Jeffrey and Michael Derderian, the owners of The Station nightclub, are suing
their insurance company, claiming it should pay to defend them from felony charges
they face in connection with the deaths of 100 people in the Feb. 20, 2003,
fire at the club.
The Station was covered by a $2 million liability policy from the Essex Insurance Co., which included the right to legal defense against suits seeking damages for bodily injury or property damage, with some limits and only up to the coverage cap.
Along with the 100 deaths, the fire left over 200 people injured and destroyed the club building, which the Derderians rented. The Virginia-based insurer is defending the club in a slew of civil lawsuits filed in U.S. District Court, and is a defendant itself. Now the Derderians want help with their most urgent concern: the criminal case.
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The Derderians’ claim, filed June 28 in Superior Court, Providence, notes that Rhode Island’s victims-right statute provides for an automatic civil judgment against felony defendants upon their conviction, finding them liable for damages to the victim.
“Because a verdict against each defendant in the indictments would result in the imposition of civil judgment for liability and damages as provided in § 12-28-5, each indictment constitutes a ‘suit’ under the terms of the Essex policy,” they argued.
The brothers tried that argument with Essex, but the company rejected their claim, leading them to seek a judge’s order to compel the payment.
“It’s certainly a novel approach,” acknowledged Thomas M. Dickinson, the brothers’ lawyer in this case and part of Jeffrey Derderian’s criminal defense team, along with Richard M. Egbert and former Attorney General Jeffrey B. Pine. “It’s an unusual statute, and there are no cases (like this) under it, but a careful reading of the statute, I think, supports the view that this is in essence a civil case as well as a criminal case.”
Dickinson also noted that in other jurisdictions, courts have sometimes found that criminal defense costs can be covered under some liability policies.
Essex’s response to the suit, filed Aug. 17, vigorously denies any obligations to the Derderians in the criminal case, saying the coverage they seek “runs contrary to objectively reasonable expectations” of parties under the policy. It’s also “contrary to the law and the public policy of the state of Rhode Island.” And in any case, Essex argued, the brothers weren’t personally covered by the policy.
“The insurance was for the business called The Station, the nightclub itself,” said Robert L. Ciociola, a Boston lawyer for Essex. “The Derderians have been indicted individually, so it’s our position that they wouldn’t have coverage. But the primary issue is, Essex doesn’t believe there is coverage to defend criminal prosecutions.”
Ciociola noted that under the policy, “expected or intended” injuries or property damage are specifically excluded from coverage – and there’s plenty of case law to support applying that definition to the consequences of any crime.
Essex is willing to represent The Station in all civil suits, even though “we’re not commenting on whether there’d be coverage under those claims,” Ciociola said. But a criminal indictment is “a whole different animal.”
That said, many of Essex’s arguments against covering criminal-defense costs suggest the insurer will resist attempts to get it to pay civil claims.
Essex argued, for example, that the brothers aren’t entitled to compensation because they “failed to exercise ordinary care for the security of their own position and their own well-being,” and because they failed to mitigate damages.
The Derderians also “failed to perform all of their obligations” under the terms of the policy, the insurer said, and they “failed to cooperate with Essex.”
Mirroring some fire victims’ claims against Essex, the Derderians’ claim seeks to shift the blame on the insurer by noting that it had inspected The Station at least once, around Oct. 8, 2002, and “at no point did Essex … alert the plaintiffs to any dangerous condition in connection with foam or other materials on the premises.”
The Essex response flat-out denies that allegation. In an interview, Ciociola said The Station had indeed been inspected, but “strictly for the purposes of procuring insurance – it was not for certifying public safety. … (And) I can guarantee you Essex had no idea that they were going to be shooting fireworks in the nightclub.”
The Station policy, which was to expire just over a month after the fire, provided up to $2 million total coverage, or $1 million per occurrence, with a $100,000 limit for fire damage and $1,000 per person for medical expenses.
Based on $250,000 in sales, including over 75 percent in liquor sales, the club’s premium for the year was $6,063. The policy did not include liquor liability – meaning damages resulting from someone being intoxicated, among other things. It also specifically excluded assaults and related injuries, as well as injuries or property damage affecting any entertainer, stage hand, crew, independent contractor, or spectator participating in a show.
The fire at the Station started when fireworks set off by the band Great White ignited the polyurethane foam that the Derderians had installed as soundproofing on the walls and ceiling of the stage area. The wood-frame building was quickly consumed in flames, and scores of patrons were trapped inside.
Along with the Derderians, the former tour manager for Great White, Daniel
Bichele, has been indicted for manslaughter in the 100 deaths. No trial date
has been set. Defendants in the civil cases also include the band, the town
of West Warwick, a police officer who was on detail at the club during the concert,
and foam manufacturers.
