{"id":187651,"date":"2025-04-16T08:45:57","date_gmt":"2025-04-16T08:45:57","guid":{"rendered":"https:\/\/peraltafinancing.com\/business\/insurance\/seventh-circuit-backs-coverage-for-chicagos-3-75m-in-attorneys-fees\/"},"modified":"2025-04-16T08:45:57","modified_gmt":"2025-04-16T08:45:57","slug":"seventh-circuit-backs-coverage-for-chicagos-3-75m-in-attorneys-fees","status":"publish","type":"post","link":"https:\/\/fivemor.com\/?p=187651","title":{"rendered":"Seventh Circuit Backs Coverage for Chicago\u2019s $3.75M in Attorneys\u2019 Fees"},"content":{"rendered":"


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Windy City Wins: Seventh Circuit Backs Coverage for Chicago\u2019s $3.75M in Attorneys\u2019 Fees<\/p>\n

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In a significant decision, Starstone Ins. SE v. City of Chicago<\/em>, No. 23-2712 (7th Cir. Apr. 02, 2025)<\/a>, the US Court of Appeals for the Seventh Circuit has ruled that an insurer must cover $3.75 million in attorney fees incurred by the city of Chicago in an underlying civil rights lawsuit that settled for over $18 million.<\/p>\n

Case Background<\/strong><\/p>\n

This coverage dispute arose from an underlying lawsuit involving a man who served over 20 years in prison for murder. After being released, the man sued the City of Chicago and several Chicago police officers for violating his civil rights. The jury in the civil rights case returned verdicts in his favor, amounting to more than $17 million, and his lawyers then sought more than $6 million in attorney\u2019s fees and costs. The case was settled for $18.75 million, of which $3.75 million represented attorney\u2019s fees and costs. The central issue in the coverage dispute was whether the insurer was responsible for covering these legal fees\/costs under the city\u2019s insurance policy. The insurer argued that the policy it had issued to the city only covered \u201cdamages,\u201d and legal fees\/costs did not fall within the policy\u2019s definition of \u201cdamages.\u201d<\/p>\n

Seventh Circuit\u2019s Decision<\/strong><\/p>\n

The Seventh Circuit began the opinion with a discussion of federal jurisdiction over the insurer which is organized as an \u201cSE,\u201d a form of a European company under the European Union\u2019s European Company Statute. The court grappled with the question of whether the insurer was a corporation for purposes of federal jurisdiction. The court compared the insurer to other non-traditional corporations from other parts of the world, and ultimately found the insurer to have the essential characteristics of a corporation. Therefore, the court found that it could exercise jurisdiction over the insurer.<\/p>\n

The focal point of the decision, however, was whether the insurer was responsible for the component of the settlement attributed to underlying plaintiff\u2019s attorneys\u2019 fees and costs. The Seventh Circuit upheld the district court\u2019s decision, affirming that the insurer must cover these fees and costs. The policy\u2019s main coverage clause stated: \u201cWe shall pay you, or on your behalf, the ultimate net loss, in excess of the retained limit, that the insured becomes legally obligated to pay by reason of liability imposed by law or assumed under an insured contract because of bodily injury or property damage arising out of an occurrence during the Policy Period.\u201d<\/p>\n

In reaching this conclusion, the court observed that the policy stated the insurer would cover the \u201cultimate net loss\u201d in excess of the retained limit, and that under Illinois law, language in an insurance policy must be taken to mean what the words in the policy say. The district court found that the $18.75 million settlement was an \u201cultimate net loss\u201d under the policy that the city was \u201clegally obligated to pay by reason of liability imposed by law.\u201d It reasoned that an ordinary reader would interpret the policy\u2019s language of \u201cultimate net loss\u201d to mean the amount the insured pays out of pocket, and \u201clegally obligated to pay\u201d to mean \u201clegally obligated to pay\u201d and not some version of \u201clegally obligated to pay as damages.\u201d Because the city was liable for the settlement from underlying litigation, the district court found the city\u2019s liability was an ultimate net loss that the city was legally obligated to pay. As a result, the insurer had a duty to indemnify the city as its policyholder for its attorney\u2019s fees in the underlying action, and the Seventh Circuit concurred.<\/p>\n

Key Takeaways<\/strong><\/p>\n

This ruling has significant implications for policyholders.<\/p>\n