(Article from Insurance Law Alert, September 2024)
For more information, please visit the Insurance Law Alert Resource Center.
Holding
A New York district court, applying Texas law, ruled that a general liability insurer had no duty to defend a firearm retailer in suits arising out of the alleged sale of components used to make untraceable firearms based on the absence of a covered “occurrence.” Granite State Ins. Co. v. Primary Arms, LLC, 2024 U.S. Dist. LEXIS 157201 (S.D.N.Y. Aug. 30, 2024).
Background
The State of New York and the cities of Buffalo and Rochester filed suits against Primary Arms, alleging that the company sold and shipped unfinished firearm parts that evaded gun control laws, contributing to an increase in gun violence. The complaints alleged that Primary Arms knowingly marketed these products to buyers who would otherwise be prohibited from owning firearms under state regulations, and asserted causes of action for negligence, public nuisance and violation of state statutory law. Granite State denied coverage and sought a declaration as to its defense obligations.
Decision
The court granted Granite State’s summary judgment motion, ruling that the underlying suits did not allege a covered “occurrence,” defined by the policy as “an accident, including continuous or repeated exposure to substantially the same conditions.” Applying Texas law, the court held that an insured’s actions are not accidental if the insured commits an intentional act that results in damage that would “ordinarily follow from or could be reasonably anticipated from” those actions.
Applying that standard, the court concluded that the claims did not allege any accidental conduct, but rather a series of intentional actions relating to the marketing and selling of firearm components. The court emphasized that Primary Arms allegedly made sales to “unknown and deliberately unchecked individuals,” and “failed to exercise any controls on its sales.”
In concluding that such allegations could not constitute accidental conduct, the court stated:
The allegations . . . make clear that the failure to perform any checks regarding Defendant’s customers was not a mistake, but rather a deliberate part of Defendant’s business and marketing model in order to maximize sales. The claim is not that Defendant forgot to run a background check on certain customers or misplaced its paperwork; rather, the allegations are that Defendant made a deliberate choice not to implement internal controls. The expected result of not implementing controls is that individuals who are prohibited from owning firearms – because their owning firearms poses an increased risk for societal harm – can obtain firearms by purchasing Defendant’s products.
Comments
As the decision makes clear, the determinative factor in evaluating whether underlying claims could constitute accidental conduct is the nature of the factual allegations, not the legal theories asserted. The court rejected Primary Arms’ contention that the suits alleged accidental conduct because they asserted negligence-based causes of action, noting that Texas law has rejected the assertion that claims sounding in negligence inherently allege “occurrences.”