Last Updated December 2009

The Rhode Island Concert Fire - Insurance Lessons

 

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 404 persons, there are estimates that total claims could exceed $1,000,000,000. That's not a typo; it's one billion dollars!

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:

General Liability Insurance with limits of liability based on levels comparable with your risk exposure and taking into account affordability.
Workers' Compensation Insurance We recommend this coverage even if you assume all of your workers are independent contractors. Due to the stringent tests to determine if a worker is an independent contractor vs. employee (see related article), you could be faced with a situation where a worker is injured and the governmental authorities determine the person was actually an employee. You would then be subject to workers' compensation insurance requirements.
Automobile Liability We recommend this coverage even if you don't own any autos. Coverage can be purchased to protect you for rented and borrowed vehicles as well as protect you from your employees using their own car on your company's business.
Property Insurance To protect your owned, rented, and borrowed real and personal property.
Business Interruption / Event Cancellation Insurance To protect your lost revenue in the event of a mishap.

This list is not all-inclusive. It sets the minimum coverages you should have in your insurance portfolio.

2. Check your limits. There is no better example than this tragedy to point out the importance of purchasing excess liability limits. We suggest it on every liability quote we do. But how much is enough? $1 million? 5? 10? More? You'll never know how much is enough until after a claim. Then it's too late to do anything about it.

Even the most competent insurance expert would not have recommended a $1 billion policy limit to a concert club holding 550 people. The premium would have been unrealistic given that ticket prices were probably no more than $20. But, it appears that is what will be needed to satisfy all of the expected claims. So, you must weigh cost vs. needed protection.

3. Does your policy covers the activities you are involved in? If you are doing pyrotechnics, does your policy cover it? If you are serving liquor, do you have liquor liability insurance? If you have armed security at your events, will your policy protect you? Compare your business operations to your policy exclusions. Are adjustments necessary?

4. Know the financial strength of your insurance carriers. Make sure you are insured by a company who will be around to pay claims when they happen. Generally, you'll want to buy from a carrier rated "B" or better. You can view your carrier's Best rating on our site. We offer this service free of charge because we want you to know the financial strength and integrity of the carriers we use. Feel free to look up any insurance company, whether they are the company we are utilizing for you or not.

You can also contact your state's insurance department and ask. They have entire departments dedicated to monitoring the financial strength of carriers operating in your state.

5. Does your agent/broker know your business? We couldn't tell you the first thing about homeowners or retail store insurance. But we know events. So when you call us and ask "I've got squibs, gerbs and maroons*, are they covered under my policy?", we'll know what you're talking about.

*A maroon is a device that produces loud "ka-booms" and are often used to simulate bombs or cannons.

 

At least nine states and Boston have approved new fire safety measures since the fire. The changes range from now requiring a permit to conduct pyrotechnics to the outright ban of indoor pyro.