Are the risks of legal gun ownership insurable? It appears that both lawmakers and insurance companies might be confused about the issue.
Billed as the world’s largest privately held insurance brokerage firm, Lockton Companies sold policies underwritten by Lloyd’s of London to New York State gun owners from January 2003 to March 2018. During this time, it collected over $12 million in premiums and over $750,000 in administrative fees from policyholders in New York State. However, the policies made no payments on any claims.
Gun Liability Insurance
These policies were placed through a program originally underwritten through Lloyd’s and later through Chubb insurance. The product provided coverage for protection to gun owners charged with a crime after using their firearm to defend themselves. The coverage included indemnity for civil settlements, defense costs, bail fees, and criminal defense. The program also offered free membership in the NRA and a 24-hour legal hotline providing information to those who may have discharged their firearm. The hotline provided advice on the proper next steps to take to avoid prosecution.
Many groups and individuals have taken issue with this type of coverage, with some referring to it as “Murder Insurance.”
New York State – Regulatory View
The New York State Department of Financial Services (DFS) declared that, for various technical reasons, this coverage is not allowed under current insurance regulations. For example, the DFS found that the NRA was marketing the policies through its organization but that the NRA was not a licensed broker in New York State. Additionally, some of the coverages in the program were found to be in violation of DFS regulations. As an example, the purchase of a policy came with a free membership. Because the membership cost more than a statutory $25, this free membership was found to be in violation of DFS regulations. The DFS also found that Lockton neglected to obtain the necessary declinations from standard markets on policies placed in the Excess & Surplus Lines Market. Additionally, the program provided coverage for criminal proceedings against policyholders, including coverage for bail, premiums on bonds, attorney consultation fees and retainer expenses, expenses occurred during the investigation or defense of criminal charges, and costs taxed against the insured or an insured resident family member in a criminal proceeding arising out of a shooting.
For those unfamiliar with standard personal lines or commercial lines liability policies, injuries that occur due to the use of a firearm are not always covered events. Insofar as a shooter intends to aim at a target with the intent of hitting it, this behavior would typically be excluded under a standard personal lines or commercial lines liability policy. Most policies exclude intentional acts. Coverage is still typically supplied for incidents involving the accidental discharge of a firearm or an injury resulting from the negligent handling (or aiming) of such a firearm.
The only way to protect a firearm owner from damages that arise out of his or her own willful conduct would be to create a new type of policy specifically designed for this risk. Unfortunately, it appears that, in many respects, this type of policy is not allowed in New York State.
Legislative Initiatives
Despite the technical legal problems associated with this type of coverage, some lawmakers feel that insurance protection should be required for gun owners. In January 2013, State of New York Assembly Bill A3908 proposed that owners of firearms must obtain liability insurance with coverage of at least $250,000. Current Assistant Speaker Felix W Ortiz proposed this bill.
On the federal level, Carolyn B. Maloney, a Democrat from New York, proposed in 2013, and again in 2017, HR 1708, the Firearms Risk Protection Act. This bill would amend the federal criminal code to prohibit a firearm purchase buy or sale to a person who lacks a qualified liability insurance policy. Such a policy is described as one that: 1) covers the purchaser specifically for losses resulting from the use of the firearm while the purchaser owns that firearm and 2) is issued by an insurer licensed or authorized by the state in which the purchaser resides.
Most recently, New York Assembly Bill 2857, which Senator Kevin S. Parker introduced in 2017, proposed that those who own firearms or intend to purchase firearms be required to obtain and continuously maintain a policy of liability insurance in an amount not less than $1 million, specifically covering damages resulting from a negligent or willful act. As a reminder, a standard general liability policy already provides coverage for incidents arising out of negligence. It does not provide coverage for willful acts.
The debate over the Second Amendment continues. However, it now appears that a new debate has arisen as to whether Second Amendment supporters must insure their activities. There is obviously a clear contrast between what a gun ownership liability policy should look like and what New York State would allow such a policy to look like.