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Underwriting & Loss Control
Gun Manufacturers Lose Legal Challenge to New York Law

Best’s Underwriting Reports and Best’s Loss Control Reports provide insight into the lines of coverage, exposures and loss control for gun manufacturers.
  • Best's Review Staff
  • August 2022

Gun manufacturers have lost a legal challenge to a New York law that allows firearm sellers, manufacturers and distributors to be sued by the state, cities or individuals for creating a “public nuisance” that endangers the public's safety and health.

U.S. District Judge Mae D'Agostino in Albany rejected a request by the National Shooting Sports Foundation and gun manufacturers, including Smith & Wesson Brands Inc. and Sturm, Ruger & Co. Inc., to enjoin enforcement of the statute.

The National Shooting Sports Foundation, a trade group for the firearms industry, has said it plans to appeal.

The ruling comes amid growing pressure for tougher gun regulations after fatal mass shootings in Buffalo, New York and in Uvalde, Texas earlier this year.

Former New York Governor Andrew Cuomo in July 2021 signed the legislation making it easier to bring civil lawsuits against gun manufacturers and dealers by bypassing blanket immunity provided to the industry under federal law, according to a Bloomberg report.

Other gun control legislation has been gaining traction at the federal and state level.

Related: Four Insurers to Cover $73 Million Sandy Hook Settlement

The Senate passed a bipartisan measure in June, which includes enhanced background checks for those under 21, funding for mental health and school safety, incentives for states to implement “red flag” laws and limits on the “boyfriend loophole.”

A recent settlement between a gun manufacturer and victims of the Sandy Hook school shooting could also embolden other plaintiffs, according to The Hill.

Earlier this year, the gun manufacturer Remington reached a settlement with the families of nine victims of the 2012 Sandy Hook school shooting. The lawsuit argued that the manufacturer's marketing of the weapon had violated Connecticut consumer law, according to The New York Times.

The financial settlement is being paid by insurance companies that had represented Remington, which is in bankruptcy.

Best's Underwriting Reports identifies 10 lines of coverage for gun manufacturers: Automobile Liability, General Liability: Premises and Operations, General Liability: Products – Completed Operations, Workers' Compensation, Crime, Property, Business Interruption, Inland Marine, Equipment Breakdown and Cyber Insurance.

Best's Hazard Index ranks the risk exposure for the lines of business as Low (1-3), Medium (4-6), High (7-9) and Very High (10).

Following are excerpts of the Lines of Coverage reports that have the highest hazard index rankings.

 

Best’s Hazard Index

Line of Coverage Best’s Hazard Index
General Liability: Products – Completed Operations 10
Inland Marine 8
Crime 6
Cyber Insurance 6

Lines of Coverage


General Liability: Products – Completed Operations

Gun manufacturers will face a severe General Liability: Products – Completed Operations exposure due to the potential of critical injury or death from defective or malfunctioning guns. Claims could also arise from the inadequate testing of guns, inaccurate or confusing product instructions and warnings, the distribution of defective products and the use of guns that are recalled or discontinued.

Related: California Lawmaker Wants Gun Owners to Purchase Cover For Negligence, Misuse

Inland Marine

There will be a serious Inland Marine exposure for gun manufacturers. If the insured offers delivery services to customers, Transit coverage will be needed. For those that offer gunsmithing and warranty services, Bailee coverage will likely be necessary for customer-owned guns that are shipped to the insured and left in its care, control and custody. Valuable Papers and Records will be necessary to protect important documents, such as gun patents, contracts with dealers and gun retailers, and information for law enforcement agencies. An Equipment Floater will be needed for hand tools and equipment, portable electronic devices, and mobile equipment.

Crime

There will be a significant Crime exposure for gun manufacturers. Typically, there is little cash kept on the premises because transactions are normally made by check, electronic funds transfer (EFT), or credit/debit card. However there may be an employee dishonesty exposure from the potential pilferage of guns, ammunition, gun parts (e.g. frames, slides, plates, movable parts, and more), or embezzlement.

Cyber

Gun manufacturers will experience a significant Cyber Insurance exposure. They must be able to guard valuable data that is stored on their servers. Therefore, protecting and maintaining the insured's computers, servers, and networks, both physically and digitally (e.g., from computer viruses or hacking attempts) is essential.

 

Loss Control


On-Site Inspection:

  • What are the types and amounts of products made by the gun manufacturer?
  • Are warning labels attached to all guns?
  • No outward indication on the trailer of what is being hauled?
  • Are delivery vehicles equipped with anti-theft alarms?
  • Have surveillance cameras been installed in loading dock areas?
  • What is the level of security on the premises?
  • Does the insured have a wired or wireless computer network?
  • Does the insured keep computer servers on the premises, or is this service contracted out to a third-party (i.e., cloud computing) provider?

For more on this and other risk classifications, visit Best's Underwriting & Loss Control Resources.



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