In Carolina Cas. Ins. Co. v. Merge Healthcare Solutions, Inc., 2012 WL 123987 (N.D. Ill. Jan. 13, 2012), the court held that the ”lodestar amount” of an attorney fee award to plaintiff shareholder counsel constituted covered “loss” under a D&O policy, notwithstanding the fact that policy definition of “loss” expressly excluded the “multiplied portion of multiplied damages,” because the attorney fee award was a single, unified award, regardless of the method employed by the underlying court, and did not constitute not “multiplied damages.”

In the underlying shareholder derivative litigation, shareholders sought to enjoin a proposed acquisition of the insured because the shareholders believed that the proposed per-share amount was inadequate.  After the suit was filed, another entity presented a competing offer that resulted in an additional $26 million for the insured’s shareholders.  Once the acquisition closed on the superior offer, the trial court dismissed the underlying suit as moot, but retained jurisdiction to determine whether and to what extent the shareholders’ counsel were entitled to an award of attorney fees.  The trial court awarded fees, and calculated the amount of the award by first applying the lodestar method to determine a base amount of $630,000.  The trial court then applied a multiplier of five to reach a total “enhanced” fee award of $3.15 million.

While acknowledging that reasonable attorneys’ fees fell within the insuring agreement of the policy, the insured’s D&O insurer, Carolina Casualty Insurance Co., refused to pay the enhanced, multiplied portion of the award based on the definition of “loss” in the policy, which excluded coverage for the “multiplied portion of multiplied damages.”  Applying Illinois law, the court rejected Carolina Casualty’s argument and held that the policy language did not clearly or unambiguously restrict reasonable attorneys’ fees to a certain calculation, nor did it condition full coverage on the underlying court’s methods of computing reasonable attorneys’ fee.  As such, because the underlying court had validly calculated an award of reasonable attorney fees, the award constituted covered loss under the D&O policy.