No Defense for Retailer of Ghost Guns

    The federal district court held that the firearms retailer was not entitled to a defense for the underlying complaints that did not allege an occurrence. Granite State Ins. Co. v. Primary Arms, LLC, 2024 U.S. Dist. LEXIS 157201 (S.D. N. Y. Aug. 30, 2024). 

    Granite State Insurance Company and National Union Fire Insurance Company of Pittsburgh, Pa. filed suit for declaratory relief against Primary Arms,, LLC, a firearms retailer. Granite State issued the primary policy and National Union issued an umbrella policy. The insurers' complaint sought a declaration that they need not defend or indemnify Primary Arms in three underlying suits filed by the State of New York and the cities of Buffalo and Rochester. 

    Primary Arms was a Texas-based firearms retailer that sold and shipped firearms and firearm components across the United States, including to New York. Primary Arms' products included unfinished frames and receivers for firearms. These unfinished parts could allegedly be converted with relative ease into completed firearms. The unfinished parts were sold without the serial numbers that were required by law to be applied to finished firearms and were sold without requiring that their buyers had a firearms license or underwent a background check. The untraceable firearms made from these parts were sometimes called "ghost guns."

    The underlying lawsuits alleged that Primary Arms knowingly marketed their unfinished products to buyers who would otherwise be prohibited from owning firearms by gun control laws and regulations. These sales were alleged to have contributed to an increase in gun violence. The underlying suits further alleged that Primary Arms' actions caused monetary damages, including from increased spending on law enforcement and community support and services. 

    Primary Arms tendered notice of the underlying suits to Granite State. The claims were denied. The insurers filed suit.

    The court first determined that Texas law applied because Primary Arms was a Texas limited liability company headquartered in Texas.

    Under Texas law, a person's act was not an accident when (1) he commits an intentional act that (2) results in injuries that ordinarily follow from or could be reasonably anticipated from the intentional act. The underlying allegations made clear that Primary Arms' alleged conduct was not an "accident" but instead comprised intentional acts that resulted in injuries that ordinarily followed from or could be reasonably anticipated from that act. 

    For example, the allegations in the underlying complaints included statements that "despite the illegality of their conduct, defendant has intentionally and repeatedly marketed, sold, and shipped unfinished frame and receivers into New York," that "defendant specifically marketed the unfinished frame and receivers as designed to evade federal gun laws" that "defendant intended to sell and knowingly sold unfinished frames and/or receivers to individuals who were likely to create unreasonable risk of harm to others, such that those with criminal convictions, subject to restraining orders, with disqualifying mental health histories, or who lacked proper licensing and training."

    These allegations made clear that the failure to perform any checks regarding Primary Arms' customers was not a mistake, but a deliberate part of its business and marketing model in order to maximise sales. The insurers, therefore, had no duty to defend because the alleged injuries were not caused by an "occurrence" and therefore not covered by the policies.