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Liability Insurance

Gun Violence and the CGL Policy

Jeffrey Woodward | February 1, 2001

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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.

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:

  1. 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
  2. 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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