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November 2012

Rhode Island: "Victim's Rights" Statute Does Not Turn Criminal Proceeding Into a "Suit" for Purposes of Duty to Defend

In a case stemming from the infamous Station Nightclub fire that claimed 100 lives in West Warwick, R.I., on Feb. 20, 2003, the Rhode Island Supreme Court rejected the argument that Rhode Island’s “Victim’s Rights” statute was a “suit,” which required an insurer to defend a criminal action against its insured. 

In Derderian v. Essex Insurance Co., 44 A.3d 122 (R.I. 2012), Michael and Jeffrey Derderian sued their insurance carrier, Essex Insurance Co., claiming Essex had breached its duty to defend.  The Derderians were owners of the Station Nightclub at the time of the fire and were indicted by a grand jury for involuntary manslaughter.

Essex issued a commercial general liability policy to Michael Derderian and the Station Nightclub that was in effect on the date of the fire.  The policy provided that the insurer would pay sums the insured became legally obligated to pay as damages because of “bodily injury” or “property damage.”  The policy provided the insurer had the right and duty to defend the insured against any “suit” seeking such damages.  “Suit” was defined as “a civil proceeding in which damages because of ‘bodily injury’, ‘property damage’ or ‘personal and advertising injury’ to which this insurance applies are alleged.”  The policy further defined “suit” to also include “an arbitration proceeding in which such damages are claimed…and any other alternative dispute resolution proceeding in which such damages are claimed….”

In light of the policy’s definition of “suit” as a civil proceeding, although the Derderians were facing criminal charges, the insureds argued they also faced civil liability pursuant to Rhode Island’s victim’s rights statute.  Specifically, the insureds relied on G.L.1956 § 12-28-5, which provides:

(a) Upon his or her final conviction of a felony after a trial by jury, a civil judgment shall automatically be entered by the trial court against the defendant conclusively establishing his or her liability to the victim for any personal injury and/or loss of property that was sustained by the victim as a direct an proximate cause of the felonious conduct of which the defendant has been convicted.

Based upon the victim’s rights statute, the insureds argued a felony conviction for the charges against them would result in an automatic civil judgment with no further right to notice, a hearing or separate civil proceedings.  The insureds argued their exposure to a potential civil judgment obligated Essex to provide a defense against the criminal proceeding. 

The Rhode Island Supreme Court rejected the argument.  After first finding the policy clearly limited its coverage to civil proceedings, the court went on to conclude that, in spite of the language of the victim’s rights statute, the criminal allegations of involuntary manslaughter “neither initiated a civil proceeding nor alleged damages.”  In support, the court cited Hoyle v. Utica Mutual Ins.Co., 137 Idaho 367, 48 P.3d 1256, 1263 (Idaho 2002) (even when State seeks restitution from a defendant in a criminal action, the criminal case does not constitute a suit for damages) and Spiegel v. State Farm Fire and Cas. Co., 277 Ill.App.3d 340, 660 N.E.2d 200, 202 (Ill.App. Ct. 1995) (declining to address “the issue of whether restitution constitutes damages under the plaintiff’s insurance policy” where the plaintiff “produced no evidence suggesting that restitution was sought in the criminal battery complaint…filed against him").

The court also held it did not believe the Rhode Island General Assembly intended to transform criminal prosecutions into civil proceedings by enacting § 12-28-5.  The purpose of the Victim’s Rights Act, the court noted, was to “insure that all victims of crime are treated with respect and receive financial compensation for their losses.”  The court did not elaborate on the basis for “financial compensation” and did not suggest that such compensation could only be awarded in a criminal proceeding.  It did, however, hold the civil judgment entered pursuant to § 12-28-5 is merely a “procedural mechanism” to conclusively establish the liability of the defendant for personal injury or loss of property, and a further proceeding is required under the statute to determine the amount of damages.”  Derderian, supra,, 44 A.3d at 129-130.

Ultimately, the Court concluded a thorough reading of the policy revealed the parties’ “clear intention” that Essex would be obligated to provide a defense only for “civil proceedings in which bodily injury or property damage were alleged.”  Adding a bit of flair and finality to its rejection of the insureds’ novel argument, the court concluded:

Unlike the alchemists of yore, we do not claim the ability to transmute base metal into gold; neither can we transmute a 200-count criminal indictment into a civil proceeding.  It is our opinion, therefore, that Essex had no duty to defend the plaintiffs in their criminal prosecutions.  Id. at 130.