The Property and Casualty Insurance Association of America is urging the U.S. District Court in Providence to dismiss a lawsuit against The Station’s liability insurer, saying it would set a dangerous precedent for the industry.
The Essex Insurance Co., a PCI member, is one of dozens of defendants in lawsuits filed by the victims of the February 2003 nightclub fire and their surviving families.
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The case against the insurer is based on the fact that in October 2002, an Essex representative inspected The Station and did not mention the flammable foam on the walls, the room’s capacity, or the adequacy of the exits in a resulting report. The Station’s owners relied on the report to identify any hazards, the suit claims, and so through its “egregious negligence” in the inspection, Essex increased the danger to patrons.
State law specifically exempts insurers from liability for negligent inspection in connection with “property, casualty or boiler and machinery insurance.” But the plaintiffs argue that if liability insurance were also covered by that law, it would be specifically listed. And in Essex’s motion to dismiss the lawsuit, the company’s lawyers did not cite that law.
In an amicus curiae brief filed last month, however, PCI did focus on that law, saying liability is a form of casualty coverage. It would take “a great leap” to interpret the law otherwise, PCI argued, and doing so would expose insurers to potentially “limitless liability,” disrupt the risk assessment system and require much higher premiums.
“The result would be a reduction or elimination of insurance coverage,” the PCI brief says. “After The Station nightclub fire, Rhode Island does not need another disaster.”
Robert Hurns, the lawyer who wrote the brief, said in an interview that PCI does not normally intervene in cases at the trial level – just in appelate or supreme courts. “But the issue here is so significant,” he said, “that we wanted to at least weigh in.”
If the court allowed the case to go forward, Hurns said, “what would happen here, in essence, is that the insurer would become a policeman…. If anyone should play policeman, it should be the municipal inspectors that look for code violations, not the insurer.”
Nobody disputes that the Essex inspection did not identify the safety hazards that experts have since blamed, to a great extent, for the speed with which the fire sparked by Great White’s fireworks spread and for many patrons’ inability to escape the inferno.
The plaintiffs have submitted as evidence against Essex a report from Multi-State Inspections produced after a visit to the West Warwick club on Oct. 8, 2002 – four months before the fire, and seven months into the liability policy’s one-year term.
The report says the inspector met with Derderian, “who was cooperative” in answering his questions. It details the club’s operations – staffing, sales volume, food offered, entertainment – as well as the condition of the kitchen (“clean and well kept”), the electrical, heating and plumbing systems (no problems), the roof, and the security and fire safety systems. It says the seating capacity is 150, but doesn’t mention the total allowed occupancy, or the quality of the exits. And it says nothing about the foam on the walls and ceiling.
Under “recommendations,” it lists a single item: “Repair door on right side of risk as well as pushbar.”
“Four months after Defendant Essex’ inadequate liability inspection, sparks from on-stage fireworks ignited the overlooked foam, turning the Station into an inferno within two minutes, killing 100 patrons and injuring at least 200 others,” plaintiffs’ lawyer John Barylick wrote in a response to the insurer’s motion to dismiss.
“It was the most deadly fire in the history of Rhode Island and the fourth deadliest nightclub fire in the history of our country.”
Essex, which under its policy obligations is also defending the Derderians in the case – they have sued to have the insurer defend them against manslaughter charges as well, but Essex is fighting that – argues that its only part in the tragedy was “underwriting a foolhardy risk.” It has no obligation to third parties, and isn’t responsible for the club’s failings.
In his response, Barylick seized on the insurer’s choice not to cite the inspections immunity law as evidence that Essex, in fact, knows it’s not covered under the law.
The “conspicuous absence of liability insurers” from the law, Barylick argued, “compels the conclusion that the legislature intended common law remedies to remain against them.”
And the reason the law exempts them, Barylick argued, is that while “fire or casualty” insurance inspections aim only to gauge the risk to the client’s “business and physical property,” the whole point of liability policy inspections is to determine the risk of injury to third parties – in this case, the Station’s patrons.
“It is entirely foreseeable that a negligently performed inspection of possible hazards to third parties will result in injury to those very third parties,” Barylick wrote. Thus, he argued, it is “entirely reasonable” that those inspections would be excluded from the law.
Barylick went on to cite a federal summary of case law, which Rhode Island courts have relied on, recognizing liability for “negligent performance” of services to another “which he should recognize as necessary for the protection of a third person or his things.”
Such liability exists, the summary says, if the negligence “increases the risk” of harm, if “he has undertaken to perform a duty owed by the other to the third person,” or if the harm is suffered because the other, or the third person, relied on his actions.
Nonsense, argued PCI in its brief. First of all, liability insurance is well recognized to be a form of casualty insurance, the trade group says. It cited six sources – insurance law textbooks, Black’s Law Dictionary, and Rhode Island law – in which “casualty insurance” is described as a range of coverages, including liability. Thus, it said, the immunity does apply.
Even if the court chose not to apply the law, PCI argued, it shouldn’t “expand” Rhode Island law, because that’s not a federal court’s place and it would be bad public policy. And it shouldn’t rely on the case law cited by Barylick, either, PCI added, because, as Essex also noted, insurance inspections aren’t done for anyone but the insurer itself, to verify that it has good, profitable risks. If they also improve safety, PCI argued, it’s “an incidental by-product.”
Essex’s policy does explicitly say that. “We do not make safety inspections,” it reads. “We do not undertake to perform the duty of any person or organization to provide for the health or safety of workers or the public.”
Imposing “indiscriminate liability” on insurers despite this, PCI argued, would either discourage insurers from inspecting at all, leading to inaccurate prices and otherwise avoidable losses, or require them to make more detailed and costly inspections, then hike premiums to cover the extra expense. But even an inspection listing “every defect and deficiency” might not suffice by that standard, PCI added: Could the company be sued if it didn’t ensure that all defects were corrected? Would it have to report the defects to the authorities? Would it have to alert the public? The exposure could be “limitless.”
“PCI sympathizes with the victims and the families of those who lost their lives in that terrible conflagration,” the brief concludes. “However, these difficult, unsettling and emotionally charged facts should not make bad law.”
Barylick declined to be interviewed about PCI’s brief. But in the response he wrote to Essex’s motion to dismiss, he said the insurer’s “dire predictions” are extremely unlikely.
As for the legal questions, he suggested that if the federal court “seriously” considers dismissing the case, it should first ask the Rhode Island Supreme Court to clarify the law, an “appropriate” measure given the “unprecedented scope” of the tragedy.
