Defining Societas Europaea as a “Corporation” for Diversity Jurisdiction and Insuring Statutory Fees as “Ultimate Net Loss”

1. Introduction

In Starstone Insurance SE v. City of Chicago, 23-2712 (7th Cir. Apr. 2, 2025), the Seventh Circuit resolved two key questions arising from a §1983 wrongful‐imprisonment suit: (1) whether a European “Societas Europaea” (SE) qualifies as a “corporation” for purposes of federal diversity jurisdiction under 28 U.S.C. §1332, and (2) whether an excess‐liability policy’s coverage of “ultimate net loss … legally obligated to pay” extends to statutorily awarded attorneys’ fees and costs. Starstone Insurance SE (Liechtenstein) had issued a $15–20 million layer policy to Chicago, which settled a §1983 claim for $18.75 million, including at least $3.75 million of attorneys’ fees and costs. Starstone refused to indemnify that portion, prompting this declaratory‐judgment action.

2. Summary of the Judgment

The court held that a Societas Europaea possesses the hallmarks of a “corporation” (perpetual existence, separate legal personality, tradeable shares in principle, limited liability) and thus counts as a foreign corporation under §1332(c)(1), establishing subject‐matter jurisdiction.
On the merits, the policy’s “ultimately net loss … legally obligated to pay” language unambiguously covers amounts that the insured must pay by reason of law—including statutory attorneys’ fees under 28 U.S.C. §1920 and 42 U.S.C. §1988(b). Illinois law demands that policy terms be given their ordinary meaning.
Exclusion of “equitable relief or any form of relief other than monetary damages” does not bar coverage of attorneys’ fees, as no Illinois authority interprets that exclusion to exclude fee awards categorized as “monetary damages.”
The Seventh Circuit affirmed the district court’s declaration that Starstone must indemnify Chicago for the full settlement amount above the self-insured $15 million layer.

3. Analysis

3.1. Precedents Cited

Moor v. Alameda County, 411 U.S. 693 (1973): Citizenship of a governmental entity for diversity purposes.
Lear Corp. v. Johnson Electric Holdings Ltd., 353 F.3d 580 (7th Cir. 2003): Attributes defining a “corporation” under §1332(c)(1).
White Pearl Inversiones S.A. v. Cemusa, Inc., 647 F.3d 684 (7th Cir. 2011): A Uruguayan sociedad anónima qualifies as a “corporation.”
BouMatic, LLC v. Idento Operations, BV, 759 F.3d 790 (7th Cir. 2014): A Dutch bv with limited share transfers still has corporate attributes.
Pioneer Trail Wind Farm, LLC v. FERC, 798 F.3d 603 (7th Cir. 2015): Clarifies EU’s Societas Europaea registration under the European Company Statute.
District‐court decisions under Illinois and other states confirming that “ultimate net loss” or similar policy language covers defense fees—e.g., SYNY Logistics, Inc. v. Great Lakes Insurance SE (N.D. Ill. 2023), Employers Reinsurance Corp. v. Mid-Continent Casualty Co. (10th Cir. 2004, Oklahoma law), and Insurance Co. of Pennsylvania v. Long Beach (9th Cir. 2009, California law).

3.2. Legal Reasoning

a. Diversity Jurisdiction and “Corporation” Definition. Starstone invoked §1332(a)(2) to create diversity jurisdiction. Under §1332(c)(1), a corporation is “a citizen of every State and foreign state by which it has been incorporated and of the state or foreign state where it has its principal place of business.” The court examined whether the SE form, created by the EU statute and recognized in Liechtenstein, embodies the classic corporate attributes identified in Lear, White Pearl, and BouMatic: perpetual life, separate legal personality, tradeable capital structure (even if shares are restricted), and limited liability. Concluding that it does, the court held Starstone a foreign corporation.

b. Policy Construction—“Ultimate Net Loss” and “Legally Obligated to Pay.” Illinois insurance law demands that policy terms be interpreted according to their plain meaning. The insuring clause promises to pay “ultimate net loss … that the insured becomes legally obligated to pay by reason of liability imposed by law.” Under the American Rule, statutory awards of attorneys’ fees (§1988) and costs (§1920) are separate add‐on remedies designed to ensure full compensation of the prevailing plaintiff. Chicago’s obligation to satisfy those awards is no less a “legal obligation” than the underlying §1983 damages. Because the policy does not limit coverage to “compensatory damages” or exclude defense expenses, the entire settlement—including $3.75 million in fees and costs—is covered as an “ultimate net loss.”

c. Exclusion for “Any Form of Relief Other Than Monetary Damages.” Exclusion V.BB bars coverage for injunctions, equitable relief, or relief other than “monetary damages.” Starstone urged that attorney fees are not “monetary damages” but a distinct form of relief. The district court—and now the Seventh Circuit—found no Illinois authority adopting that novel reading; instead, the exclusion plainly refers to non‐monetary remedies such as injunctive or declaratory relief. In the absence of controlling state decisions, the court adhered to the natural meaning of the clause.

3.3. Impact

This decision has significant implications:

It confirms that EU-chartered Societas Europaea qualify as “corporations” for federal diversity jurisdiction, opening U.S. courts to SE entities in diversity suits.
It reinforces the principle that broad policy language—“ultimate net loss … legally obligated to pay”—encompasses statutory fee awards, limiting insurers’ ability to exclude defense fees absent explicit policy language.
It warns insurers that ill‐defined exclusions (e.g., “form of relief”) will be read narrowly in the absence of clear state‐law precedent.
It underscores the necessity for insurers to draft precise coverage and exclusion clauses if they intend to exclude statutory fees or costs from indemnity.

4. Complex Concepts Simplified

American Rule: Generally, each party pays its own attorney fees unless a statute or contract provides otherwise. §1988 and §1920 are statutory exceptions awarding fees and costs to prevailing plaintiffs.
Diversity Jurisdiction: Federal courts hear disputes between citizens of different states or between a U.S. citizen and a foreign citizen, provided the amount in controversy exceeds $75,000.
Societas Europaea (SE): A European Company form under EU law allowing cross-border operations; not created by any single member state but recognized by each.
Ultimate Net Loss: Insurance shorthand for the insured’s total loss (damages plus covered expenses) net of recoveries, beyond the self‐insured retention layer.

5. Conclusion

Starstone Insurance SE v. City of Chicago establishes two important precedents in federal insurance and jurisdictional law: First, a European‐chartered SE possesses the traditional corporate attributes necessary to invoke diversity jurisdiction. Second, under Illinois law, broad “ultimate net loss” provisions in liability policies embrace statutory attorneys’ fees and costs as amounts the insured is “legally obligated to pay.” Absent clear state‐law authority, insurers cannot rely on generic exclusions of “relief other than monetary damages” to deny coverage for fee awards. This decision thus clarifies insurer exposure in civil‐rights cases and guides both carriers and insureds in drafting and interpreting policy language.