Granite State Insurance Company v. GS Performance, LLC

Background

Granite State Insurance Company and National Union Fire Insurance Company of Pittsburgh, PA, sued GS Performance, LLC, seeking declarations that they had no duty to defend or indemnify GS in three underlying lawsuits called the “Ghost Gun Lawsuits.” Those lawsuits alleged that GS and other firearm sellers sold unfinished firearm frames and receivers in violation of federal and state requirements, including requirements concerning background checks, serial numbers, and federal database entries.

Granite State had issued commercial general liability policies to LMP/Mail Order Video Inc. d/b/a Glockstore, an entity whose assets and liabilities GS later assumed. National Union had issued commercial umbrella liability policies. GS tendered the underlying lawsuits to Granite State and demanded payment of defense expenses and coverage for settlements or damages. Granite State denied coverage. GS did not tender the lawsuits to National Union, according to the opinion.

GS asserted counterclaims alleging breach of contract, seeking a declaration that the insurers had duties to defend and pay its defense costs, and alleging bad-faith failure to defend.

Procedural History

The insurers initially moved for partial summary judgment under Federal Rule of Civil Procedure 56 on some of their claims and some of GS’s counterclaims. After GS’s counsel moved to withdraw, the court ordered GS to obtain new counsel and extended its response deadline. No new counsel appeared. GS also failed to have a representative attend the hearing on counsel’s withdrawal, failed to respond to the summary-judgment motion, and did not oppose the later motion for default judgment.

The clerk entered a certificate of default based on GS’s failure to defend, including its failure to retain counsel. Under Federal Rule of Civil Procedure 55, a default judgment is a judgment entered after a party fails to defend. The court explained that default admits well-pleaded factual allegations, but it does not automatically establish legal liability; the court must still determine whether those allegations support the requested relief as a matter of law.

Court’s Analysis

The court held that GS had failed to “otherwise defend” the case. Because a limited liability company must appear in federal court through a licensed attorney, and because GS disregarded the court’s direction to appear through counsel, the court found that entry of default was justified.

The insurers argued that the underlying lawsuits did not allege an “occurrence” covered by the policies. The policies covered damages for bodily injury or property damage caused by an “occurrence,” which the policies defined as an accident. The court found persuasive an earlier decision involving similar ghost-gun allegations against another firearm retailer. That decision concluded that deliberate sales alleged to have predictably increased gun violence were not accidental conduct.

The court stated that the relevant law in Texas, New York, and Tennessee was not materially different for this issue. It concluded that the allegations in the underlying lawsuits described intentional acts and injuries that ordinarily followed from, or could reasonably be anticipated from, those acts. The policies therefore did not provide the relevant coverage.

Disposition

The court granted the insurers’ motion for default judgment. It ruled that the insurance policies did not obligate Granite State or National Union to defend or indemnify GS Performance in the Ghost Gun Lawsuits. The court denied the insurers’ motion for partial summary judgment as moot and directed the clerk to issue a default judgment consistent with the opinion and close the case.