Derderian v. Essex Ins. Co.

• Decision Date: 27 April 2012
• Docket Number: No. 2009–358–Appeal.,2009–358–Appeal.
• Citation: 44 A.3d 122
• Parties: Michael DERDERIAN et al. v. ESSEX INSURANCE CO.
• Court: Rhode Island Supreme Court

44 A.3d 122

Michael DERDERIAN et al.

v.ESSEX INSURANCE CO.

No. 2009–358–Appeal.

Supreme Court of Rhode Island.

April 27, 2012.

Thomas M. Dickinson, Esq., Woonsocket, for Plaintiffs.

Joel K. Gerstenblatt, Esq., Warwick, Robert L. Ciociola, Esq. (Admitted Pro Hac Vice), for Defendant.

Present: SUTTELL, C.J., GOLDBERG, FLAHERTY, ROBINSON, and INDEGLIA, JJ.

OPINION

Chief Justice SUTTELL, for the Court.

The plaintiffs, Michael and Jeffrey Derderian, appeal from the grant of summary judgment in favor of the defendant, Essex Insurance Company (Essex or defendant), in a declaratory-judgment action. The plaintiffs contend that, based on the language of G.L.1956 § 12–28–5 and the pertinent insurance policy, the trial justice erred in concluding that Essex had no duty to defend the plaintiffs against the state's criminal prosecutions of them on charges of involuntary manslaughter. For the reasons set forth in this opinion, we affirm the judgment of the Superior Court.

IFacts and Procedural History

The tragic facts underlying this case are painfully well known to all Rhode Islanders. On February 20, 2003, in the Town of West Warwick, one hundred people perished in a fire that occurred at the Station nightclub, which was co-owned by Michael and Jeffrey Derderian. The inferno engulfed the Station within a matter of minutes when polyurethane foam covering the ceiling and walls caught fire after a band performing at the nightclub 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 the statute in effect at that time, namely, G.L.1956 § 23–28.6–15(a).¹

In relation to this catastrophe, a grand jury returned separate criminal indictments against plaintiffs. Counts 1 through 100 of the respective indictments alleged that the Derderians, “without malice aforethought, perform [ed] a lawful act with criminal negligence, * * * which on February 20, 2003 unintentionally and proximately caused the death of [the victims], in violation of [G.L.1956] § 11–23–3 * * *.” ² Counts 101 through 200 alleged that the Derderians, “without malice aforethought, perform[ed] an unlawful act not amounting to a felony, to wit, the violation of § 23–28.6–15 * * * which unintentionally and proximately caused the death of [the victims] in violation of § 11–23–3 * * *.”

Prior to this devastating event, Essex had issued an insurance policy (policy) to Michael Derderian. The policy named the insured as “The Station, c/o Michael Derderian” and was effective from March 24, 2002, until March 24, 2003, a time during which the tragedy at the Station occurred. The “Insuring Agreement” within the policy stated:

“a. We will pay those sums that the insured becomes legally obligated to pay as damages because of ‘bodily injury’ or ‘property damage’ to which this insurance applies. We will have the right and duty to defend the insured against any ‘suit’ seeking those damages. However, we will have no duty to defend the insured against any ‘suit’ seeking damages for ‘bodily injury’ or ‘property damage’ to which this insurance does not apply. We may, at our discretion, investigate any ‘occurrence’ and settle any claim or ‘suit’ that may result.

“ * * *

“No other obligation or liability to pay sums or perform acts or services is covered unless explicitly provided for under Supplementary Payments—Coverage A and B.

“b. This insurance applies to ‘bodily injury’ and ‘property damage’ only if:

“(1) The ‘bodily injury’ or ‘property damage’ is caused by an ‘occurrence’ that takes place in the ‘coverage territory’; and

“(2) The ‘bodily injury’ or ‘property damage’ occurs during the policy period.

“c. Damages because of ‘bodily injury’ include damages claimed by any person or organization for care, loss of services or death resulting at any time from the ‘bodily injury’.”

The policy defined an “occurrence” as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions,” and it defined “bodily injury” as “bodily injury, sickness or disease sustained by a person, including death resulting from any of these at any time.” “Suit” was defined in the policy 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 expounded that the term “suit” also included “[a]n arbitration proceeding in which such damages are claimed * * * [and] [a]ny other alternative dispute resolution proceeding in which such damages are claimed * * *.” Further, the “combination general endorsement” to the policy stated: “Where there is no coverage under this policy, there is no duty to defend.”

The Derderians demanded, pursuant to the policy and § 12–28–5,³ that Essex affordthem a defense against the criminal prosecutions arising from the grand jury indictments. Essex, however, refused to provide a defense for the Derderians against the criminal charges, arguing that it was not obligated under either the policy or § 12–28–5 to do so. In response to Essex's rejection of their request, the Derderians filed a complaint against Essex on June 28, 2004, seeking a declaratory judgment that the grand jury indictments against them “constitute[d] a ‘suit’ as defined in the Essex [p]olicy” and that, accordingly, “Essex ha[d] a duty to provide [the] Derderian [s] with a defense” in the related criminal proceedings. The complaint ascribed that “[b]ecause a verdict against each defendant in the indictments would result in the imposition of civil judgment for liability and damages as provided in § 12–28–5, each indictment constitute[d] a ‘suit’ under the terms of the Essex policy.”

On August 17, 2004, Essex filed an answer denying the allegations set forth in the Derderians' complaint and a counterclaim seeking a declaration that Essex had no duty to defend the Derderians in relation to their criminal prosecutions. The Derderians filed an answer to Essex's counterclaim on September 8, 2004; and, on November 2, 2007, they filed a motion for summary judgment.⁴ On December 20, 2007, Essex filed a cross-motion for summary judgment, and a hearing on the motions was held on March 6, 2009. Thereafter, the hearing justice issued a written decision; and, on July 8, 2009, a judgment was entered granting Essex's motion for summary judgment and denying the Derderians' motion. Both Michael and Jeffrey Derderian jointly filed a timely notice of appeal on July 28, 2009.

IIStandard of Review

“In reviewing the parties' cross-motions for summary judgment, we examine the matter de novo.” Travelers Property and Casualty Corp. v. Old Republic Insurance Co., 847 A.2d 303, 307 (R.I.2004). “Summary judgment is appropriate when, viewing the facts and all reasonable inferences therefrom in the light most favorableto the nonmoving party, the [C]ourt determines that there are no issues of material fact in dispute, and the moving party is entitled to judgment as a matter of law.” Id. (quoting Delta Airlines, Inc. v. Neary, 785 A.2d 1123, 1126 (R.I.2001)).

“An insurance policy is contractual in nature,” Papudesu v. Medical Malpractice Joint Underwriting Association of Rhode Island, 18 A.3d 495, 498 (R.I.2011), and we interpret insurance policy terms in accordance to the rules of construction that govern contracts. Town of Cumberland v. Rhode Island Interlocal Risk Management Trust, Inc., 860 A.2d 1210, 1215 (R.I.2004). “[T]he existence of ambiguity vel non in a contract is an issue of law to be determined by the [C]ourt.” Papudesu, 18 A.3d at 497 (quoting Gorman v. Gorman, 883 A.2d 732, 738 n. 8 (R.I.2005)). “When a contract is unambiguous, we review its terms in a de novo manner.” Id. at 498. Only when the insurance policy's terms are ambiguous will this Court depart from the literal language of the policy; and, upon such a determination, “the policy will be strictly construed in favor of the insured and against the insurer.” Sjogren v. Metropolitan Property and Casualty Insurance Co., 703 A.2d 608, 610 (R.I.1997).

IIIDiscussion

On appeal, the Derderians argue that the trial justice erred by concluding that Essex had no duty to defend them against the state's criminal prosecutions of them on charges of involuntary manslaughter.⁵ To support their contention, the Derderians assert that the trial justice erred in her interpretation of the word “suit,” as used within the policy. The plaintiffs educe that because the trial justice incorrectly interpreted this term, she also erred by holding that Essex did not have a duty to defend the Derderians against the criminal negligence charges.

“In general, the duty to defend an insured in this jurisdiction is determined by applying the ‘pleadings test.’ ” Peerless Insurance Co. v. Viegas, 667 A.2d 785, 787 (R.I.1995) (quoting The Employers' Fire Insurance Co. v. Beals, 103 R.I. 623, 632, 240 A.2d 397, 402 (1968)). “That test requires the trial court to look at the allegations contained in the complaint, and ‘if the pleadings recite facts bringing the injury complained of within the coverage of the insurance policy, the insurer must defend irrespective of the insured's ultimate liability to the plaintiff” Id. (quoting Beals, 103 R.I. at 632, 240 A.2d at 402). We begin our analysis by examining the contractual language of the policy.

AThe Term “Suit” as Defined by the Essex Policy

The term “suit” specifically was defined within the policy to mean “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 declared that Essex “will have the right and duty to defend the insured against any ‘suit’ seeking those damages,” but further proclaimed that Essex “will have no duty to defend the insured against any ‘suit’ seeking damages for ‘bodily injury’ or ‘property damage’ to which this insurance does not apply.”

The...