A, B> extends PsiElementOnlyDiagnosticFactory2<A,B> {
     public static <A, B> ParameterizedDiagnosticFactory2<A, B> create(Severity severity, String messageStub) {
         return new ParameterizedDiagnosticFactory2<A, B>(severity, messageStub);
     }
@@ -17,18 +16,6 @@ public class ParameterizedDiagnosticFactory2<A, B> extends AbstractDiagnosticFac
         super(severity, messageStub);
     }
 
-    protected String makeMessage(@NotNull A a, @NotNull B b) {
-        return messageFormat.format(new Object[] {makeMessageForA(a), makeMessageForB(b)});
-    }
-
-    protected String makeMessageForA(@NotNull A a) {
-        return a.toString();
-    }
-
-    protected String makeMessageForB(@NotNull B b) {
-        return b.toString();
-    }
-
     @NotNull
     public Diagnostic on(@NotNull TextRange range, @NotNull A a, @NotNull B b) {
         return new GenericDiagnostic(this, severity, makeMessage(a, b), range);
@@ -39,8 +26,4 @@ public class ParameterizedDiagnosticFactory2<A, B> extends AbstractDiagnosticFac
         return on(node.getTextRange(), a, b);
     }
 
-    @NotNull
-    public Diagnostic on(@NotNull PsiElement element, @NotNull A a, @NotNull B b) {
-        return new DiagnosticWithPsiElement<PsiElement>(this, severity, makeMessage(a, b), element);
-    }
 }
diff --git a/compiler/frontend/src/org/jetbrains/jet/lang/diagnostics/PsiElementOnlyDiagnosticFactory2.java b/compiler/frontend/src/org/jetbrains/jet/lang/diagnostics/PsiElementOnlyDiagnosticFactory2.java
new file mode 100644
index 00000000000..2e1cd9e90c5
--- /dev/null
+++ b/compiler/frontend/src/org/jetbrains/jet/lang/diagnostics/PsiElementOnlyDiagnosticFactory2.java
@@ -0,0 +1,35 @@
+package org.jetbrains.jet.lang.diagnostics;
+
+import com.intellij.psi.PsiElement;
+import org.jetbrains.annotations.NotNull;
+
+/**
+ * @author abreslav
+ */
+public class PsiElementOnlyDiagnosticFactory2<A, B> extends AbstractDiagnosticFactory {
+    
+    public static <A, B> PsiElementOnlyDiagnosticFactory2<A, B> create(Severity severity, String message) {
+        return new PsiElementOnlyDiagnosticFactory2<A, B>(severity, message);
+    }
+    
+    public PsiElementOnlyDiagnosticFactory2(Severity severity, String message) {
+        super(severity, message);
+    }
+
+    protected String makeMessage(@NotNull A a, @NotNull B b) {
+        return messageFormat.format(new Object[] {makeMessageForA(a), makeMessageForB(b)});
+    }
+
+    protected String makeMessageForA(@NotNull A a) {
+        return a.toString();
+    }
+
+    protected String makeMessageForB(@NotNull B b) {
+        return b.toString();
+    }
+
+    @NotNull
+    public Diagnostic on(@NotNull PsiElement element, @NotNull A a, @NotNull B b) {
+        return new DiagnosticWithPsiElement<PsiElement>(this, severity, makeMessage(a, b), element);
+    }
+}
diff --git a/compiler/frontend/src/org/jetbrains/jet/lang/types/JetTypeInferrer.java b/compiler/frontend/src/org/jetbrains/jet/lang/types/JetTypeInferrer.java
index 667bd9c0b07..6950b92af0f 100644
--- a/compiler/frontend/src/org/jetbrains/jet/lang/types/JetTypeInferrer.java
+++ b/compiler/frontend/src/org/jetbrains/jet/lang/types/JetTypeInferrer.java
@@ -16,6 +16,7 @@ import org.jetbrains.jet.lang.cfg.JetFlowInformationProvider;
 import org.jetbrains.jet.lang.descriptors.*;
 import org.jetbrains.jet.lang.descriptors.annotations.AnnotationDescriptor;
 import org.jetbrains.jet.lang.diagnostics.Diagnostic;
+import org.jetbrains.jet.lang.diagnostics.DiagnosticWithPsiElement;
 import org.jetbrains.jet.lang.psi.*;
 import org.jetbrains.jet.lang.resolve.*;
 import org.jetbrains.jet.lang.resolve.calls.CallResolver;
@@ -471,9 +472,10 @@ public class JetTypeInferrer {
 
                 @Override
                 public void report(@NotNull Diagnostic diagnostic) {
-                    if (diagnostic.getFactory() == TYPE_MISMATCH) {
+                    if (diagnostic.getFactory() == TYPE_MISMATCH && ((DiagnosticWithPsiElement) diagnostic).getPsiElement() == expressionToWatch) {
                         mismatchFound[0] = true;
                     }
+                    super.report(diagnostic);
                 }
             };
         }
diff --git a/idea/testData/checker/regression/CoercionToUnit.jet b/idea/testData/checker/regression/CoercionToUnit.jet
new file mode 100644
index 00000000000..5d814eadc9e
--- /dev/null
+++ b/idea/testData/checker/regression/CoercionToUnit.jet
@@ -0,0 +1,9 @@
+fun foo(u : Unit) : Int = 1
+
+fun test() : Int {
+    foo(<error>1</error>)
+    val a : fun() : Unit = {
+        foo(<error>1</error>)
+    }
+    return 1
+}
\ No newline at end of file