Court rules insurer isn't required to defend ghost gun case

Granite State sought a court declaration that it owed neither defense nor indemnity to Rainier with respect to the underlying suits. Rainier, in turn, sued for breach of contract and breach of good faith and asked the court to declare that it was owed coverage by Granite State.

Deliberate conduct

Though the parties were physically in New York, they implicitly agreed that Washington law would apply. Therefore, the judges in this case applied Washington state law.

Granite State’s primary argument against providing indemnity or defense to Rainier was how none of the underlying suits were based on an “occurrence” within the meaning of the policy. An “occurrence” under the policy meant “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” The policy did not, however, define “accident,” so the court applied “the ordinary, popular meaning” of the term.

Washington case law had consistently held that an “accident” referred to “an unusual, unexpected, and unforeseen happening” (quoting Grange Ins. Co. v. Brosseau, 776 P.2d 123 (Wash. 1989)). That court had also stated that, absent any extraordinary, unforeseen event, an “accident” was impossible in the presence of purposeful, deliberate actions. In this context, the judges determined that “deliberate” meant “one with awareness of the implications or consequences of the act” (quoting Nationwide Ins. Mut. Co. v. Hayles, Inc., 50 P.3d 589 (Wash. Ct. App. 2007)).

In this case, each of the underlying lawsuits alleged “deliberate” conduct by Rainier that contravened federal and state public safety laws. One suit claimed the gun manufacturer intentionally created gun frames without stamping those frames with a serial number and advertised that the frames were “easily convertible” into an actual, functioning weapon.

In one advertisement, Rainier stated that a certain gun frame was “not at the stage of manufacturing to meet the ATF definition of a firearm frame. This means that this item can ship straight to your door, with no Federal Firearms License Required” (emphasis added). These marketing practices, alleged the lawsuits, were specifically designed to evade gun control laws and attract customers who, for whatever reason, were legally prohibited from possessing a firearm. Moreover, since Rainier did not conduct a background check, alleged one complaint, it meant the manufacturer sold the gun frames “in the full knowledge that many of these consumers cannot and should not have a deadly weapon, without applying any internal controls to verify the identity of their customer and the appropriateness of their sale” (emphasis added).

Didn’t mean it

Not one complaint contained any statement that suggested anything other than intentional conduct on the part of Rainier. Rainier, however, argued that the harms described in the underlying suits were unintended, so there was an “accident,” and therefore an occurrence, that Granite State was obligated to cover.

The court shut down this argument quickly. Even assuming Rainier’s claim was true, the argument could not stand up under existing case law. The nature of an accident is determined by deliberate conduct. Whether the results of an action were or were not intended is irrelevant.

Negligence per se and negligent entrustment

Rainier then argued that the complaints also alleged negligence per se and negligent entrustment, and negligence by definition cannot be deliberate. In the light most favorable to Rainier, the allegations of negligence would trigger Granite State’s duties to defend and indemnify Rainier.

The court struck down this argument as well. Even claims of negligence, according to the court, are based in some form of conduct. As stated above, none of the allegations in the lawsuits against Rainier described anything other than deliberate conduct. Rainier had been negligent per se when it intentionally sent gun frames lacking serial numbers to consumers. The charge of negligent entrustment went back to Rainier’s deliberate failure to conduct background checks and how the company’s ads flaunted “the untraceability of their products.”

Products-completed operations hazard

In its final argument, Rainier claimed the suits came under the products-completion operations hazard portion of Granite State’s policy. That coverage was written with Rainier’s deliberate conduct–i.e. sales–in mind.

This argument was unavailing. Finding coverage under the products-completed operations hazard still necessitated the finding of an “accident” on Rainier’s part. As stated above, each of the complaints filed against Rainier alleged deliberate conduct and nothing else. Washington case law held that deliberate behavior negated the possibility of an accident “some additional unexpected, independent, and unforeseen happening occurs that brings about the harm.” No such intervening event existed for Rainier.

Conclusion

Since there was not an “occurrence” within the meaning of the policy, coverage did not apply to the suits against Rainier. If coverage did not apply, it was not possible for Granite State to have breached its contract with Rainier. The judges ruled in favor of Granite State.

Editor’s Note: As this case shows, just because the results of an action were unintended or unexpected does not mean the action itself was an accident. For example, say you throw something to a co-worker in the mail room. You miss and hit the new printer instead, causing damage. You would be on the hook for that damage because, even though you meant to throw the object to your co-worker instead of at the printer, you deliberately threw the object. The operative event in this situation is your choice to throw the object, not what happened after you threw it.

This article originally appeared on PropertyCasualty360 FC&S Coverage Interpretation and may not be reprinted.

Related:

• Appellate court sides with insurer in roofing dispute
• Bar brawl bad faith case sent to jury trial
• Progressive Insurance, Toyota face data-sharing class action