More Stringent Underwriting Expected In Nightclub Tragedy Aftermath

"And of course, they are concerned with fire-related safety," said Robert Hartwig, senior vice president and chief economist at the I.I.I. in New York.

He said that underwriters will typically ask, "Is there an adequate number of exits? Are there fire extinguishers, and what is [the nightclubs] proximity to a firehouse?" Insurers also check materials used in the construction and the age of the building. "All of these things contribute to essentially a fire rating for the building," Mr. Hartwig said.

Mr. Hartwig also noted that the issue of pushing and tramping has been a concern for a while for insurers because they happen in sports stadiums and rock concerts. "So insurers have been aware that this is an issue."

"Typically, the solution is better crowd control. Had more exits been known and available in the club in Chicago, there would have been far fewer deaths. But anything like what happened was beyond the comprehension of any insurance companies involved," Mr. Hartwig speculated, although he did not know exactly which insurers were involved.

In the case of the Rhode Island nightclub, what happened was that most people were unaware of some of the exits, so everyone headed for the back door. "So this created a stampede of death and people were overcome by smoke.

"There is an investigation going on now, trying to determine why the building burned down so quickly. Some acoustic materials seem to have been very flammable. And the club might have been violating safety codes," Mr. Hartwig observed.

"Events like these are very rare. They will directly lead to more stringent underwriting of bars, taverns, small concert halls, nightclubs and other similar facilities," he predicted.

In regard to the ongoing investigation on whether the owners of The Station club or the band committed criminal acts, he added, "If there was an intentional, willful violation of safety codes, it will result in some impact on the insurance coverage. Whether or not that's the case here, we don't know yet. But it is not the intent of the insurers to cover illegal acts," he said. "There will be a dispute here, and we will have to see how it works out."

Commenting on the potential liability for nightclub deaths, one significant factor that could drive up jury awards in the Rhode Island case involves victims' demographics, Mr. Hartwig added.

The band Great White, popular in the 1980s, attracted many people in their 30s and 40s, who were married and in their peak earnings years, he said. That, he said, "would drive up the average settlement in cases of wrongful deaths or negligence lawsuits."

But in rare cases like these, there is usually not enough liability insurance coverage available to pay for lawsuits from the victims' families, either for the nightclubs or the band playing in the club, said Susan Karten, a trial attorney in New York.

"There would be some funds, but not enough for families for these losses. Creative lawyers will have to go after other deep pockets," said Ms. Karten, who was one of five attorneys appointed by the court to handle litigation for the 1990 fire at New York's Happy Land Social Club that killed 87 patrons.

"Lawyers start with the owners of the premises. They have liability coverage, but it's not that much money–usually a few million dollars at best.

"I can tell you right now that there won't be enough coverage for clubs in Rhode Island and Chicago," Ms. Karten said. "And I don't know what kind of policies the band would have, but it won't have enough coverage."

Sometimes these clubs have minimum insurance, or don't have any insurance at all, because they are oftentimes not prime properties. "Some of these clubs are not even legal. Basically, they shouldn't be operating," she said.

In the Happy Land case, victims and their families also sued manufacturers of different products in the club, because many people died not from fire but from smoke inhalation and because products that were used in the club–such as chairs and materials on curtains–were not fire retardant. "These materials could fuel the fire very quickly and dangerously," Ms. Karten noted.

In addition to product manufacturers, municipalities could also become targets in lawsuits involving last month's nightclub deaths, Ms. Karten argued, because cities sometimes don't inspect nightclubs as often or as thoroughly as they should, and there may have been violations on club premises that haven't been taken care of.

According to Ms. Karten, victims and their families of the 1990 New York club fire received $16 million in civil lawsuits (around $180,000 per each victim), with $10 million coming from eight manufacturers of products used at the club, including chairs, fire extinguishers, fire alarms and curtains. Another $6 million came from the subleasee of the club, she said.

Reproduced from National Underwriter Edition, March 3, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.