Seventh Circuit Concludes Attorney’s Fees are Recoverable Damages

In Starstone Ins. SE v. City of Chicago, Illinois, 133 F.4th 764, 768 (7th Cir. (Ill.) 2025), the Seventh Circuit considered whether attorneys’ fees included as part of a settlement were included in the policy’s coverage for all loss that the city “becomes legally obligated to pay by reason of liability imposed by law.” The court rejected Starstone’s arguments trying to distinguish attorneys’ fees from damages because, as the court noted, the policy language was not so limited. Id. (“‘[L]egally obligated to pay’ means ‘legally obligated to pay’ rather than some amended version such as ‘legally obligated to pay as damages’.”) Nor was the court persuaded by Starstone highlighting the word “compensate” in one of the relevant coverage clauses. Id. at 769 (“We do not see how the word ‘compensate’ helps Starstone. Payment of legal fees compensates a prevailing plaintiff. . . . Awards of legal fees . . . are designed to ensure that a victim receives full compensation, without a reduction to pay lawyers and cover the expenses of litigation.”)  

The court did not, however, go as far as United States Liab. Ins. Co. v. A&B Mkt. Plus, Inc., No. 3:19-CV-0172-GPC-AGS, 2019 WL 2107808, at *1 (S.D. Cal. May 14, 2019). Applying California law, the court concluded that, absent specific contract language to the contrary, there was no basis for distinguishing attorneys’ fees from “damages.” Id. (“In contrast, there is no supplementary provision in the instant matter which juxtaposes ‘damages’ against ‘all costs taxed,’ and in fact, as discussed supra, the structure of the Policy indicates that it contemplated ‘damages’ to follow from claims for other-than monetary relief. Therefore, unlike in Cutler-Orosi, this Court's interpretation does not ‘render [any] supplemental payment provisions superfluous,’ but rather gives effect to ‘the objectively reasonable expectations of the insured,’ id. at 626, that attorney's fees would be treated as damages.”)