Seventh Circuit Backs Protection for Chicago’s $3.75M in Attorneys’ Charges

In a major resolution, Starstone Ins. SE v. Metropolis of Chicago, No. 23-2712 (seventh Cir. Apr. 02, 2025), the US Court docket of Appeals for the Seventh Circuit has dominated that an insurer should cowl $3.75 million in lawyer charges incurred by the town of Chicago in an underlying civil rights lawsuit that settled for over $18 million.

Case Background

This protection dispute arose from an underlying lawsuit involving a person who served over 20 years in jail for homicide. After being launched, the person sued the Metropolis of Chicago and a number of other Chicago cops for violating his civil rights. The jury within the civil rights case returned verdicts in his favor, amounting to greater than $17 million, and his legal professionals then sought greater than $6 million in lawyer’s charges and prices. The case was settled for $18.75 million, of which $3.75 million represented lawyer’s charges and prices. The central problem within the protection dispute was whether or not the insurer was answerable for masking these authorized charges/prices underneath the town’s insurance coverage coverage. The insurer argued that the coverage it had issued to the town solely lined “damages,” and authorized charges/prices didn’t fall inside the coverage’s definition of “damages.”

Seventh Circuit’s Determination

The Seventh Circuit started the opinion with a dialogue of federal jurisdiction over the insurer which is organized as an “SE,” a type of a European firm underneath the European Union’s European Firm Statute. The court docket grappled with the query of whether or not the insurer was an organization for functions of federal jurisdiction. The court docket in contrast the insurer to different non-traditional companies from different components of the world, and in the end discovered the insurer to have the important traits of an organization. Subsequently, the court docket discovered that it might train jurisdiction over the insurer.

The focus of the choice, nevertheless, was whether or not the insurer was answerable for the part of the settlement attributed to underlying plaintiff’s attorneys’ charges and prices. The Seventh Circuit upheld the district court docket’s resolution, affirming that the insurer should cowl these charges and prices. The coverage’s fundamental protection clause said: “We will pay you, or in your behalf, the last word internet loss, in extra of the retained restrict, that the insured turns into legally obligated to pay by cause of legal responsibility imposed by legislation or assumed underneath an insured contract due to bodily damage or property injury arising out of an prevalence in the course of the Coverage Interval.”

In reaching this conclusion, the court docket noticed that the coverage said the insurer would cowl the “final internet loss” in extra of the retained restrict, and that underneath Illinois legislation, language in an insurance coverage coverage have to be taken to imply what the phrases within the coverage say. The district court docket discovered that the $18.75 million settlement was an “final internet loss” underneath the coverage that the town was “legally obligated to pay by cause of legal responsibility imposed by legislation.” It reasoned that an abnormal reader would interpret the coverage’s language of “final internet loss” to imply the quantity the insured pays out of pocket, and “legally obligated to pay” to imply “legally obligated to pay” and never some model of “legally obligated to pay as damages.” As a result of the town was chargeable for the settlement from underlying litigation, the district court docket discovered the town’s legal responsibility was an final internet loss that the town was legally obligated to pay. Because of this, the insurer had an obligation to indemnify the town as its policyholder for its lawyer’s charges within the underlying motion, and the Seventh Circuit concurred.

Key Takeaways

This ruling has important implications for policyholders.

• Governing Legislation Issues: The district court docket sat in Illinois, so Illinois legislation utilized to the coverage language dispute. If the court docket decided it couldn’t have exercised jurisdiction over the insurer, the legislation of the European Union might have utilized to the dispute, which might have modified the result. Starstone re-emphasizes the outcome-determinative position that governing legislation can have on the interpretation of coverage language.
• Coverage Language is Paramount: This resolution turned on the wording of the coverage—not the overall rules of fee-shifting or the American Rule. The court docket discovered that the phrases of the coverage, and never the insurer’s supposed intentions, controls.
• Insurers Can Not Re-Write Protection After the Truth: Courts will maintain insurers to the language they drafted and put of their insurance policies—regardless of how costly the result. Right here, the court docket held the insurer to the language that it drafted and included within the coverage.

Ultimate Ideas

The Seventh Circuit’s ruling serves as a vital reminder for policyholders to fastidiously look at the language of their insurance coverage insurance policies. A coverage’s language stays essential to the decision of any protection disputes between policyholders and insurers. Skilled protection counsel may help policyholders perceive the language of their insurance policies.