GUN LIABILITY
by T. Joesph Snodgrass
1.Introduction1
The filings of several lawsuits against the gun industry by major metropolitan cities and counties in the past ten months has raised much political debate about gun control measures. Recent shootings in April, 1999 in Littleton, Colorado have fueled this political debate.
Questions have naturally arisen as to the insurance industry's role in the gun industry lawsuits. The business press has reported that some insurers are preparing to contest liability coverage for these suits.2 One coverage action, involving a gun industry trade association, is pending in the Eastern District of Louisiana.3 This paper is intended to identify areas where coverage questions may arise under CGL policies for the pending and anticipated gun industry lawsuits.
2. Background Of The Gun Industry Lawsuits
At the time these CLE materials were prepared, 22 cities and counties had filed suit against the firearms industry. On October 30, 1998, New Orleans became the first city to file suit, followed by Chicago (November 12, 1998), Miami/Dade County (January 26, 1999), Bridgeport (January 27, 1999), Atlanta (February 5, 1999), Cleveland (April 8, 1999), Detroit/Wayne County (April 26, 1999), Cincinnati (April 30, 1999), St. Louis (April 30, 1999), San Francisco (including Berkeley/Sacramento/San Mateo County/Alameda County) (May 25, 1999), Los Angeles (including Compton/West Hollywood) (May 25, 1999), Camden County, NJ (June 2, 1999), Boston (June 3, 1999) and Newark (June 9, 1999). Additionally, the NAACP recently issued a press release announcing its plans to join the cities and counties in their suits against the gun manufacturers (July 12, 1999).4
The impetus behind the lawsuits is both political and fiscal. Dennis Henigan, an attorney with the Washington, D.C.-based Center to Prevent Handgun Violence, is counsel of record on all but a handful of the respective city and county suits. Mr. Henigan's non-profit organization is a sister organization of Handgun Control, Inc., the gun-control advocacy group led by Sarah Brady.5
The first group of plaintiff's attorneys involved in the gun litigation was the Costano Group. The Costano Group, a coalition of plaintiff's attorneys formed during the tobacco litigation, represents several of the municipalities on a contingent fee basis.6 Other plaintiff's firms are representing most other cities and municipalities. It is the exception, not the rule, for a city or county to be exclusively represented by its own attorneys.
a. The Gun Industry Defendants
There are three groups of target defendants in the suits. All of the suits name the larger domestic and foreign gun manufacturers, such as Beretta, Glock and Smith & Wesson. The more recent lawsuits typically name additional, smaller firearms manufacturers as well.
Most of the city and county lawsuits also name local gun retailers, including pawn shops, individual and corporate retailers and gun show operators. Finally, some of the suits name the gun industry trade associations as party defendants, including the National Shooting Sports Foundation, the Sporting Arms and Ammunition Manufacturers' Institute and the American Shooting Sports Council.
b. Products Claims
Each of the suits follow a common framework. Most of the gun industry lawsuits allege common law products claims based upon strict liability, negligence and/or failure to warn theories. The alleged design defects are twofold: (1) the failure of the manufacturers to include safety devices on their products to prevent unauthorized use; and (2) the failure of manufacturers to ensure that no bullet remains "live" and in the gun chamber after the cartridge is removed from the weapon.7
With respect to safety devices, anti-gun advocacy groups have described at least three design alternatives allegedly available, or potentially available if designed: (1) "smart guns" with computer-chip fingerprint recognition; (2) transmitting or magnetic devices worn on the authorized user's wrist or finger which enable the gun to operate; and (3) trigger locks.8
For example, the City of New Orleans' Complaint alleges, with respect to the failure to include safety devices:
5. At all pertinent times the defendants have been able to manufacture, market, sell and/or promote firearms which prevent shootings by unauthorized users, including firearms which incorporate safety devices intended to prevent unauthorized users from firing firearms if and when they come into possession of them. However, defendants have failed to do so.9
Allegations concerning the alleged defect of allowing "live" bullets to remain in the chamber of semi-automatic firearms are illustrated by the City of Atlanta's Complaint:
37. With regard to those guns of Defendants which are semi-automatic, at all pertinent times it was foreseeable that users, including adolescents, would mistakenly believe that a semi-automatic gun would not fire if the ammunition magazine is removed or unloaded.
38. At all pertinent times it was foreseeable that users of semi-automatic guns would not understand or appreciate that an undetectable round of ammunition may be housed in the firing chamber of the gun even though the detachable ammunition magazine has been removed or unloaded, and that preventable, unintentional shooting would result given Defendants' designs.10
c. Wrongful Sale Claims
Several of the lawsuits allege claims based upon the wrongful sales and marketing of firearms. While the allegations in some complaints are protracted, most wrongful sale allegations focus on the use of "straw purchasers." Under federal law, it is unlawful to sell a firearm to a convicted felon. In their suits, some cities, particularly Chicago and Wayne County, have alleged that firearms dealers knowingly sell guns to convicted felons through straw purchasers. Before filing their respective complaints, Chicago and Wayne County conducted videotaped surveillance to allegedly prove that licensed firearms dealers were selling to felons through straw purchasers. The surveillance activities have been incorporated into the respective complaints.
The Wayne County Complaint is illustrative of these wrongful sale allegations:
72. Thousands of guns have flowed into the unlawful market by a method of diversion called "straw purchasing," wherein the purchaser buys the gun from a licensed dealer for a person who is not qualified to purchase the firearm under federal and state regulations, such as a juvenile or a convicted felon. Indeed, in one recent law enforcement study, more than 50% of the firearms subject to firearms subject to firearm trafficking investigations had been acquired as part of a straw purchase. Many of these straw purchases have occurred under the circumstances which have indicated or should have indicated to the firearm seller that a "straw purchase" was being made.
...
77. An undercover investigation conducted by Plaintiffs in March and April, 1999, indicates that these negligent distribution practices are widespread in Wayne County, Michigan. This investigation involved undercover members of the Wayne County Sheriff's Office and other authorized investigators making firearm purchases on behalf of persons representing themselves to dealers as convicted felons or juveniles. Defendant dealers were more than willing to participate in these straw purchases and made large-scale multiple sales to persons representing themselves as having felony records. Some of the specific conduct of the Defendant dealers that negligently or intentionally facilitates the illegal possession and use of firearms in Wayne County is set forth below:
a. On March 20, 1999, two officers entered the Gibraltar Trade Center in Taylor, Wayne County, Michigan and visited the Midwest Ordnance Gun Shop display. Officer 1 asked if he could see two different .40 caliber Smith & Wesson handguns and a Titanium Smith & Wesson handgun, and said he would like to purchase them. Officer 1 then told the clerk that he was a convicted felon and asked if the person he brought with him, Officer 2, could fill out the forms and buy the guns on his behalf. The clerk completed this transaction. Officer 1 remained at the store and purchased the 3 Smith & Wesson handguns and several boxes of ammunition. Officer 1 handed over the money, was given the change, and was handed the guns to walk out of the store.11
Other cities have adopted a different focus in their allegations of wrongful sales. For example, the City of Los Angeles alleges that certain gun manufacturers: (1) over-saturated the market with handguns; (2) over-saturated the firearms markets in States with "weak" gun control laws; and (3) failed to monitor, supervise and police their licensed firearm retailers.12 According to some cities, these allegations of wrongful sales support common law nuisance and negligence causes of action, as well as statutory unfair practices act claims.
4. Relief Sought
The relief sought in the city and county complaints is generally uniform. Most complaints seek restitution of amounts paid for city and county services. For example, the City of Atlanta's Complaint alleges in part:
884. Plaintiff suffered substantial actual injury and damages as the direct and proximate result of Defendant Manufacturers' wrongful acts described above, and Plaintiff has been obligated to pay and has paid millions of dollars in the past to enhance police protection, emergency services, police pension benefits, facilities and services due to the threat of use of Defendants' products and for certain of those aforementioned citizens injured by the Defendants' actions and products, and has lost substantial tax revenue due to lost productivity.13
The City of New Orleans ad damnum clause states:
To prevent an unjust enrichment, the defendants should indemnify the city for its enhancement of police protection, emergency services, police pension benefits, medical care facilities and services, as well as lost tax revenues, due to defendants' products and actions.
Wherefore the plaintiffs pray for relief and judgment against the defendants, jointly and in solido as follows:
a. For damages in an amount which is sufficient to provide restitution and repay the plaintiffs for the sums they have expended on account of the defendants' wrongful conduct, with said amount to be determined at trial;
b. For damages in restitution for the sums of money to be paid by plaintiffs in the future on account of the defendants' wrongful conduct;
c. For pre-judgment interest, as well as plaintiffs' reasonable attorneys' fees, expert witness fees and other costs of this action;
d. For punitive damages in such amount as will sufficiently punish the defendants for their conduct and as will serve as an example to prevent a repetition of such conduct in the future;
e. For such other and further extraordinary equitable, declaratory and/or injunctive relief as permitted by law as necessary to assure that plaintiffs have an effective remedy; and
f. For such other and further relief, as the Court deems just and proper, to which plaintiffs may be entitled.14
e. Present Status Of Litigation
As might be expected, the litigation has proceeded at a deliberate pace. Lobbying and legislation, procedural maneuvering, a gun manufacturer bankruptcy and settlement discussions have taken place since the commencement of the suits.
In two states, the actions have been slowed by the enactment of laws by state legislatures prohibiting municipal and county lawsuits against the gun manufacturers. In June, the state Legislature of Louisiana enacted a law aimed at stopping the first gun industry lawsuit. The law provides:
The governing authority of any political subdivision or local or other governmental authority of the state is precluded and preempted from bringing suit to recover against any firearms or ammunition manufacturer, trade association, or dealer for damages for injury, death, or loss or to seek other injunctive relief resulting from or relating to the lawful design, manufacture, marketing, or sale of firearms or ammunition. The authority to bring such actions as may be authorized by law shall be reserved exclusively in the state.15
Georgia has enacted a similar measure to derail the Atlanta action.16 Similar laws have been enacted in Alaska, Arizona, Arkansas, Maine, Montana, Nevada, Oklahoma, South Dakota, Tennessee, Texas and Wyoming. A similar Minnesota bill was introduced last legislative session, but not passed.
Federal bills have also been introduced on both sides of the issue. Representative Bob Barr introduced the Firearms Heritage Protection Act, prohibiting lawsuits against the gun manufacturers based on criminal or unlawful use of firearms.17 Senator Barbara Boxer introduced legislation aimed at creating strict liability upon the gun industry, and providing for recovery of compensatory and punitive damages, reasonable attorneys' fees and equitable relief, resulting from gun violence.18
As expected, procedural maneuvering in the firearms litigation has contributed to the slow pace of the litigation. For example, the Detroit action was removed to federal court, based upon federal questions concerning constitutional issues. Some cities and counties have delayed service of process, and others, including Miami and Wayne County, have amended their pleadings to add additional allegations. Additionally, one gun manufacturer, Davis Industries, filed for bankruptcy protection in late June, 1999. Its ownership attributed the filing to the gun industry lawsuits.19
The press has also reported that certain cities have offered to settle, with no money changing hands, in exchange for increased self-regulation.1 The proposed self-regulation could include limitation on numbers of sales, policing of retailers and incorporation of warnings and safety devices.
3. Coverage Issues
According to press reports, most insurers have responded to claims for coverage by reserving their rights to deny or challenge coverage. In the one pending coverage action in federal court in Louisiana, the insurer recently filed a summary judgment motion, which is attached to this paper. Some of the coverage issues identified in this paper are at issue in that action.
a. "Occurrence"
Since 1986, standard form CGL policies have defined an "occurrence" as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions." Older occurrence definitions include the language "neither expected or intended from the standpoint of the insured." This language is now more commonly incorporated into a separate intentional acts exclusion.
In Minnesota, there are three elements to establishing an occurrence under a liability policy: (1) an accident; (2) resulting in bodily injury or property damage; and (3) neither expected nor intended by the insured. Johnson v. AID Ins. Co. of Des Moines, Iowa, 287 N.W.2d 663, 664 (Minn. 1980).
Insurance carriers facing gun liability claims will likely argue that the allegations against the manufacturers, retailers and trade associations do not meet the required elements of an "occurrence." Rather, the insurers may assert that allegations concerning product design defects (failure to incorporate existing safety trigger locks or fully-disengaging magazine clips) and wrongful sales (straw purchasing, saturation of markets and negligent retailer supervision) are merely the non-fortuitous result of the defendants business decisions B and are not the type of risk that falls within the definition of an "occurrence."
The Minnesota Supreme Court, in Franklin v. Western National Mutual Ins. Co., recently held that "a highly predictable outcome" of a business decision does not constitute an occurrence under a CGL policy:
Under the facts of the present case, Western National did not have a duty to defend Franklin in what was essentially a breach of contract claim. Franklin made intentional decisions, not to comply with the Laudenbachs' notice to vacate and to commence ... suit against the Laudenbachs. The Laudenbachs' response was a highly predictable outcome of Franklin's business decision and does not qualify as an "occurrence" under the CGL policy.21
Similarly, the Eighth Circuit, applying Minnesota law, has held that "if an insured is alerted to a problem, its cause, and knows or should known of the likelihood of the problem's recurrence, it cannot ignore such problem and then look to its insurer to reimburse it for the liability incurred by reason of such inaction."22 Depending on the particular suit and allegations at issue, insurers may cite to cases similar to Franklin in arguing that the occurrence definition is not satisfied.
Policyholder counsel will likely argue that the definition of occurrence is satisfied because an occurrence includes "continuous or repeated exposure to substantially the same general harmful conditions." They may further argue that firearm designs and sales are intended to protect lawful owners, not cause expenses to be incurred by cities and counties, as is alleged in some suits.
Also, in asserting their respective arguments concerning the existence of an "occurrence," policyholder and insurer counsel must consider issues concerning the numbers of alleged occurrences, which could impact deductibles and aggregate limits.
b. "Bodily Injury"
Perhaps the most obvious coverage issue presented is whether "bodily injury" is alleged in the firearms lawsuits. The Insuring Agreement, and the definition of "bodily injury" in the current ISO CGL policy state:
We will pay those sums that the insured becomes legally obligated to pay as damages because of "bodily injury" . . . to which this insurance applies.
"Bodily injury" means bodily injury, sickness or disease sustained by a person, including death resulting from any of these at any time.
The carriers will likely argue that the governmental subdivisions filing suit did not suffer bodily injury. The definition is only satisfied if bodily injury is sustained by a person. Since the suits do not seek to recover on behalf of those suffering bodily injury, the carriers will likely argue the suits are not within the scope of the insuring agreement.
Insurers may also rely on those cases in some jurisdictions which limit "bodily injury" to actual physical injury. For example, in Clemens v. Wilcox,23 the Minnesota Supreme Court held that bodily injury "means physical injury and does not include nonphysical harm such as mental suffering and emotional distress." Loss of consortium has also been held to be outside the definition of bodily injury.24 Citing these types of cases, the carriers may argue that the respective cities and counties have failed to state a claim for physical injury itself.
Policyholder counsel have anticipated this argument, and will likely argue that the Insuring Agreements of the policies provide coverage despite the absence of bodily injury by the municipal claimants. The policyholder law firm of Anderson, Kill and Olick, P.A., asserts such an argument in its on-line newsletter:
Typically, comprehensive general liability policies provide coverage for "all sums" which the policyholder is legally obligated to pay "as damages because of bodily injury or property damage ...." Some standard forms deviate slightly from this language, substituting "on account of" for "because of." This coverage grant does not only apply to liability for bodily injury or property damage. It also provides broader coverage, for liability "because of" bodily injury or property damage.
Government efforts to recover the costs of treating victims of hazardous products fit within this coverage. The government's expenses were incurred "because of" bodily injury in the sense that they would not have been incurred but for bodily injury to the patients they treated. There is no requirement in the policies that the liability incurred by the policyholder be owed to the individual who suffered the bodily injury. Indeed, such a limitation would make no sense given the purpose of comprehensive general liability insurance, which is to provide broad coverage for all liabilities not specifically excluded.25
c. As Damages
As stated above, the ISO CGL Insuring Agreement provides that the insurer will pay "those sums that the insured becomes legally obligated to pay as damages because of 'bodily injury' ...." Historically, insurers have argued that the term as damages does not include claims for equitable relief. This defense to coverage has been the subject of extensive litigation in the past decade in the context of policyholder claims for government-imposed orders to clean up pollution.
Insurers will likely argue that the claims by the governmental subdivisions are equitable in nature, and as a result, seek relief which cannot be afforded under a liability policy. In support of this argument, the insurers may refer to public statements made by certain of the mayors and public officials to the effect that the suits would settle, without money changing hands, if the gun industry changed certain of its methods of operations. Insurers may argue that they lack the ability to resolve such claims under the terms of the policies because the cities and counties are not seeking damages.
In response, the gun manufacturers and retailers may argue that the phrase as damages is not limited to equitable relief, and that the policy requires a defense even if the insurers cannot resolve the suit by payment of money damages. In Minnesota, policyholder counsel will likely attempt to draw analogies to the environmental coverage cases.
For example, in Minnesota Mining Mfg. Co. v. The Travelers Indem. Co., the Minnesota Supreme Court rendered a decision, in response to a certified question from the federal district court, that the term "as damages" was ambiguous in the context of liability for response costs under the Minnesota Environmental Response and Liability Act. In a five to four split decision, the court stated:
We conclude that the policy language "damages because of ... property damage" is ambiguous with regard to the costs of the MPCA-mandated clean up. The ambiguity in this context must be construed against the insurers to give effect to the reasonable expectations of the insureds. We are not "opening the door," as the insurers assert, to insurance coverage of all business expenses which are mandated by the government, such as the costs of complying with OSHA safety regulations or an order by a fire marshall to make property owned by the insured safer against the risk of fire. These types of costs are not covered by the insurance policy simply because no property damage has occurred.26
Insurer's counsel will likely try to distinguish the holding in 3M, or seek to challenge the holding based upon the sharp division and the changes in the make-up of the supreme court.
a. Personal And Advertising Injury Liability Coverage Issues
The Broad Form Endorsements to many CGL policies (or Coverage B under more recent policies) provide coverage for advertising and personal injury liability coverage. Unless the complained of act alleged in a complaint falls within one of the enumerated offenses covered by the policy, there is no coverage.
The current ISO CGL policy defines personal and advertising injury as the following enumerated offenses: false arrest, detention, imprisonment, wrongful eviction, slander, libel, violation of a right of privacy, use of another's advertisement or infringing upon another's copyright or trademark.27 Prior ISO CGL forms included the enumerated offenses of piracy, defamation and unfair competition.
Policyholder counsel will likely argue that, in those cases in which a nuisance claim is included in the lawsuit (such as the City of Cincinnati Complaint), the claim falls within the right of privacy offense. The Anderson, Kill on-line newsletter advances such an argument:
The "Broad Form Endorsement" to the comprehensive general liability (CGL) insurance policy offered in the past provided insurance coverage for "personal injury," including the offense of "wrongful entry or other invasion of the right of privacy or occupancy." Some courts have held that acts which fall within the common law doctrine of nuisance are included in this offense. Government nuisance claims relating to potentially hazardous products, such as those asserted against gun manufacturers, should fit within this personal injury offense.28
Additionally, policyholder counsel may try to argue that certain statutory claims fall within one or more of the enumerated broad form offenses.
The insurers will likely argue that the tort of nuisance, and any statutory claims which may be asserted, are not enumerated, and therefore, not covered under the broad form endorsement.
b. Other Coverage Issues
There are other arguments which may be advanced by insurers and policyholder counsel. Some of the coverage issues may include:
- Arguments by the insurers that liability coverage was never intended by the contracting parties to cover the unique suits in question (reformation).
- Arguments by carriers with policy periods predating relevant statute of limitations that there is no coverage. Policyholders will likely counter by arguing that municipal problems predating the statute of limitations may not have been detected or manifested until more recently. The appropriate trigger, if one or more occurrence is determined to exist, will need to be resolved.
- Arguments by carriers that public policy should prohibit liability coverage for such suits.
- Arguments relating to separate policy limits for products/completed operations hazards.
- Arguments relating to non-fortuity, including loss in progress, known loss and known risk.
- Arguments relating to the application of the intentional acts exclusion.
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1 The views expressed in this article are solely those of the author. They do not necessarily reflect the views of any client of Larson • King, LLP or of the firm itself.
2 Adam Eventov, Insurance Coverage May Be a Problem for Gun Makers Facing Lawsuits, The Business Press, Knight Ridder/Tribune Business News, Mar. 1, 1999.
3 Scottsdale Ins. Co. v. National Shooting Sports Foundation, Inc., Civ. No. 99-0090 (E.D. La. Jan. 11, 1999), reported in 9 Mealey=s Emerging Ins. Disputes 3 (May 6, 1999).
4 Press Release, July 12, 1998, http://www.firearmslitigation.org/naacp.html
5 Information concerning the Center to Prevent Handgun Violence may be found at http://www.handguncontrol.org.
6 Peter J. Boyer, Big Guns, The New Yorker (May 17, 1999).
7 Some suits additionally assert that the firearms are defective in that the serial number of the weapons are easy to obliterate, resulting in increased illegal trafficking of firearms.
8 William Greider, Will The Smart Gun Save Lives?, Rolling Stone (Aug. 6, 1998).
9 Mayor Marc H. Morial et al. v. Smith & Wesson Corp. et al., Case No. 98-18578 (Orleans Parish, Oct. 30, 1999), at p.2, &5.
10 City of Atlanta v. Smith & Wesson Corp. et al., Case No. 99VS0149217J (Fulton Cty., Feb. 5, 1999) at p.10, &&37-38.
11 Edward H. McNamara, Wayne County Executive et al. v. Arms Technology, Inc. et al., Case No. 99-912662NZ (Wayne Cty., April 26, 1999), at pp. 22, 24, && 72, 77a.
12 James K. Hahn, City Attorney of the City of Los Angeles et al. v. Arcadia Machine & Tool et al., Case No._______, (Los Angeles Cty., May 25, 1999), at &&97-99.
13 The City of Atlanta v. Smith & Wesson Corp. et al., supra, at p.20, &84.
14 Mayor Marc H. Morial et al. v. Smith & Wesson Corp. et al., supra, at p.17.
15 La. Rev. Stat. ' 1797.1, subd. 1 (1999).
16 Ga. Code Ann. ' 516-11-184(6)(2) (1999).
17 H.R. Bill 1032, 106th Congress, 1st Session (1999).
18 Senate Bill 686, 106th Congress, 1st Session (1999).
19 Fox Butterfield, Lawsuits Lead Gun Maker to File for Bankruptcy, New York Times, June 24, 1999.
20 Paul M. Barrett, Some Cities Revive Effort to Settle Firearm Suits, Wall Street Journal, May 10, 1999.
21 Franklin v. Western National Mutual Ins. Co., 574 N.W.2d 405, 408 (Minn. 1998).
22 Diocese of Winona v. Interstate Fire & Cas. Co., 89 F.3d 1386, 1392 (8th Cir. 1996).
23 392 N.W.2d 863, 866 (Minn. 1936).
24 Sicoli v. State Farm Mut. Ins. Co., 464 N.W.2d 300, 303 (Minn. Ct. App. 1990).
25 Finley Harckham, AKO Policyholder Advisor, April, 1999 (emphasis in original).
26 457 N.W.2d 175, 184 (Minn. 1990).
27 The current ISO form provides certain limitations to some of these offenses.
28 AKO Policyholder Advisor, April, 1999.