Authored by Patrick Bracher.
A US Court of Appeals found that a liability policy that covered the City of Chicago for “the ultimate net loss” that the insured City became legally obligated to pay by reason of liability imposed by law or assumed under an insurance contract, included an obligation to pay not only damages awarded against the City but also the claimant’s attorney’s charges for which the insured City was liable.
A prisoner was released after spending more than 20 years in prison for a murder he did not commit. The case was settled by the City for USD18.75 million of which at least USD3.75 million represented his attorneys’ fees and costs.
Under Illinois law an insurance contract must be taken to mean what the words say. The court found that an ordinary reader would think that “ultimate less net loss” means the amount the insured is out of pocket, and that “legally obligated to pay” does not mean some amended version such as “legally obligated to pay as damages”.
The court rejected the insurer’s argument that “compensate” meant paying the claimant as opposed to his legal team. The contested USD3.75 million was a form of compensation to the victim. It relieved the victim of legal expenses that otherwise would have reduced his net recovery.
If the insurer wanted to avoid this consequence, the liability policy would need to only cover amounts the insured is “legally obliged to pay as damages”.
South Africa liability policies usually spell out that the cover includes legal costs recoverable from the insured.