Rhode Island Court Rules Insurer Not Obligated to Defend Nightclub Owners

July 8, 2009

A Rhode Island court has ruled that a commercial general liability insurance policy held by the owners of the Station nightclub does not require the insurance company to defend them against criminal charges.

The case arose from the February, 2003, fire that occurred at the Station nightclub in West Warwick, and claimed the lives of 100 people. The state prosecuted the nightclub owners, Michael Derderian and Jeffrey Derderian, on criminal charges of involuntary manslaughter.

The Derderians argued that their CGL policy underwritten by Essex Insurance Co. should have paid for their legal defense against charges of involuntary manslaughter because a verdict against each defendant in the indictments would result in the imposition of civil judgment for liability and damages. The Derderians also argued that the policy language was ambiguous.

Essex refused to provide such a defense, maintaining that the Derderians were not entitled to such a defense under the terms of the policy that covered damages due to bodily injury or property damage from civil proceedings only and that for Essex to do so would violate public policy.

Superior Court Judge Alice Gibney agreed with Essex, ruling on June 25 that the insurer had no obligation to provide them defense in this case. The court found that the policy language “unambiguously provides for a defense of the insured only in civil proceedings in which damages are alleged.”

The indictments against the Derderians alleging involuntary manslaughter neither initiated a civil proceeding nor alleged damages, Gibney noted, agreeing with previous rulings finding that a criminal case is not a “suit for damages” under an insurance policy and the fact that damaging, perhaps even irrefutable, findings will be made does not mean that an insurer’s duty to defend is triggered in a criminal proceeding.

“This court finds that … the Derderians’ criminal indictments, though initiated by the government, contain no allegations of damages and therefore do not satisfy the policy’s coverage requirement of a suit ‘seeking . . . damages,'” she wrote.

State law provides for a later civil proceeding to permit a potential victim to prove damages, the judge noted.

The final defendants to settle lawsuits over a 2003 nightclub fire that killed 100 people have agreed to pay survivors and victims’ relatives more than $250,000, according to court papers filed earlier this week.

Essex was one of seven insurance companies that settled with victims of the fire last year.

Was this article valuable?

Here are more articles you may enjoy.