CRANSTON -- The Station nightclub in West Warwick was not carrying legally required workers' compensation insurance when the club was detroyed in a fatal fire last week, state records show.
The club had workers' compensation coverage in place until early 2000, but has not had coverage since, said Matthew P. Carey, assistant director of the state Division of Workers' Compensation.
"Right now, we're showing that there is no coverage," Carey said in an interview yesterday at agency headquarters at the state Department of Labor and Training in Cranston.
In general, the state requires a business with one or more employees -- whether they are full-time or part-time -- to carry workers' compensation insurance. If they do not have the coverage, they can face civil and criminal penalties, state law says.
The insurance is important for two main reasons:
It generally pays a portion of lost wages and provides medical coverage for a worker who suffers a work-related injury. (Employers are also required to pay $15,000 in burial expenses for a worker who dies from a job-related injury, state law says.)
It generally protects a business -- and its owners -- from liability if a worker is injured or dies on the job. If a business does not have the coverage, a worker (or the worker's estate) can seek to recover costs by suing the business -- and the business owners directly.
At least five employees of the nightclub died in the blaze; an unknown number escaped, according to an unofficial tally based on Providence Journal news accounts of the tragedy.
The state agency on Wednesday mailed a letter to the nightclub's owners, asking them to respond within five business days to the agency's findings, Carey said.
Asked about the insurance issue yesterday, Jeffrey B. Pine, a lawyer who represents one of the owners, Jeffrey Derderian, said, "The best answer I can give you is that we'll look at the letter and respond to it in the proper way. I assure you, we will respond to it."
Reached by telephone from Atlanta, Pine, a former Rhode Island attorney general, said he could not say whether the club carried workers' compensation coverage. He also said he prefers to deal with the state agency directly about the matter.
Essentially, the only people associated with a business who need not be covered are domestic workers, certain farm workers, certain real-estate agents, and sole proprietors and partners, Carey said.
The cost of the insurance, technically known as the premium, is paid by employers, not employees. Michael D. Lynch, vice president of legal services for The Beacon Mutual Insurance Co., of Warwick, the state's largest issuer of workers' compensation insurance, said the cost of coverage generally depends on the size of the business, the employer's experience (generally, the number of on-the-job injuries in the previous three years), the amount of payroll, and what jobs the employees perform.
The price can vary from about $1,000 to millions of dollars, depending on various factors. (For instance, an employer generally would pay less in premiums for a clerical worker than for a roofer, because of the potential risk involved.)
Employers typically buy the coverage through an agent. Insurers report directly to the state agency, advising it electronically whenever a policy is issued, renewed, canceled or expired, Carey said.
Last Friday, anticipating claims-related inquiries in the aftermath of the fire, agency personnel pored through state workers' compensation records to see whether the nightclub had coverage in force. They also cross-checked their information with state unemployment-compensation records, Carey said.
The agency found that the club had no coverage, Carey said. (Coverage was in force until early 2000, which is approximately when the current owners took over.) Then, following its standard procedures, the agency sent the letter to the owners, giving them a chance to respond, he said. (Occasionally, a business may have coverage, but its insurer may not have filed the appropriate report with regulators, Carey said.)
A potentially lengthy internal review and appeal process can follow the issuing of such a letter, allowing a business and its owners to state their case.
Eventually, however, if the agency determines that a business failed to have required coverage, the business can face civil fines of between $500 and $1,000 for each day the business failed to comply with the provisions of the law. In addition, owners may face criminal penalty: a maximum of a year in jail.
State law says: "Every person, firm, and private corporation, including any public service corporation, including the state, that employs employees regularly in the same business or in or about the same establishment" is subject to Rhode Island's workers' compensation insurance laws.
Not having coverage also exposes a business and its owners to potential lawsuits. In general, an employee who is injured on the job -- or the estate of a worker who dies from such an injury -- can sue not only the business, but also its owners personally -- "piercing the corporate veil" that typically shields owners from liability.
A lawyer for the club's other principal owner, Michael Derderian, was not immediately available to comment yesterday.
In an interview, Carey stressed how important it is for a business to maintain workers' compensation coverage. "It's not only for the protection of the owners, but [also for employees] in a situation like this, where injuries can be devastating to people," he said.
With a staff report by Bill Angell.
