Granite State Insurance Company v. Rainier Arms LLC

Background

Rainier Arms LLC is a firearms retailer, and Granite State Insurance Company is its business insurer. Granite issued Rainier fourteen commercial general liability policies covering successive years from October 3, 2008, through October 3, 2022. The parties agreed that one policy was representative of the relevant terms for the issues presented in Granite’s motion.

Rainier was a defendant in three lawsuits brought by the New York Attorney General’s Office, the City of Buffalo, and the City of Rochester. Those lawsuits alleged that Rainier and other firearms businesses sold and marketed unfinished, unserialized frames and receivers that could be converted into functioning firearms. The complaints alleged that the defendants marketed the products as easy to convert, sold them without required safeguards such as background checks and serial numbers, and contributed to public-safety harms and government expenses associated with ghost guns and firearm crime.

Rainier tendered the lawsuits to Granite for defense. Granite later disclaimed coverage, asserting, among other things, that the lawsuits did not allege damages because of bodily injury or property damage caused by an “occurrence” as required by the policies. Granite then sought a declaration that it had no duty to defend or indemnify Rainier. The motions addressed only the duty to defend, along with related counterclaims for defense costs and a declaration that Granite had to fund Rainier’s defense.

Choice of Law and Governing Standards

The court applied Washington law. It explained that New York choice-of-law rules pointed to Washington because the insured risk was principally located at Rainier’s domicile when the policies were issued, and because the parties’ briefing treated Washington law as controlling.

Under Washington law, an insurer must defend when the underlying complaint, read broadly, alleges facts that could impose liability covered by the policy. The duty is evaluated generally from the four corners of the underlying complaint and the insurance policy. The insurer is relieved of that duty only when the alleged claim is clearly outside coverage. The insured bears the burden of showing that coverage exists.

The policy required covered bodily injury or property damage to be caused by an “occurrence,” defined as an accident, including repeated exposure to substantially the same harmful conditions. Washington law treats an accident as an unusual, unexpected, and unforeseen happening. A deliberate act is not an accident unless an additional unexpected, independent, and unforeseen event produces the injury.

Court’s Analysis

The court held that the underlying complaints alleged deliberate conduct by Rainier. The complaints alleged that Rainier intentionally sold and shipped unfinished frames and receivers, marketed them as easy to convert into firearms, promoted them to customers who might not otherwise be able to buy firearms lawfully, and sold them without following applicable laws and regulations.

The court rejected Rainier’s argument that the negligence and negligent-entrustment claims triggered a duty to defend. It reasoned that the legal labels used in the complaints did not control; the court had to examine the conduct alleged. In the court’s view, those claims repeated or emphasized allegations of intentional conduct rather than alleging a separate, non-deliberate event.

The court also held that the complaints did not allege an additional unexpected, independent, and unforeseen happening. The alleged harms—including increased access to ghost guns, use of those guns in crimes, difficulty tracing them, and increased government spending—were, in the court’s view, foreseeable consequences of the deliberate conduct alleged. The products-completed-operations provisions did not change the result because the complaints did not allege that defective products caused the claimed harm.

Because the court concluded that the alleged harms were not caused by an occurrence, it did not decide Granite’s separate argument about whether the lawsuits sought damages “because of” bodily injury or property damage.

Disposition

The court granted Granite’s motion for partial summary judgment on Count I of its complaint and Counts I and II of Rainier’s counterclaims, ruling that Granite was not obligated to defend Rainier in the three underlying lawsuits and had not breached the insurance contract by refusing to provide that defense. The court denied Rainier’s cross-motion for partial summary judgment. The court also denied Rainier’s request for attorneys’ fees and costs. The opinion did not resolve Granite’s claim concerning a duty to indemnify.

Judge Margaret M. Garnett directed the Clerk of Court to terminate the two motion entries.