An Illinois federal district court held, in Massachusetts Bay Ins. Co. v. Faber Bros., Inc., No. 04 C 5160, 2007 WL 1029366 (N.D. Ill. March 30, 2007), that a distributor of firearms is not covered under general liability insurance contracts for claims alleging that its sales of firearms created a public nuisance that led to bodily injuries.

Factual Background
The insured, Faber Bros., Inc., is a distributor and wholesaler of firearms. The City of New York brought suit against Faber and approximately 40 other manufacturers, distributors, and wholesalers of firearms under theories of common law and statutory nuisance, claiming that the defendants improperly sold their firearms in a manner that allowed them to fall into the hands of criminals, minors and other unauthorized users, resulting in injuries and death. Initially, the City’s suit contained causes of action against Faber based on negligence and seeking an award of compensatory damages. In January 2004, the City amended its lawsuit and dropped its claims for negligence and compensatory damages. The remaining suit raised only an equitable claim and sought only an injunction requiring abatement of the public nuisance that allegedly resulted from the defendants’ conduct.

Massachusetts Bay Insurance Company and Faber’s other general liability insurer, Hanover Insurance Company, brought suit against Faber seeking a declaration of no coverage and moved for summary judgment on the ground that the City’s underlying lawsuit did not seek covered damages.

The Court’s Decision
The federal district court granted summary judgment to the insurers. In doing so, the court held that the underlying lawsuit alleged an “occurrence,” which was defined under the relevant insurance contracts as “an accident, including continuous or related [sic] exposure to substantially the same general harmful conditions.” The court reasoned that the City claimed that Faber, among others, failed to institute appropriate marketing and distribution practices and that, by doing so, Faber continually exposed the city to the same generally harmful conditions from unlicensed firearms.

The court ruled, however, that the “occurrence” did not cause “bodily injury” or “property damage,” as required under the contracts. The court explained that the instances of bodily injury referenced in the City’s underlying lawsuit were merely evidence of the alleged nuisances. The court found this case analogous to allegations in the earlier case of Crawford Labs., Inc. v. St. Paul Ins. Co. of Ill., 715 N.E.2d 653, 657 (Ill. Ct. App. 1999), where an Illinois appellate court found that the insurer in that case had no duty to defend or to indemnify its insured in connection with an underlying suit claiming violations of a statute designed to protect drinking water, and which sought (1) civil statutory penalties; (2) an injunction; (3) restitution; and (4) reasonable attorney’s fees. Crawford held that the amounts sought, even if damages were not, “because of bodily injury.” Rather, these amounts were “because of” the alleged statutory violations. 

The Crawford court reached this conclusion even though the underlying complaint in that case contained allegations of bodily injuries, reasoning that the allegations of bodily injuries were made “not for recovery for the injured” citizens, but rather, were “offered as evidence of the problems that resulted” from the statutory violation. As a result, the amounts at issue in Crawford amounted to an economic loss that was wholly distinguishable from amounts that would have been paid as third-party damages because of “bodily injury” or “property damage.” As the Faber court concluded, the amounts at issue in the suit by the City of New York are no different.

Additionally, Faber follows a number of decisions from other jurisdictions that also have concluded that amounts sought to abate public nuisances related to firearms are not covered under contracts for general liability insurance. See e.g., Ellett Brothers, Inc. v. United States Fidelity & Guaranty Co., 275 F.3d 384 (4th Cir. 2001); Caliber One Indemnity Co. v. Kel-Tec CNC Industries, Inc., No. 6:01-cv-595-Orl-22DAB (M.D. Fla. Sept. 25, 2002).

Implications
Faber confirms that, while some lawsuits may appear to be premised on bodily injury or property damage, the suits in fact do not seek damages because of those injuries, and therefore do not trigger coverage under contracts for general liability insurance. As the Faber court concluded, the references to bodily injuries in the complaints against the gun industry serve only to exemplify the harm associated with the prolific use of handguns. These lawsuits do not, however, seek to recover anything on behalf of the victims of gun violence.  

Rather, the amounts sought seek to correct certain allegedly improper business practices. These amounts are separate and distinct from any bodily injuries suffered by citizens. Consequently, the cities’ alleged expenditures do not constitute “damages because of ‘bodily injury’” as required by liability policies.

Michael Levine of the firm’s McLean office authored this Alert.

Contacts
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Walter J. Andrews
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Lon A. Berk
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Edward J. Grass
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Paul E. Janaskie
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Neil K. Gilman
(202) 955-1674
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John W. Woods
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