Insurer Must Indemnify Attorneys’ Fees Award as “Damages”  

In  Starstone Ins. SE v. City of Chicago, No. 23-2712 (7th Cir. Apr. 02, 2025), the US Court of Appeals for the Seventh Circuit found the insurer had to pay $3.75M  in attorneys’ fees that were part of an $18.75M civil rights settlement paid by the City of Chicago.  

The insurer argued that legal fees and costs did not fall within the definition of “damages” in the policy it had issued to the city. 

The policy language at issue provided: “We 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.” 

The trial court found that an “ordinary reader” would interpret “ultimate net loss” to mean “the amount the insured is out of pocket rather than some amended version such as ‘legally obligated to pay’ as damages.” After searching and not finding any persuasive Illinois precedent on the issue, the Seventh Circuit affirmed the trial court’s finding that the insurer had the obligation to indemnify Chicago for the $3.75M attorneys’ fees award portion of the settlement.