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Last
Updated: May 11, 2006
Originally
Published: June 1, 2003
The
Rhode Island Concert Fire - Insurance Lessons
This
is one of a series of "working articles".
As the story develops, this article will be updated &
published
accordingly. The latest changes in the article
are distinguished with red text.
Changes since original publication are in blue
text.
By
now, everyone has heard of the Great White concert fire on
February 20. 2003 that killed 100 and injured 180. The fire
started when a spark from the band's pyrotechnic gerbs display
ignited the soundproofing foam insulation lining the walls
of the concert club as Great White began their set.
The
fire ultimately led not only to the deaths and injuries, but
to the total destruction of the venue as well.
From
a venue with a maximum capacity of only 550 persons, there
are estimates that total claims could exceed $1,000,000,000.
That's not a typo; it's one billion dollars!
The
legal capacity limit of the club has now been revised down
to 404. The Providence Journal is reporting that
414 persons were actually in the club the night of the fire.
According
to The Boston Globe, the club had $1 million in liability
policy limits, the foam insulation company had $5 million,
the property owners had none, the city had $4 million, and
the state has a cap of $100,000 per plaintiff.
Certainly,
there will not be enough money to compensate even a fraction
of the dead and severely burned. Under Rhode Island law each
loss of life is compensable for several million dollars. The
RI wrongful death statute is very favorable to victims. Unlike
many other states, it allows damages in the amount of the
entire future lifetime earnings and companionship of
the deceased. Many other states usually only allow actual
loss of earning up to the date of death.
The
greater damages however will come from the pain and suffering
and treatment of the burn victims. No injury is more painful
than a burn. There are some burn victims who are unrecognizable
due to their injuries. Some deceased were charred beyond recognition.
Medical
treatment of the burn victims will be expensive. Three months
later there are still burn victims in hospital intensive care
burn units. At an estimated cost of treatment of $20,000 to
$30,000 per day, well, you do the math.
In
late July, 2003, the last hospital patient was released after
a 153 day stay. After more than 30 surgeries, his medical
bills alone are expected to exceed $4 million.
As
one could have easily predicted with a catastrophe such as
this, everyone even remotely involved in the event are being
sued. The list of potential defendants will be huge. They
include Great White, the club owners, the owners of the property,
the local fire department, the state fire marshal, the architect
of the 40 year old building, the construction company who
built the building, the radio station that ran commercials
for the concert, the insulation store, the insulation manufacturer,
the manufacturer of the pyrotechnics, Budweiser-even though
they did not sponsor or advertise the event, the band's record
company, the tour manager, the artist management company,
the list goes on. One suit already filed purportedly lists
40 defendants.
In
another recently filed suit, the radio station (ran radio
commercials) and Budweiser (its product was sold at the bar)
were named not because they had any direct responsibility
or liability but supposedly because they helped attract
people to the show!
In
December 2003, a grand jury indicted the club's owners, brothers
Jeffrey and Michael Derderian, and Great White's former tour
manager, Dan Biechele, on 100 felony counts of involuntary
manslaughter. All three pleaded innocent.
In
May 2006, Biechele pled guilty to 100 counts of involuntary
manslaughter and was sentenced to four years in a minimum
security prison
Victims'
families and survivors have filed lawsuits  naming
the Derderians, Biechele, town officials, the state fire marshal
and others, alleging the parties neglected to make the nightclub
the safest it could be. At least six lawsuits have been filed.
On
July 23, 2004 a lawsuit was filed on behalf of 146 survivors
and the family members of 80 people who died, the largest
wave of plaintiffs yet to sue. It seeks monetary damages but
does not specify an amount. The lawsuit alleges that 46 defendants,
including state Fire Marshal Irving Owens, failed to ensure
the nightclub was safe and also claims wrongful death, loss
of consortium and product liability.
The
suit accuses club owners Jeffrey and Michael Derderian of
negligently failing to obtain a license for pyrotechnics and
failing to install safe soundproofing material. It also says
the brothers failed to provide fire prevention, detection
and suppression materials, and their club did not have adequate
exits.
The
lawsuit also alleges that Brian Butler, a WPRI television
station cameraman at the club to gather footage for another
story, impeded the exit of concertgoers trying to leave the
club while he was shooting video. CBS in New York was also
sued for doing business with WPRI.
"Brian
saved lives that night and provided the most accurate recording
of this tragic event which has been invaluable to investigators
and, frankly, to plaintiffs themselves,'' said Chip Babcock,
a lawyer for LIN Television Corp., WPRI's parent company,
which was also sued.
The
suit claims West Warwick fire inspector Denis Larocque is
liable for failing to note the presence of foam used as soundproofing
during inspections after the Derderians bought the club in
March 2000.
The
foam is blamed for spreading the fire quickly through the
wooden nightclub and releasing toxic substances, which may
have caused a number of deaths.
The
lawsuit also named two publicly traded foam manufacturers,
Leggett & Platt and Foamex International; American Foam
Corp., the Johnston-company that sold the foam to the Derderians;
and one of its former employees, who lived near the club.
Five
former employees of the club, who were working the night of
the blaze, are plaintiffs in the lawsuit, but are not suing
the Derderians or Derco LLC, the brothers' company.
State
law prohibits workers injured on the job from filing liability
suits against their employers. Employees can make claims in
Workers Compensation Court.
The
lawsuit also alleges that Great White band leader Jack Russell
and the band's then-tour manager Dan Biechele, were negligent
for igniting the pyrotechnics.
Biechele
did not have a permit for the pyrotechnics. The Derderians
have said they were unaware pyrotechnics were going to be
used during the concert. The band has said it received permission.
In
the lawsuit, Anheuser-Busch is alleged to have contributed
to overcrowding in the club by promoting the concert, where
its Budweiser beer was sold. Clear Channel Broadcasting was
also named in the lawsuit, for promotion of the concert by
one its radio stations, WHJY.
The
beer company said in a statement from its lawyer that it should
not be named in the lawsuit, and it did not advertise, sponsor
or promote the band.
Additionally,
the lawsuit names Essex Insurance Co. for allegedly failing
to note the presence of highly flammable "surface treatments''
and the inadequacy of exits. According to the lawsuit, Essex
conducted inspections of the club at least three times between
1996 and 2002. Essex issued a commercial liability policy
to Michael Derderian which began March 24, 2002.
While
blame for the tragedy will take years to determine, there
are some very important insurance lessons that can be learned
now.
This
article will delve into the hypothetical as it pertains to
insurance coverage. Who had, or should have had, what coverage.
And, will that coverage provide protection for what happened?
There
were two main parties to this event - the band and the club.
There was no separate promoter, as you would normally see
in the typical rock concert scenario. The club in this situation
also acted as the promoter.
The
Band
Generally,
a touring artist has need for the same insurance coverage
as a promoter or venue. These are the types of insurance the
band should have had:
Touring
Artist General Liability - Similar to the general liability
that a promoter or venue would have. Usually written for a
limit of at least $1,000,000. The policy, if it was an industry
standard touring artist general liability policy, would have
had a pyrotechnics exclusion, which will probably prevent
the band from having any coverage for this claim.
There
are exceptions in the typical pyrotechnics exclusion. The
use of flash pots is typically allowed. However, according
to pyrotechnic experts we talked to, a gerb is not considered
a flash pot. Gerbs burn much longer than a flash pot effect
would and most agree a flash pot would not have caused a fire
given the same circumstances.
Workers'
Compensation Insurance - Normally required
by various state laws. Provides injury and death benefits
to employees injured on the job. The band lost at least one
member in the fire. Workers' Compensation Insurance will provide
his heirs burial, lost wages and other death benefits.
Musical
Equipment Property Policy - Covers damage to musical,
 sound,
lights and related equipment (yes, even pyrotechnics equipment).
Is
usually written with a limit based on the replacement cost
of the equipment insured. The band lost all of their equipment
in the blaze.
Touring
Artist Cancellation/Non-Appearance - Provides loss of
income coverage if the band is unable to perform for reasons
beyond their control. Their tour was canceled/postponed after
the fire. With cancellation insurance, their revenue stream
would continue just as if the tour had continued.
The
Club (Promoter & Venue)
Spectator/Premises
General Liability - Reports indicate the club carried
a liability policy limit of $1,000,000. There is a 50/50 chance
whether the policy would have had a pyrotechnics exclusion.
Some venue type policies do not have the exclusion. Most promoter
type policies do. Like the band's policy, if their policy
did contain a pyro exclusion, it will probably prevent the
club from having any coverage for this claim.
Workers'
Compensation Insurance - The club lost 4 employees in
the fire. However, the club owners had failed to purchase
workers' compensation coverage since buying the club several
years earlier. They have been fined $1.06 million by state
authorities plus they face criminal prosecution. It is believed
they would also be liable for the benefits that would have
normally been paid by a workers' compensation carrier to the
deceased employees' survivors.
On
July 30, 2003 a workers' compensation court judge upheld a
$1.06 million fine against the owners of the club for failing
to carry workers' compensation insurance for its employees.
The judge also ruled the owners could be held personally responsible
for the fine, stripping away the protection normally given
corporate officers.
In
the summer of 2004, the Derderians were held personally liable
for a $1.06-million fine for failing to carry workers' comp.
That was the largest fine ever levied by the workers' comp
court. The Derderians are appealing that ruling.
In March of
2005, a Rhode Island Workers' Compensation Court ordered the
owners to pay lost wages and funeral expenses to the families
of four employees who were among the 100 who died in the fire
at the club. The estimated amount is more than $200,000 in
total.
State law entitles
the survivors of an employee killed on the job to $15,000
for funeral costs plus a percentage of lost wages. Dependent
children are entitled to benefits until age 18.
Property
Policy - Depending on the terms of their lease with the
building owners, the club may or may not have been responsible
for insuring the building. Certainly they should have had
coverage on any owned contents, equipment, supplies and inventory
contained inside the building. The structure was totally destroyed
in the blaze. Everything inside was also destroyed.
Business
Interruption Insurance - Provides loss of income coverage
due to the destruction of the venue. The venue was completely
destroyed. Business Interruption Insurance would pay for the
loss of income for a specified period of time, usually 3,
6 or 12 months. Loss of income would include loss of ticket
sales, bar receipts and food receipts, if any.
Conclusions
The
lessons to be learned here are painful, yet simple. Even the
smallest, most routine events can quickly and easily turn
into tragedy. Our suggestions to give you some peace of mind:
1.
Make certain all your policies are in force.
If you don't have some version of the following 5 basic insurance
coverages, you are risking financial trouble: |
