Before the duty to defend arises, three conditions must be met: (1) it must be established that the policy contains a contractual agreement to defend; (2) there must be a “suit” filed against the policyholder; and (3) the policyholder must tend to the defense of the suit to the insurer. See, Practical Tools For Handling Insurance Cases, Implied Covenant Of Good Faith And Fair Dealing 2:8, p. 2-66 (Thomson Reuters 2011).
The term “suit” is usually defined in the insurance policy to mean a civil proceeding. Traditionally, criminal proceedings do not qualify as a “suit” for purposes of triggering an insurer’s duty to defend. However, a novel twist on this issue came before the court in Derderian v. Essex Ins. Co., 44 A.3d.122 (R.I. 2012).
In Derderian, 100 people perished in a fire that occurred at the Station Night Club which was co-owned by Michael and Jeffrey Derderian. The inferno engulfed the night club within a matter of minutes when polyurethane foam covering the ceiling and walls caught fire after a band performing at the night club ignited a pyrotechnic display. The foam that kindled the conflagration had been installed by the Derderians in June 2000 and was not flame resistant as required by statute.
A grand jury returned separate criminal indictments against the Derderians for involuntary manslaughter. The Derderians tendered the defense of the criminal matter to Essex Insurance Company under its business liability policy. The policy provided that Essex had the right and duty to defend the insured against any “suit” seeking covered damages. “Suit” was defined in the policy as “a civil proceeding in which damages because of bodily injury, property damage or personal and advertising injury were alleged.” Essex denied the Derderians request for a defense of the criminal charges. The Derderians filed a complaint for declaratory relief against Essex arguing that the grand jury indictments constituted a suit as defined by the policy because, they alleged, any verdict against them in the indictments would result in the imposition of a civil judgment for liability and damages pursuant to R.I. GEN.LAWS 1956 § 12-28-5.
The Derderians alleged that the purposes of imposing a duty to defend the word “suit” should be interpreted broadly. They then argued that under R.I. GEN.LAWS § 12-28-5, any criminal prosecution within the scope of the statute was, in effect, a proceeding that can lead to a civil judgment, thereby triggering the duty to defend. Essex responded to this allegation by arguing that the term “suit” meant a “civil proceeding” and as such, under the plain language of the policy, the allegation did not trigger the duty to defend.
The Court began its analysis of the issue by noting that the Derderians were charged with involuntary manslaughter under the criminal offense of homicide. Therefore, on its face, the criminal indictments, which cited charges of involuntary manslaughter, did not comport with the term “suit” as it was used and defined in the policy. Therefore the Court refused to broadly interpret “suit” to include the criminal proceedings.
The Court then specifically addressed the Derderians argument that R.I. GEN.LAWS § 12-28-5 required Essex to defend. To support their theory, the Derderians had contended that the explicit language of § 12-28-5 combined with the Supreme Court of Rhode Island’s holding in Seddon v. Bonner, 755 A.2d.823, 827 (R.I. 2000) supported the conclusion that a felony conviction after a jury trial under the statute results in an “automatic” civil judgment. Because of this, the Derderians argued that the statute converted convictions in criminal proceedings into an automatic civil judgment for liability in favor of the victim, without the necessity of any further notice, hearing or proceedings. For that reason, the Derderians concluded that, each criminal indictment brought against them constituted a suit demanding coverage under the policy.
Essex responded that the indictments alleged involuntary manslaughter and did not, by themselves, initiate a civil proceeding or allege covered damages. Essex also argued that there was no indication that the General Assembly of Rhode Island intended by enacting R.I. GEN.LAWS § 12-28-5 to radically rewrite the longstanding law of liability insurance by turning criminal prosecutions into civil lawsuit for damages for bodily injury or property damage. Finally Essex argued that a broad interpretation of the statute and § 12-28-5 to require a defense would create a windfall whose benefits would flow solely to alleged perpetrators of crimes and would completely rewrite all general liability insurance contracts.
The Rhode Island Supreme Court in Derderian v. Essex Ins. Co. held that the indictments for involuntary manslaughter against the Derderians neither initiated a civil proceeding nor alleged damages. Additionally, the Court refused to attribute to the general assembly an intent to transform criminal prosecutions into civil proceedings by enacting § 12-28-5. The Court found that the statute was merely a procedural mechanism to conclusively establish the liability of a criminal defendant for personal injury or loss of property and that further civil proceedings would be required under the statute to determine the amount of damages.
The Court’s ruling in Derderian v. Essex Ins. Co. demonstrates the resistance of courts to broaden the interpretation of “suit” when determining if the duty to defend is triggered to include criminal proceedings when the policy limits the definition of suits to civil proceedings. R.I. GEN.LAWS § 12-28-5 comes as close as any statute that this author has seen to blurring the line between criminal proceedings and civil proceedings through the creation of its conclusive presumption of civil liability and automatic conversion to a civil judgment.
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