Gun Violence and the CGL Policy
February 2001
The gun violence public policy debate has
moved into the courts where individual, class-action, and governmental plaintiffs
are all seeking to hold firearms manufacturers and distributors legally liable
for injuries caused by guns. Learn how the First Circuit court’s unwillingness
to view such claims as anything other than “bodily injury arising out of your
product” suggests that CGL coverage in such litigation will be hard to establish.
by Jeff Woodward
IRMI
As a social and political movement, gun control—or "gun safety" as many of
its advocates prefer—is being pursued in the United States on several fronts:
legislative, regulatory, educational. Most recently, the public policy debate
has moved into the courts where individual, class-action, and governmental plaintiffs
are all seeking to hold firearms manufacturers and distributors legally liable
for injuries caused by guns.
Among the questions raised by this new kind of litigation is the extent to
which gun makers and dealers have coverage for such suits under standard general
liability policies. A recent decision of the U.S. First Circuit Court of Appeals
may throw some light on the question. The case is Brazas
Sporting Arms, Inc. v American Empire Surplus Lines Insurance Co., 220
F3d 1 (1st Cir 2000).
The insured, Brazas, was one of several firearms manufacturers and distributors
sued by victims of gunshot injuries or the survivors of victims. The basis of
the suit was the plaintiffs' allegation that the defendants:
[K]nowingly produced and distributed handguns in excess of the reasonable
demand by responsible consumers in the lawful national handgun market, and
... knowingly failed or refused to take any meaningful steps to regulate
and control the distribution and sale of their guns by retail dealers.
This negligent conduct on the part of the defendants, the suit alleged:
Created and supplied an unlawful national market in firearms, the source
of the handguns that killed and wounded plaintiffs and their loved ones.
In short, the action brought against Brazas and the other defendants in the
suit was not a typical products liability claim, since there were no assertions
that the products in question—handguns—were defective in their manufacture or
operation, or even that they were unreasonably dangerous.
Brazas was insured under a commercial general liability (CGL) insurance policy
that had been endorsed—as are many firearms dealers' policies—to eliminate coverage
of claims within the products-completed operations hazard. The wording of the
products-completed operations exclusion was that of standard Insurance Services
Office, Inc. (ISO), endorsement CG 21 04:
This insurance does not apply to "bodily injury" or "property damage"
included within the "products-completed operations hazard."
The applicable definitions of terms were those of the standard CGL coverage
form as well.
Brazas's CGL insurer declined to defend the suit, citing the exclusionary
endorsement quoted above and pointing out that the allegations in the suit unambiguously
involved bodily injury "arising out of" Brazas's product—the very definition
of a loss within the products-completed operations hazard. Brazas, on the other
hand, advanced two arguments for coverage:
- The products-completed operations hazard exclusion was intended to eliminate
coverage only with respect to defective products, and to interpret it any
more broadly would render the coverage of the policy illusory; and
- The suit alleged injury that "arose" not out of the insured's product,
but out of certain business practices of the insured, which constituted
a premises and operations claim, not a claim within the products-completed
operations hazard.
The case was ultimately heard before the U.S. First Circuit Court of Appeals,
which upheld the ruling of a federal district court that had found no coverage
under Brazas's CGL policy. The circuit court examined each of the insured's
arguments in turn. It acknowledged that some courts had in fact restricted application
of products hazard exclusions in CGL policies to claims alleging product defects.
The rationale of such court rulings was that general liability insurance is
commonly understood as a vehicle for insuring ordinary business exposures; when
an entity's ordinary business exposures are derived from the manufacture or
sale of a product, it is unconscionable to exclude all product-related liability
from the coverage of a general liability policy, since that is the very business
liability that would prompt such an entity to buy insurance.
The circuit court, however, dismissed this argument for two reasons. First,
the courts that had adopted a limited interpretation of products hazard exclusions
had been applying policy language substantially different from that of the standard
endorsement that was attached to Brazas's policy. Second (and related to the
first point), no such limited interpretation was supported by the plain language
of the endorsement at issue.
Brazas's other argument in favor of coverage was more difficult for the court
to dismiss. The allegations of the plaintiffs against the defendants—including
Brazas—were that their injuries were caused not simply by guns made or sold
by the defendants, but by business decisions of the defendants in flooding the
market with handguns beyond the demand for those guns among "responsible" consumers.
(No plaintiff claimed or attempted to prove that a gun actually distributed
by Brazas was used to inflict any of the injuries.)
In terms of relevant policy language, the court determined that the question
before it was whether the alleged injuries were accurately described as "arising
out of [the named insured's] product," as required by the definition of the
(excluded) "products-completed operations hazard." That the case represented
a whole new species of litigation did not escape the court's notice.
Traditional considerations, such as the parties' expectations ... shed
no further light on the issue because neither party would have foreseen
this type of lawsuit when they entered into the policy agreement.
The court chose to adopt a broad view of what injury "arising out of" the
insured's product might include, both because such a view was supported by applicable
principles of insurance policy interpretation; and because Massachusetts law
requires that judgments of causation in tort actions must be based on:
[T]he source from which the plaintiff's personal injury originates rather
than the specific theories of liability alleged in the complaint (of the
underlying civil action).
Ultimately, the court felt compelled to apply the policy language to the
actual circumstances of the alleged injuries, rather than to the somewhat abstract
terms of the allegation itself.
Thus, in this case, firearms were the immediate source of the plaintiffs'
injuries, and the fact that the plaintiffs, to reach the deep pockets of
the firearms industry, contrived a theory of liability that targeted Brazas
for its alleged participation in flooding the firearms market cannot affect
the application of the exclusion provision.
The significance of Brazas v American Empire is that it raises coverage issues likely to be revisited in future litigation
against gun manufacturers and distributors. Such litigation, used as a weapon
against the firearms industry as a whole, may not allege specific injury caused
by a particular insured's product. (Such specific injury and causation is often
difficult to establish.) That means that the terms of the claim or suit may
not readily match the coverage (or exclusionary) language of standard liability
forms relative to products liability.
Moreover, such litigation will often be pursued against defendants that do
not have products liability coverage under their CGL policies, since insureds
with high-risk products exposures must often arrange separate coverage in the
specialty market. Thus, the coverage issues will center on what are essentially
products claims being pursued as something other than products claims. The First
Circuit's unwillingness to view the claims in Brazas as anything other than "bodily injury arising out of your product" suggests
that CGL coverage in such litigation will be hard to establish.
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