Starstone Insurance Se v. City of Chicago, Illinois

In the
United States Court of Appeals
For the Seventh Circuit
____________________
No. 23-2712
STARSTONE INSURANCE SE,
Plaintiff-Appellant,
v.
CITY OF CHICAGO, ILLINOIS,
Defendant-Appellee.
____________________
Appeal from the United States District Court for the
Northern District of Illinois, Eastern Division.
No. 20 CV 2475 — John Robert Blakey, Judge.
____________________
ARGUED SEPTEMBER 5, 2024 — DECIDED APRIL 2, 2025
____________________
Before EASTERBROOK, KIRSCH, and KOLAR, Circuit Judges.
EASTERBROOK, Circuit Judge. Released after spending more
than 20 years in prison for murder, Jacques Rivera sued Chi-
cago and several of its police officers under 42 U.S.C. §1983
for violating his civil rights. A jury returned verdicts in his
favor exceeding $17 million; his lawyers then sought more
than $6 million in aXorneys’ fees and costs. The case was set-
tled for $18.75 million, of which at least $3.75 million repre-
sents aXorneys’ fees and costs.

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2 No. 23-2712
Chicago has an insurance policy, issued by Starstone In-
surance SE, covering the band of liability between $15 and $20
million. (Chicago bore the first $15 million itself.) Starstone
rejected Chicago’s demand for $3.75 million in indemnity, as-
serting that its policy covers only damages. AXorneys’ fees
and costs (the $3.75 million) differ from damages, so Starstone
insisted that Chicago bear the full loss. Starstone filed this suit
seeking a declaratory judgment that it need not pay. A district
court, however, sided with the City, 2022 U.S. Dist. LEXIS
173936 (N.D. Ill. Sept. 26, 2022), and Starstone has appealed.
Subject-maXer jurisdiction is the first question. Starstone,
which has its headquarters in Schaan, Liechtenstein, invoked
28 U.S.C. §1332(a)(2), which supplies jurisdiction between
“citizens of a State and citizens or subjects of a foreign state”.
Chicago is a citizen of Illinois for this purpose, see Moor v. Al-
ameda County, 411 U.S. 693, 717–21 (1973), and Starstone
claims to be a citizen of Liechtenstein under the definition in
§1332(c)(1): “a corporation shall be deemed to be a citizen of
every State and foreign state by which it has been incorpo-
rated and of the State or foreign state where it has its principal
place of business”. This poses the question whether Starstone
is a “corporation”.
The “SE” in its name stands for “Societas Europaea”. In
Liechtenstein this form of organization is known as a Eu-
ropäische Gesellschaft; Societas Europaea is a translation into
Latin. (In English it would be “European Company”.) But
names are not dispositive. Nor is the body of law under which
the form was created. The Societas Europaea form was cre-
ated, not by Liechtenstein, but by the European Union’s Eu-
ropean Company Statute. See Pioneer Trail Wind Farm, LLC v.
FERC, 798 F.3d 603, 605–06 (7th Cir. 2015). A firm registered

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No. 23-2712 3
under this statute can do business throughout the European
Union; Liechtenstein recognizes the registration as effective.
What maXers to the definition in §1332(c)(1) is whether the
entity, no maXer what it is called and no maXer where it is
located, has the aXributes of a “corporation” as understood in
the law of the United States. We have identified these aXrib-
utes as perpetual existence with a legal personality distinct
from that of investors, shares that are tradeable (in principle,
at least), and limited liability. See, e.g., Lear Corp. v. Johnson
Electric Holdings Ltd., 353 F.3d 580 (7th Cir. 2003) (a Bermuda
company limited by shares, with its principal place of busi-
ness in China, is a “corporation” because it has these aXrib-
utes); White Pearl Inversiones S.A. (Uruguay) v. Cemusa, Inc., 647
F.3d 684 (7th Cir. 2011) (a Uruguayan sociedad anónima likely
is a “corporation” because it has these aXributes); BouMatic,
LLC v. Idento Operations, BV, 759 F.3d 790 (7th Cir. 2014) (a
Netherlands besloten vennootschap met beperkte aanspra-
kelijkheid is a “corporation” because it has these aXributes
even though trading the shares is limited by a buy-sell ar-
rangement). We have never considered whether a Societas Eu-
ropaea qualifies as a “corporation”—nor has any other court
of appeals—but from what we can see it has the essential at-
tributes of one. Accord, SYNY Logistics, Inc. v. Great Lakes In-
surance SE, 696 F. Supp. 3d 504, 508–09 (N.D. Ill. 2023). We
therefore proceed to the merits.
Starstone has assumed throughout that the $15 million in
Chicago’s layer of responsibility is all damages, while the re-
maining $3.75 million is all aXorneys’ fees and costs. This is
far from clear. Maybe Chicago covered the legal fees with the
first $3.75 million of its payment to Rivera, so that what it
seeks from Starstone is all damages. Or maybe, since money

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4 No. 23-2712
is fungible, the fees should be apportioned pro rata—$3.75
million is 20% of $18.75 million, which would imply that the
indemnity Chicago seeks from Starstone represents $3 million
of damages and $750,000 of fees and costs. Yet Chicago has
not advanced an argument along these lines. It has been con-
tent to accept Starstone’s assumption that the indemnity it
wants is all legal fees plus costs. It prevailed in the district
court on that assumption, which may be why the City in-
dulges it on appeal.
Starstone contends that legal fees and costs are not dam-
ages. Granted. Under the American Rule, fees and costs come
on top of damages, and then only if authorized by statute or
contract. The fees and costs awarded to Rivera are statutory.
See 28 U.S.C. §1920 (costs); 42 U.S.C. §1988(b) (legal fees). But
this does not get Starstone very far, because its policy is not
limited to damages.
The policy’s main coverage clause reads:
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 district court concluded that the whole $18.75 million was
an “ultimate net loss” that Chicago was “legally obligated to
pay by reason of liability imposed by law”. That conclusion is
hard to avoid. Awards under §1920 and §1988(b), no less than
awards under §1983, are amounts that Chicago is “legally ob-
ligated to pay”. (Starstone does not make anything of the fact
that the $18.75 million reflects a seXlement; the jury verdict
plus a §1988(b) award likely would have exceeded $18.75 mil-
lion.)

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No. 23-2712 5
Illinois law, which governs the interpretation of this pol-
icy, provides that language in an insurance contract must be
taken to mean what the words say. See, e.g., Valley Forge In-
surance Co. v. Swiderski Electronics, Inc., 223 Ill. 2d 352, 362–63
(2006). An ordinary reader thinks that “ultimate net loss”
means the amount the insured is out of pocket, and “legally
obligated to pay” means “legally obligated to pay” rather
than some amended version such as “legally obligated to pay
as damages”.
Still, Starstone maintains, the $3.75 million does not “com-
pensate” Rivera, as opposed to his legal team. The word
“compensate” does not appear in the insuring clause we have
quoted, though it does appear in a separate “Errors and Omis-
sions Liability” clause:
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 to compensate others for loss arising out of your wrongful act
that takes place during the Policy Period and arises solely in per-
forming or failing to perform duties of the public entity.
The City does not invoke the “Errors and Omissions Liability”
clause but does rely on a third coverage clause, which like-
wise uses the word “compensate”:
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 to compensate others for loss arising out of … imprisonment
… which arise[s] solely from your performance of or failure to
perform duties as a public entity, if: (1) [t]he criminal or civil
charges that form the basis for the … imprisonment … are dis-
missed during the Policy Period; or (2) [t]he conviction of the
claimant based on the … imprisonment [sic] … is voided during
the Policy Period.

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We do not see how the word “compensate” helps Starstone.
Payment of legal fees compensates a prevailing plaintiff.
Suppose this had been an ordinary tort suit, governed by
the American Rule under which Rivera had to pay his law-
yers. If he had collected $17 million under the jury’s verdict
and paid counsel a 20% contingent fee, he would have been
left with $13.6 million (and counsel would have taken home
$3.4 million). Awards of legal fees under §1988(b), like awards
of costs under §1920, are designed to ensure that a victim re-
ceives full compensation, without a reduction to pay lawyers
and cover the expenses of litigation. See, e.g., Robbins v. MED-
1 Solutions, LLC, 13 F.4th 652, 659 (7th Cir. 2021). This means
that the contested $3.75 million is a form of compensation to
the victim. It relieves the victim of a (large) expense that oth-
erwise would have reduced the net recovery.
Starstone relies on one final part of the policy. Exclusion
V.BB carves out “injunctions, equitable relief, or any form of
relief other than monetary damages”. The insurer has the bur-
den of establishing the effect of an exclusion. Addison Insur-
ance Co. v. Fay, 232 Ill. 2d 446, 454 (2009). The district court
read this exclusion as relieving Starstone from any need to re-
imburse the City for costs it incurred in complying with an
injunction or some other award of prospective relief. That’s
what the policy means by “form of relief,” the judge thought.
Since neither the verdict nor the seXlement entails equitable
relief, the district court deemed this clause irrelevant. The
only “form of relief” Rivera sought or obtained is money.
We appreciate the possibility that a state court could read
this language to rule out indemnity for anything other than
“monetary damages” even though the clause as a whole
seems addressed to equitable relief. So we ask: Has any

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No. 23-2712 7
decision in Illinois given that reading to this (or similar) lan-
guage in an insurance policy? Starstone did not bring such a
decision to our aXention, and we could not find one—not in
Illinois and not in any other state.
Starstone did locate Dearborn v. Insurance Co. of Pennsylva-
nia, 2004 U.S. App. LEXIS 26626 (6th Cir. Dec. 17, 2004), which
understood language in the Michigan Telecommunications
Act to treat aXorneys’ fees as taxable costs rather than dam-
ages. That does not tell us much about how Illinois insurance
law treats the language in Starstone’s policy. Meanwhile the
Tenth Circuit has held, under Oklahoma insurance law, that
language similar (though not identical) to Starstone’s policy
allows indemnity of aXorneys’ fees as “claim expenses”. Em-
ployers Reinsurance Corp. v. Mid-Continent Casualty Co., 358
F.3d 757 (10th Cir. 2004). And Insurance Co. of Pennsylvania v.
Long Beach, 2009 U.S. App. LEXIS 15825 (9th Cir. July 17, 2009),
holds that California insurance law requires legal fees to be
indemnified under a policy that covers “ultimate net loss”.
Neither state nor federal appellate courts seem to have ren-
dered decisions about similar language in the last 16 years.
Our independent reading of this language accords with that
of the district court. We cannot be sure that it reflects Illinois
law, but in the absence of material Illinois cases it is the best
we can do.
AFFIRMED

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