Digital Extra: The Station Fire

The unusual lawsuit tries to hold a Warwick company, Multi-State Inspections, and the insurer, Essex Insurance Co., accountable for "egregious negligence" in examining the club.

01:00 AM EST on Sunday, January 16, 2005

BY ZACHARY MIDER
Journal Staff Writer

Four months before the fire at The Station nightclub, an inspector examined the rambling West Warwick roadhouse -- not a town official, but a private agent, sent by the club's liability insurer to assess the risk.

Steven M. Shaw, of Multi-State Inspections, looked around and asked questions of club co-owner Michael A. Derderian. His report, dated Oct. 8, 2002, covered bartender training and deep-fryer safety but did not mention the flammable soundproofing foam, crowding and fireworks that would figure in the deaths of 100 people in the February 2003 blaze.

In an unusual legal claim, lawyers representing more than 200 people injured or killed in the fire are now trying to hold Multi-State Inspections and the insurer, Essex Insurance Co., accountable for what they call "egregious negligence" in examining the club. Naming them with dozens of other defendants in their lawsuit in U.S. District Court, the plaintiffs say the inspector and the insurer should have noticed the safety problems and had them corrected.

The claim flies in the face of established insurance law, Essex argues in court pleadings. If the claim against Essex succeeds, it could wreak havoc in the industry and spell the end of insurance inspections, an industry group warns.

Last month, Senior U.S. District Judge Ronald R. Lagueux heard oral arguments on Essex's motion to dismiss the claim. He has not yet issued a decision.

The Station lawsuit so troubles the Property and Casualty Insurance Association of America that it filed a friend-of-the-court brief in the case, breaking with its custom of weighing in only on appeals, said its lawyer, Robert J. Hurns.

Steven Shaw, 32, of Coventry, declined to comment for this story. His mother, Gail Shaw, said her son is the president and only employee of Multi-State Inspections.

Gail Shaw spoke to The Providence Journal earlier this month at her home on Twin Oak Drive in Warwick, Multi-State's business address. She is listed as vice president of the company.

Steven Shaw used to ride a motorcycle and attend concerts at The Station, his mother said. He might have gone to the concert on Feb. 20, 2003, she said, if he hadn't disliked Great White, the band whose fireworks display sparked the fire that night.

He got into the insurance-inspection business through his father, she said. Barry J. Shaw used to work for Gresham & Associates of R.I., the wholesale insurance broker that sold Essex's insurance policy to The Station. (Gresham is also a defendant in The Station lawsuit.)

An insurance inspector assesses a business's risk to the insurer, helping the latter set premiums or avoid writing risky policies, she said. Inspectors are not charged with protecting the public at large, she said. "The fire marshal is supposed to handle stuff like that."

Steven Shaw's 2002 inspection reviewed The Station's fire alarm system, wiring and roof condition, and the fire-extinguishing equipment in the kitchen, and stated that Michael Derderian was helpful in answering questions.

"The interior and exterior of the [club] were in overall good condition," he wrote.

The club brought in $220,000 in sales in 2001, mostly from liquor, and could seat 150 people, he wrote. He did not report the maximum occupancy of the club, which the town fire marshal had pegged at 404 if certain safety measures were taken.

"They don't check everything," Gail Shaw said. "It's impossible."

Steven Shaw had one recommendation for the club owner: "Repair door on right side of [club] as well as pushbar."

It was the same problem that town inspectors found repeatedly at The Station, a broken exit door near the stage where the fire would start.

Shaw's report does not say whether Derderian followed his recommendation, but when two town inspectors visited the club the next month, on Nov. 2, 2002, they both noted the same problem with the door.

Derderian's lawyer, Anthony F. DeMarco, declined to comment on the inspection.

John J. Clarke Jr., a West Warwick insurance broker and chairman of the local Republican party, said a previous owner of The Station once approached him about writing a liability policy for the club.

He said he refused, citing safety problems that included the building's wooden frame, a lack of suitable exits, late hours, alcohol and smoking, "all of which conspired to produce a less-than-acceptable underwriting hazard."

"I have insured other cocktail-lounge, restaurant-type facilities over the years, but I don't insure them unless they have maximum protection for the public," Clarke said. He said he conducts his own inspections.

ESSEX, a Virginia-based insurance company, claims that courts in Rhode Island have never held an insurer liable for a faulty insurance inspection.

In court pleadings, Essex cites Judge Lagueux's own reasoning in a case involving the seagoing vessel Marques, which sank in 1984 off the coast of Bermuda, killing a 15-year-old Providence boy and 18 other people.

In a lawsuit stemming from the wreck, Lagueux ruled that an insurer could not be held financially responsible to the victims for failing to properly inspect the vessel. "An insurer is generally not liable for underwriting a foolhardy risk," he wrote.

If The Station plaintiffs' claim prevails, "insurance law and the insurance industry would be turned on their heads," Essex contends. Insurers would be exposed to nearly limitless liability, and would be discouraged from performing inspections at all.

The Property and Casualty Insurance Association "sympathizes with the victims and the families of those who lost their lives in that terrible blaze," its lawyer, Hurns, said in a statement. "However, these difficult, unsettling and emotionally charged circumstances should not make bad law."

THE STATION plaintiffs say the law is on their side, pointing to cases in which Rhode Island courts have looked favorably on similar kinds of suits.

They note that state law immunizes certain types of insurance inspections from civil claims, including property and casualty insurance, but not liability insurance. (Essex contends liability insurance is a category of casualty insurance.)

In addition to the 2002 inspection, The Station plaintiffs claim there were two earlier negligent inspections of the club, conducted in 1996 and 1998 by High-Caliber Inspections, another Warwick entity headed by Steven Shaw. Gail Shaw said High-Caliber is the former name of her son's business.

Brothers Jeffrey and Michael Derderian had a $2-million liability policy with Essex on the date of the fire, requiring Essex to defend them in civil suits.

Along with Great White's tour manager, the brothers each face 200 criminal counts of involuntary manslaughter. They have pleaded not guilty. In a separate lawsuit in state Superior Court, the brothers are trying to force Essex to pay the cost of their criminal defense as well.