Granite State Insurance Company v. Primary Arms, LLC

Background

Granite State Insurance Company and National Union Fire Insurance Company of Pittsburgh, Pa. issued commercial general liability and commercial umbrella liability policies to Primary Arms, LLC. Primary Arms is a firearms retailer that sells and ships firearms and firearm components, including unfinished frames and receivers, across the United States and into New York.

New York, Buffalo, and Rochester brought separate underlying lawsuits against Primary Arms and other firearms retailers. The suits allege that the defendants knowingly marketed, sold, and shipped unfinished firearm parts that could be readily converted into completed firearms and that lacked serial numbers and purchase safeguards required for finished firearms. The suits claim that these sales helped prohibited individuals obtain untraceable firearms and contributed to increased gun violence. They assert claims under New York statutes and common law, including public nuisance, negligence-related claims, deceptive business practices, and other allegedly illegal or fraudulent conduct.

Primary Arms asked Granite State to defend and indemnify it in the underlying lawsuits. Granite State denied coverage. Primary Arms did not tender the underlying lawsuits to National Union or seek coverage from it. In this action, the insurers seek declarations concerning their defense and indemnity obligations. Primary Arms asserts counterclaims, including breach of contract, a declaration that the insurers owe a duty to defend, and bad faith.

Motions and governing standard

The parties filed cross-motions for partial summary judgment on the insurers’ duty to defend. Summary judgment is appropriate when there is no genuine dispute about a material fact and the moving party is entitled to judgment as a matter of law.

The court held that Texas law governs. The policies did not contain choice-of-law provisions, but the policies covered risks in multiple states, Primary Arms is a Texas limited liability company headquartered in Texas, and the parties did not dispute that Texas law applied.

Under Texas’s “eight-corners rule,” an insurer’s duty to defend is determined by comparing the allegations in the underlying lawsuit with the policy provisions, without deciding whether those allegations are true. Courts consider the underlying factual allegations rather than merely the legal labels attached to the claims.

Duty to defend

The policies require the insurers to defend suits seeking damages because of bodily injury or property damage caused by an “occurrence.” The policies define “occurrence” as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.”

The court ruled that the underlying lawsuits did not allege an occurrence. Under Texas law, an act is not an accident when the insured commits an intentional act and the resulting injury ordinarily follows from, or could reasonably be anticipated from, that act. The court treated the underlying complaints’ allegations against the group of defendants as applying to Primary Arms because those allegations were pleaded with sufficient detail and were not merely conclusory.

The underlying lawsuits allege that Primary Arms intentionally and repeatedly marketed, sold, and shipped unfinished frames and receivers; marketed them as a way to evade gun laws; sold them to people who were likely to create an unreasonable risk of harm; and failed to impose controls on sales to unknown and unchecked buyers. The court concluded that these allegations described deliberate choices to enable the anonymous acquisition of uncontrolled firearms, with an expected result of increased gun violence.

The court rejected Primary Arms’s argument that negligence allegations necessarily involved an occurrence. It explained that a deliberate act can be an accident when the harmful result was neither intended nor expected, but concluded that the underlying lawsuits alleged the opposite here. According to the allegations, Primary Arms’s failure to implement controls was a deliberate part of its business and marketing model, not an accidental failure to perform a check or maintain paperwork.

The court therefore held that the alleged injuries were not caused by an occurrence and were not covered on that basis. It did not decide whether the underlying lawsuits also fell outside the policies because they did not allege bodily injury or property damage. The court noted that Texas courts had not decided whether injuries alleged by governmental plaintiffs under public-nuisance theories qualify as damages because of bodily injury or property damage.

Disposition

The court granted the plaintiffs’ motion for partial summary judgment. It ruled that the policies did not obligate Granite State or National Union to defend Primary Arms in the underlying lawsuits. The court denied Primary Arms’s motion for partial summary judgment, including its request concerning breach of the duty to defend and its request for attorney’s fees and costs as the prevailing party.

The court also denied the insurers’ request for oral argument as moot. The court identified as surviving the claims concerning the insurers’ duties to indemnify and Primary Arms’s third counterclaim for bad faith. Although the court stated that its reasoning appeared likely to resolve those claims as well, it did not state that those claims were decided in this order. The court directed the parties to submit a joint letter proposing next steps.